Papers on the Strategy of Reforms

In the early 1990's, I published several papers analyzing the strategy of reform in transition countries. Links are listed below. Although these papers are published in a variety of places, they form a coherent collection.

Evolution in Economics and in the Economic Reform of the Centrally Planned Economies
Published in Christopher C. Clague and Gordon Rausser eds. The Emergence of Market Economies in Eastern Europe, Blackwell: Cambridge, Mass., 1992.
This paper presents an evolutionary approach to reform. Economic theories building upon Schumpeter's views of organizational change provide the basis for this approach. The evolutionary perspective suggests that the economic reform process should be gradual. More importantly, these theories suggest that economists should be wary of emphasizing the benefits of mass privatization and instead should focus on the positive effects of building a market economy by encouraging the growth of a nascent private sector. Two conclusions on institutions result. First, there should be an immediate focus on building the new economic institutions for the capitalist society. Second, reformers need to take a pragmatic view of the old institutions, using them in the first phases of transition when the old state sector is large and the new capitalist institutions are still being developed.

Conservative Political Philosophy and the Strategy of Economic Transition
East European Politics and Societies Vol. 6, No. 1: Winter 1992.
Social sciences do not focus their efforts on processes of socioeconomic change; concern traditionally has been on end points. The focus on end points obscures discussion of how to bring about viable changes, because it leads to lack of reflection on the learning processes which accompany -- and drive -- socioeconomic change. These lacunae have become increasingly apparent as scholars apply existing theories to the most momentous economic changes of our times -- the East European economic revolutions. One important scholarly tradition has placed the analysis of change at the center: conservative political philosophy, which offers lessons for the processes of economic change in East Europe. The present paper draws on this tradition--particularly the works of Oakeshott and Popper. A central concern of conservative political philosophy is the way that societies use the knowledge that is available to them. The distinction between technical and practical knowledge is important, as is the distinction between utopian and piecemeal engineering. These distinctions and the theories of Popper on social change are used to argue that the productivity of piecemeal, reversible changes will be much greater than that of utopian schemes for system redesign. This implication bears heavily on many issues related to the economic reforms in Eastern Europe. Two areas specifically addressed in this paper are privatization and workers' management. The central ideas of conservative political philosophy are used to contrast the properties of schemes of mass privatization versus less centralized, gradualist approaches to privatization. The latter relies on traditional market mechanisms, while mass privatization uses untested constructs based on new theoretical designs. The absence of reversibility in mass privatization, the use of untested schemes, and the incongruity between the practical knowledge needed to implement such schemes and that available in society all imply that mass privatization is an unproductive, and possibly dangerous, route.

What is Shock Therapy? What Did it Do in Poland and Russia?
Post-Soviet Affairs, April-June 1993.
The paper considers Polish and Russian reforms in the context of the debate over the advisability of shock therapy programs. The vision implicit in shock therapy is described and contrasted with an alternative, evolutionary viewpoint. Polish reforms are examined, showing that shock therapy was not the primary force behind Poland's significant gains. In Poland and Russia, shock therapy failed in its goal of implementing top-down reforms, by-passing existing political and social forces. In Russia, shock therapy's focus on destruction of the old, rather than creation of new market institutions, was highly significant, given the lack of previous economic reform in the USSR. Poland's successes were partly due to the fact that the program of shock therapy was blocked by Polish society and politics. In Russia, the absence of strong social and political institutions meant that the destructive forces of shock therapy were successful, while the construction of new market-economy institutions proceeded slowly.

Can Neoclassical Economics Underpin the Economic Reform of the Centrally-Planned Economies?
Journal of Economic Perspectives, Fall 1991.
This paper addresses whether neoclassical economics can provide the intellectual underpinning for a theory of reform. It asks whether the neoclassical model satisfies an essential condition to qualify for this role: does it give us a satisfactory explanation for the vast differences in performance between capitalist and socialist economic systems? There are two major elements in the answer to this question. First, there are the theoretical arguments that have traditionally been used to examine the comparative properties of central planning and markets. The paper shows that developments within theory over the last twenty years have substantially changed the tone of these arguments, making their message more equivocal. Second, the paper discusses empirical evidence, but of a particular sort. Much research shows that centrally planned economies perform less well than market economies; that fact is not in dispute. But few studies test whether the superiority of market economies appears within empirical models derived using the framework of basic neoclassical economics. Those studies are the relevant ones for the present exercise. It should be emphasized that the paper addresses only the usefulness of neoclassical theory as the broad underpinning for reform, not on the necessity of reform. Clearly, central planning has performed poorly. Real-world market economies, moreover, must contain many useful lessons for reforming economies. The issue addressed here is whether those lessons are best extracted using the filter of neoclassical theory. The central conclusion is that economists must look outside the standard models of competition, the focus on Pareto-efficient resource allocation, and the welfare theorems to build a theory of reform.

The Relationship between Economic Growth and the Speed of Liberalization During Transition
(co-authored with Berta Heybey) Journal of Policy Reform, 1999.
We examine existing results that analyze the effect of speed of liberalization on growth during transition. We highlight methodological problems in existing studies, noting the existence of simultaneity and the use of variables that are not valid measures of the phenomena they supposedly represent. We implement solutions to those methodological problems, examining the simultaneous relationship between growth and speed of liberalization. Initial conditions are much more important than policy changes in determining growth performance in the first four years of transition. Growth performance during the early years of transition has a strong effect on liberalization speed, but in contrast to previous results we find that there is no significant effect of the speed of reforms on growth.