The Political Economy of Transition: Coming to Grips with History and Methodology

The recent near-global interest in “liberalization” policies has fired anew much ideology in riling against the activist state. In some of the more extreme cases, the position taken has slipped into libertarian, quasi-anarchist directions or even anarcho-capitalist dimensions (Buchanan 1987). This movement in market economies found an avidly enthralled, if on the whole naïvely informed, audience upon the transition’s eruption. In rationalizing neoliberalism as a powerful ideology, indeed an instrument to influence events there, it has especially taken the rhetorical form of lambasting the role of the state. Its economic functions in particular have been under constant attack as being predatory, wasteful, rent seeking, too large, klepto-patrimonial, and so on. Efforts were launched from the beginning to compress the role of the state, in some cases with the explicit intention of reducing its economic involvement to that of the night watchman, that is, essentially protecting property rights and creating and maintaining the liberal market framework come what may (Sztompa 1996a).

Yet socioeconomic order without a functioning state is not readily imagined in the real world. Few would contest this position (J. Gray 1989, 1992). The market defects for which state intervention may be needed are perhaps nowhere as blatant as in transition economies (see Chapter 3). At the same time, the capacities of the state in these countries to fulfill roles that it would be accorded even in the more liberal market environment are rather limited, though varying by country. This poses a dilemma for policy making. The new leaders of the European, as distinct from the Asian, reforming countries, have displayed considerable enthusiasm for the market, private ownership, and privatization. This derives in part from the abundant support they have elicited from the most avid “free market” proselytizers in the west. But it stems also from the conjecture that “in economics and politics, as in religion, the new convert is often the most ardent in belief” (Galbraith 1990, p. 51).

In this chapter I examine why and when there could be a broader role for the state in formulating, implementing, monitoring, assessing, and fine-tuning the transformation agenda. This complements the introductory remarks on the role of the state in market formation of Chapter 3 and provides details on the

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