Changing Political Economies: Privatization in Post-Communist and Reforming Communist States

Changing Political Economies: Privatization in Post-Communist and Reforming Communist States

Changing Political Economies: Privatization in Post-Communist and Reforming Communist States

Changing Political Economies: Privatization in Post-Communist and Reforming Communist States

Excerpt

The economic architects of the post-Communist governments of East European and former Soviet Union republics, who are engaged in the heroic search for how to transform their backward economies into efficient and competitive ones, have turned to Western experts for help and advice. Interestingly, as Thomas Rawski argues in Chapter 2 of this volume, the advice given by some economists to these governments often sidesteps the basic rules of economic science in favor of quasi-theological dogma. This dogma, which finds a receptive audience in some university economic departments and powerful international organizations, is quite straightforward: introduce free prices, remove subsidies, open your economies to international trade, make your currencies freely convertible, tighten fiscal and monetary policy, quickly privatize state-owned enterprises, close inefficient plants, and lay off redundant workers.

The reform package offered to East European reformers required two unmistakable elements that were said to be necessary for success: coherence and optimal pace. Coherence implies that to be successful in the historic transition from centrally planned to market-driven economic systems, reformers "have little choice but to move on all fronts at once—or not move at all." In other words, implementing some aspects of the reform program, such as price liberalization, while avoiding the pursuit of others, such as the privatization of state-owned enterprises (SOEs), would destroy the logic of the whole package and result in perverse forms of economic behavior. This idea is why reformers believe the optimal pace of the reforms is the fastest one—the so-called "shock-therapy" or "cold-turkey" approach.

The radical experts who advocate this approach are aware of the immediate implications of the program, and they acknowledge that the radical reform program would involve costs such as higher prices, unemployment, lost income, and more foreign debt. Yet they claim that these are short-term effects that will be offset by the longer-term benefits bound to accrue from . . .

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