Academic journal article Atlantic Economic Journal

Transition on the Spot: Historicity, Social Structure, and Institutional Change

Academic journal article Atlantic Economic Journal

Transition on the Spot: Historicity, Social Structure, and Institutional Change

Article excerpt

SILKE R. STAHL-ROLF [*]

Why do some countries in transition perform quite well while others still struggle with institutional reform, experiencing economic hardship and political disintegration? This paper suggests that this question can only be answered if the processes behind institutional change are well understood. Within the framework of a micro-macro model, it will be argued that historic experience shapes both mental models and the effectiveness of social learning. The historicity of economic development is behind differing development paths. Moreover, it will be shown that understanding the forces that bring about institutional change allows the political advisor to suggest strategies better adapted to the specific needs of different countries than the strategies currently employed. These findings will be applied to the problem of institutional change in rural Russia where the failure of existing reform strategies is eminent. (JEL D83, 012, P21, P32)

Introduction

Almost 10 years of transition policy have led to very different outcomes in the various former socialist states of middle and eastern Europe. Whereas some countries continue to struggle with financial crisis and decreasing output, others are experiencing growth and increasing economic prosperity, resulting in very different growth paths and leading to very distinct development prospects in the long run.

This divergence in macroeconomic indicators between countries like Poland, Hungary, the Czech and Slovak Republics, and Slovenia on one hand and Bulgaria, Romania, Russia, and the Ukraine on the other is usually explained by their differing degrees of political stability and divergent institutional settings [Furubotn, 1992; Menshikov, 1994; Voigt, 1993]. Thus, to understand why such striking differences in development patterns can be found in middle and eastern Europe, it is necessary to investigate why the institutional settings are that different. Moreover, to evaluate the future prospects of these countries, insight must be gained into the dynamic forces that bring about institutional change.

The second section discusses some general shortcomings of transition theory, especially of that based on new institutional economics. The third section builds on these insights and provides an outline of a theory of the evolution of so-called 'factual institutions." In the fourth section, these general findings are applied to the development of property right structures in rural Russia. The paper concludes with some remarks concerning possible policy implications.

Shortcomings of the New Institutional Approach to Economic Transition

A large and influential part of the literature on economic transition is based on the framework of new institutional economics, which seems predestined to be a theoretical tool in the transition debate. Institutional economics investigates the change and the impact of economic institutions, the two topics at the core of the transition debate. The change from plan to market is, in its very nature, a phenomenon of institutional change and the necessity of transforming an economic system, apart from the aim of personal freedom, is most often explained by the benefits of a market-based system with respect to economic performance.

Contributions based on the insights of new institutional economics judge the efficiency implications of different institutional settings in various countries [Pejovich, 1994]. They describe advantageous institutional arrangements [Menshikov, 1994] and predict future development by extrapolating existing historical trends [Voigt, 1993]. This perspective is quite useful in evaluating the existing structures by investigating their efficiency implications and in recommending institutional arrangements. However, the question, of course, is how can these arrangements be reached, or how can institutions change or be changed? Such knowledge alone will allow the economist to recommend political strategies aiming at influencing the pace and direction of institutional change. …

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