Toward Capitalism or Away from Russia? Early Stage of Post-Soviet Economic Reforms in Belarus and the Baltics. (New Perspectives on Transition Economics: Europe)

By Savchenko, Andrew | The American Journal of Economics and Sociology, January 2002 | Go to article overview
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Toward Capitalism or Away from Russia? Early Stage of Post-Soviet Economic Reforms in Belarus and the Baltics. (New Perspectives on Transition Economics: Europe)


Savchenko, Andrew, The American Journal of Economics and Sociology


I

THE COLLAPSE OF THE SOVIET SYSTEM revealed not only the inadequacy of its socioeconomic and political structures but also the lack of suitable explanatory frameworks. This applies both to the developments preceding the collapse and to the post-Soviet transformations. As the reforms were conducted in the dire circumstances of the unravelling Communist economies, it was only natural that many outside observers were eager to combine theoretical explanation with practical advice. However, these combinations often founded strong practical recommendations on theories that had not been tested in conditions approaching those of post-Communist economies and societies.

One of the theories developed without a specific reference to the post-Communist transition process and not intended as a foundation of policy decision making, but nonetheless used as a tool for policy formulation, was the property rights approach to economic efficiency. The authors of the original property rights theory never regarded the system of property rights as something easily changeable by policy decisions. However, as we shall see in the discussion that follows, their theory was interpreted in a way that made it a foundation for economic reform policies.

Studies of post-Soviet economic transformations, as well as recommendations for policy decisions, tend to concentrate almost exclusively on rapid government-conducted changes of the property system. The goal of the government is seen as dismantling the old Socialist system of property rights and replacing it with the economy based on private property. Only then, after a period of forceful government action, is the state supposed to assume a purely laissez-faire position in economic matters. The view of the government-originated system of private property rights as the main vehicle toward a market economy borrows its theoretical premises from the property rights approach to economic efficiency.

On a more abstract level, relations between power and efficiency within complex organizations were discussed by Armen Alchian (1950). Later, studies in economic history by Douglass North (1971, 1981) and comparative economics by Svetozar Pejovich (1969) introduced the main elements of property rights theory. These authors, each choosing his own approach to the problem and method of its investigation, convincingly argued that there is a correlation between institutional arrangements and economic efficiency.

At the start of the post-Communist economic transformations, the property rights perspective was the only theoretical paradigm that could directly address the problems of systemic transition. The other major paradigm applied to post-Communist developments, namely neoclassical economics, defined the desirable state of affairs (the free market) but did not provide specific suggestions as to how it could be achieved. At the same time, in the context of post-Communist reforms these two paradigms became compatible and mutually complementing as two parts of a single transition design.

Since in the neoliberal economic paradigm the pure and free market is regarded as the most efficient of all economic systems, a suboptimal efficiency is ascribed to non-economic forces interfering with the workings of the spontaneous market mechanism. The latter point is elaborated in property rights theory. Aichian maintains that there is a direct link between economic efficiency and political arrangements. In his view, if an economic system operates below its optimal level of efficiency, this is due to political constraints blocking rearrangements of the existing property rights structure (Alchian 1950). North establishes historical relations between the political power of the state and the property rights system. According to him, the power of the state influences the system of property rights in the following ways. First, states specify fundamental rules of the property rights structure.

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