Transition and Economics: Politics, Markets and Firms

Article excerpt

By Gerard Roland. Cambridge, MA: MIT Press. 2000. 368 Pp. $45.00 hardcover.

Transition and Economics is an outstanding advanced-undergraduate to graduate-level introduction to the rapidly growing field of Transition Economics. This new field of economics uses as its laboratory the one-third of the world's population that left the market system for central planning in the first half of the twentieth century and then launched an attempt to return to a market system toward the century's end. From an academic standpoint, this laboratory is unique because it permits researchers to examine how economies behave when markets are just being created and established phenomena of advanced economies, such as unemployment, are just starting to appear. Analysts of the transition economies are able to provide valuable information about the functioning of market economies, as well as to analyze the transition process itself. From a policy standpoint, understanding the transition process is important for the formulation of public policy in and toward these economies. Finally, the transition economies constitute an important part of the world market, and an understanding of their problems and performance is essential for the formulation of an effective business strategy in and vis a vis these economies.

The performance of the transition economies to date has also been very uneven, providing variation that analysts need in order to draw significant conclusions, showing the sensitivity of outcomes to variations in policies, and leading businessmen to select specific countries for investment. In particular, the fall of the Berlin Wall in 1989 led to a rapid demise of the Soviet system of central planning and the launch of a relatively rapid transformation of the Soviet-style centrally planned economies into ones that would be based on free prices and newly created markets. Yet, while all the former Soviet bloc countries suffered an unprecedented decline in output at the start of the transition, their subsequent economic performance diverged considerably. The Central European and Baltic countries performed relatively well, while countries further east, including Russia and Ukraine, suffered further decline in output and achieved only limited structural transformation. In contrast, China's gradual reforms since 1978 led to a remarkable transformation of the Chinese (more decentraliz ed) version of the centrally planned system and generated a long-term period of rapid economic growth. These varied outcomes naturally gave rise to a debate as to which types of initial conditions and reforms are more conducive to a successful transition.

The author presents a careful account of the main economic developments, provides an in-depth theoretical analysis of the principal issues arising in the context of the transition, and refers to much of the empirical work that has been carried out to date. The content of the book is based on a careful evaluation of most of the existing literature, to which Gerard Roland has himself contributed in an important way.

In part one of the book, Roland examines reform strategies in light of various political constraints. He presents the principal theoretical models related to the part played by ex ante and ex post political constraints and by uncertainty in the determination of optimal sequencing and speed of reforms. …