MBA in Strategy and Procurement Management International Business Environment Sunday, 16th January 2010, 9.30 a.m. - PowerPoint PPT Presentation

About This Presentation
Title:

MBA in Strategy and Procurement Management International Business Environment Sunday, 16th January 2010, 9.30 a.m.

Description:

MBA in Strategy and Procurement Management International Business Environment Sunday, 16th January 2010, 9.30 a.m. 4.30 p.m. Political Risk in Transitional Economies: – PowerPoint PPT presentation

Number of Views:165
Avg rating:3.0/5.0
Slides: 50
Provided by: coop82
Category:

less

Transcript and Presenter's Notes

Title: MBA in Strategy and Procurement Management International Business Environment Sunday, 16th January 2010, 9.30 a.m.


1
MBA in Strategy and Procurement
ManagementInternational Business
EnvironmentSunday, 16th January 2010, 9.30
a.m. 4.30 p.m. Political Risk in Transitional
Economies Russia and Emerging Europe
  • Dr. Richard Connolly
  • Centre for Russian and East European Studies
  • (r.connolly_at_bham.ac.uk)

2
POLITICAL RISK IN TRANSITIONAL ECONOMIES RUSSIA
AND EMERGING EUROPE
  • Agenda

9.30 9.45 Outline of the day why is
emerging Europe important? 9.45 10.30
Planned Economies in Theory and Practice 10.30
10.45 Break 10.45 12.30 Post-communist
Transformation in Theory and Practice 12.30
13.30 Lunch 13.30 14.45 Emerging Europe
today the global financial-economic crisis,
future challenges and political
risks 14.45 1500 Break 15.00 16.15
Russia today the global financial-economic
crisis, future challenges and
political risks 16.30 Close
3
POLITICAL RISK IN TRANSITIONAL ECONOMIES RUSSIA
AND EMERGING EUROPE
  • Why should we care about emerging Europe?
  • Population 400 million (5.7 of world
    population), more than Brazil (194 million, 2.7)
    and the USA (307 million, 4.3)
  • GDP (current US) 2.9 trillion (5 of world),
    compared to Brazil (2.7), India (2.2) and China
    (8.5)
  • GDP (PPP) 5.7 trillion (7.8), compared to
    Brazil (2.7), India (5) and China (12.4)
  • International trade share of world exports is
    9, just behind China (9.6), but ahead of Brazil
    (1.3) and India (2). For imports, share of
    world total is 8.6, ahead of China (8.1),
    Brazil (1.3), India (2.4)
  • In general, exceptionally open to international
    trade, foreign direct investment and capital
    flows.
  • Taken together, Goldman Sachs have argued that
    emerging Europe may represent the fifth BRIC,
    i.e., a region that promises to account for a
    large share of future economic growth and
    investment opportunities.
  • In recent years, consumption has grown rapidly,
    and is forecast to do so in the future as the
    region continues to converge with richer
    countries.

4
TRANSITIONAL ECONOMIES IN THEORY AND PRACTICE
  • PART ONE
  • THE SOCIALIST PLANNED ECONOMIES
  • IN THEORY AND PRACTICE

5
Transitional Economies in Theory and Practice
  • The Socialist Planned Economies of the USSR and
    Eastern Europe
  • Soviet Union 1917 end 1991 (Union of Soviet
    Socialist Republics), including Baltic States
    (Estonia, Latvia and Lithuania) incorporated in
    1940
  • Central and Eastern Europe 1945-89, including
    German Democratic Republic (East Germany).
  • Yugoslavia less rigidly planned, workers self
    management, broke with USSR in 1949
  • Albania broke with USSR 1960, became closer to
    China until c.1978
  • Plus
  • Mongolia
  • China 1949 ........
  • Vietnam, Cambodia, Laos
  • North Korea
  • Cuba

6
Transitional Economies in Theory and Practice
  • The planned economies of USSR and Eastern Europe
    - geography

7
Transitional Economies in Theory and Practice
  • The Planned Economies Principal Features
  • Ideology (Marxism Leninism), Communist Party
    rule, nomenklatura
  • Predominant state ownership variation across
    region
  • Hierarchical, bureaucratic coordination
  • Non-market resource allocation the planning
    system, material balances,
  • investment
  • Employment planning, full employment plus
    underemployment
  • Administered prices
  • Financial system passive money, dual circuits,
    state budget
  • State managed foreign trade, Council of Mutual
    Economic Assistance
  • Extensive growth model factor mobilisation,
    not their more efficient use

8

Transitional Economies in Theory and Practice
  • Resource allocation
  • A system of five-year and annual plans
  • Plans drawn up as outcome of bargaining between
    state planning committee (in USSR, Gosplan),
    ministries, and enterprises
  • Material resources planned using material
    balances - for main products balances drawn up
    indicating sources of supply and uses. Supplies
    allocated to enterprises by a state supply
    agency.
  • Prices centrally determined, i.e. not set by
    market forces use of average cost pricing, not
    marginal. Prices to a large extent arbitrary.
  • Enterprise performance assessed by fulfilment of
    a set of plan indicators
  • Bonuses for managers if principal success
    indicators fulfilled, or over fulfilled, in
    relation to the plan
  • This hierarchical, bureaucratic, economic
    management system rife with principal-agent
    problems, with substantial scope for
    opportunistic behaviour, including bargaining for
    soft plan targets, exaggerating plan fulfilment ,
    informal trading activities between
    enterprises, etc.
  • Outcome inefficiency, waste and, for
    centre, high agency costs

9
Transitional Economies in Theory and Practice
  • The Socialist Economic System according to
    Janos Kornai

Hungarian economist, born 1928 Now retired, but
in 1986-2002 spent half his time at Harvard
University
First major work Overcentralisation in Economic
Administration, 1957 (1959 in English) later,
Anti Equilibrium, 1971
10
Transitional Economies in Theory and Practice
  • Major work of Kornai Economics of Shortage,
    1980

Summary work of 1988 The Socialist System
11
Janos Kornai
Transitional Economies in Theory and Practice
  • Soft Budget Constraints
  • Budget constraints subject to bargaining
  • Soft subsidies
  • Soft taxation
  • Soft administered prices
  • Soft credit terms
  • Budget constraints most soft in priority
    sectors of the economy. Households experienced
    hard budget constraints.

12
Janos Kornai
Transitional Economies in Theory and Practice
  • With SBCs, the socialist economic system
    exhibited a number of characteristic phenomena
  • Forced growth
  • Chronic, pervasive, shortage (and slack)
  • Labour shortage and full employment, coexisting
    with underemployment
  • Low labour discipline
  • Investment hunger
  • No enterprise bankruptcy
  • Sellers market, no concern for quality except in
    military industry (cf US)
  • Repressed inflation
  • Queues, low quality, forced substitution, forced
    savings
  • Weak incentives for innovation
  • Low efficiency and productivity

13
Janos Kornai
Transitional Economies in Theory and Practice
  • The Socialist Economic System provides a
    comprehensive analysis of the classic socialist
    system a resource-constrained economy, and
    comparisons with the demand-constrained
    capitalist system.

  • Capitalism Classical socialism
  • Market regime Buyers market
    Sellers market
  • Dominant deviation
  • from market equilibrium Surplus
    Shortage
  • State of labour
  • allocation Labour surplus
    Labour shortage

14
Janos Kornai
Transitional Economies in Theory and Practice
  • In Kornais view the socialist economic
    system had considerable systemic coherence and
    was highly resistant to any reforms that
    threatened it.
  • In his view the ideological commitment to
    Marxism-Leninism was crucial, above all because
    of the central belief in the superiority of state
    ownership over private property.
  • Although in practice, was it not a case of
    excessively powerful bureaucratic and industrial
    interests.

15
Transitional Economies in Theory and Practice
  • Structural characteristics of planned economies
  • very high participation rates (but
    underemployment)
  • over-industrialised, with much heavy
    industry
  • underdeveloped service sector
  • often backward, socialised agriculture and
    relatively large agricultural
  • employment
  • trade-averse, especially USSR, although less
    so in CEE
  • in the case of USSR, a militarised economy
  • Performance
  • Growth rapid in early years, then declined
  • Efficiency - low
  • Energy/material intensive CEE dependent on
    subsidies from USSR
  • Innovation poor, except in priority
    sectors, and in Czechoslovakia, GDR
  • Standards of living low cf. West European
    market economies
  • Environment a wasteful system, with much
    environmental degradation

16
Transitional Economies in Theory and Practice
  • The planned economies failed reforms and
    collapse
  • Many attempts to reform the socialist economic
    system, but very limited success
  • USSR reforms in 1965, 1979, and finally in
    1985-91, under Mikhail Gorbachev
  • Most far reaching reforms in Hungary and Poland
    limited reforms in
  • Czechoslovakia, Bulgaria, GDR, and Romania
  • Directions of reform partial market reforms
    decentralisation, enterprise rights
  • raised cf. ministries, reduced number of
    plan/success indicators, more indirect
  • influence of state, limited price reforms,
    limited changes in property rights, partial
  • external liberalisation.
  • However, as argued by Kornai and others, the
    socialist planning system had a high
  • degree of systemic coherence and any reform
    threatening it tended to be rejected or
  • diluted.
  • Far reaching reforms also threatened to challenge
    the political legitimacy of
  • communist rule.

17
Transitional Economies in Theory and Practice
  • The planned economies collapse
  • While region had performed badly in 1980s, change
    is initiated by Gorbachev
  • USSR uskorenie, glasnost, perestroika all
    initiated to stimulate CPSU into undertaking
    reform so that socialism could become more
    efficient and competitive.
  • In 1985, Gorbachev described the USSR as in a
    pre-crisis situation same could be said for
    much of CEE.
  • New thinking designed to create more
    favourable external conditions so that reform
    could be undertaken more comfortably.
  • Sinatra doctrine an attempt to relax imperial
    burden on USSR, but had unintended consequences.
  • Some countries exhibited appetite for reform
    (e.g., Poland, Hungary), but others staunchly
    resist change (Czechoslovakia, Romania, Bulgaria)
  • However, as argued by Kornai and others, the
    socialist planning system had a high
  • degree of systemic coherence and any reform
    threatening it tended to be rejected or
  • diluted.
  • Far reaching reforms also threatened to challenge
    the political legitimacy of
  • communist rule.

18
Transitional Economies in Theory and Practice
  • Unravelling and collapse, 1989-91
  • In 1989 end of socialist system in Central and
    Eastern Europe
  • In USSR - Gorbachev reforms perestroika
    mounting crisis, eventual collapse end 1991
    outcome, 15 independent countries.
  • Features at end of the system
  • Economic decline
  • Inflation open and repressed
  • Budgetary crises
  • Macroeconomic disequilibrium
  • Balance of payments crises
  • Substantial external debts
  • Severely reduced living standards
  • Negative demographic trends
  • Growth of crime and corruption
  • ALL TO SHAPE TRAJECTORY OF TRANSITION

19
Socialism concluding thoughts
  • The performance of the socialist economies
    declined after the 1970s.
  • There were clear systemic limitations inherent
    within the system, as described by Kornai. These
    prevented a move from extensive to intensive
    economic development.
  • Technological revolution of 1970s (and rising oil
    prices) exposed these flaws (Berend, 2008)
  • Nature of collapse varied across the region some
    elite-led, some popular based, from below.
  • However, legacies of socialism would shape future
    economic and political developments.
  • While nearly all countries expressed desire to
    adopt democratic political institutions and
    create market economies, not all were able to do
    so, often because of structural impediments.

20
TRANSITIONAL ECONOMIES IN THEORY AND PRACTICE
  • PART TWO
  • POST-COMMUNIST TRANSFORMATION
  • THEORY AND PRACTICE

21
Transitional Economies in Theory and
Practice
  • The task of
    transformation in theory
  • The ultimate goal convergence with the West
  • In early years 1989 c.mid-1990s,
    predominance of so-called Washington consensus
    (a term coined by John Williamson, Institute of
    International Economics, Washington) in 1989)
  • Liberalisation and stabilisation according to
    standard methods of IMF (in particular, as
    adopted in Latin American countries)
  • Privatisation seen as essential for functioning
    markets and economic efficiency
  • Priority for deregulation, open trade, fiscal
    balance, low inflation
  • Belief that institutions arise as generated by
    market forces.
  • Became known as shock therapy, big bang
    approach, etc
  • Influential advocates include Leszek
    Balcerowicz (Poland), Anders Aslund
  • First adopted in Poland in 1990 influential
    in Russia, early 1992
  • (Gaidar government)

22
Transitional Economies in Theory and Practice
  • At this time task posed was transition from
    the planned economy to a liberal, free-market,
    economy seen as relatively unproblematic
    process.
  • Standard agenda for transition
  • Stabilisation securing macroeconomic balance
    as quickly as possible
  • (removing inflationary pressure from economy)
    monetary policy, fiscal policy
  • new taxes, budget spending cuts, etc
  • Liberalisation domestic and external removing
    administrative constraints
  • to permit markets to function (including
    freeing most prices) foreign trade
  • liberalisation, customs duties, moves towards
    currency convertibility
  • Privatisation changing property relations,
    ending dominance of state
  • Institution building especially adoption of new
    laws appropriate to a market
  • economy civil and commercial codes, company
    laws, labour codes, etc
  • Social support for those adversely affected by
    transition, including
  • unemployment benefit

23
Transitional Economies in Theory and Practice
  • However, from the outset alternative approaches
    were advocated to secure a more gradual
    transition, hopefully leading to less severe
    social costs
  • Notably, work of Peter Murrell, University of
    Maryland a gradualist view
  • based on an evolutionary, Austrian School (von
    Mises, Hayek, Schumpeter),
  • understanding of economic change.
  • Also, impact of alternative path of China
    communist rule maintained, gradual
  • development of market sector and non-state
    businesses
  • Heterodox economists (e.g., Reinert, Chang,
    Stiglitz) had criticised the application of the
    WC in practice (Latin America in 1980s and 1990s)
    for resulting in macroeconomic instability (due
    to openness to capital flows) and
    deindustrialization (as state withdrew from
    economy)
  • This view gained ground during the 1990s and the
    focus of discussion turned
  • increasingly to institutions, without attention
    to which, some saw successful transition as
    unlikely.

24
Transitional Economies in Theory and Practice
Neo-institutionalism An influential trend
of analysis arising from dissatisfaction with the
orthodoxies of the Washington consensus , even
from within the international financial
institutions themselves, e.g. Joseph Stiglitz,
when chief economist of World Bank, 1997-2000.
With rise of institutionalism, term
transition increasingly replaced by
transformation. Growth of understanding that
for markets to function effectively appropriate
institutional arrangements are required,
arrangements that may not emerge spontaneously
from the impact of market forces alone.
Founding father of new institutionalism,
Douglass C North (b.1920), Nobel Prize for
Economics, 1993
  • Major works
  • Structure and Change in Economic History, 1981
  • Institutions, Institutional Change and Economic
    Performance, 1990
  • Understanding the Process of Economic Change,2005

25
Transitional Economies in Theory and Practice
  • Norths definition of institutions

Institutions are the rules of the game in a
society or, more formally, are the humanly
devised constraints that shape human interaction.
In consequence they structure incentives in human
exchange, whether political social or economic.
Institutions can be formal (e.g. law) or
informal (custom and habit). They can be created
from above or evolve. Organisations arise within
a given institutional framework and structure
human action in the achievement of certain
goals. So, organizations (state, firms, other
groups) operate within framework of rules or
institutions (formal or informal). North
stressed the importance of fit between formal
and informal rules if formal rules were
dissonant with interests of organizations and
prevailing informal rules, how could transition
be successful?
26
Transitional Economies in Theory and Practice
Neo-institutionalism and post communist
transformation Institutionalist critique of
Washington Consensus Peter Murrell, Joseph
Stiglitz, Martin Raiser, Gerard Roland
(evolutionary-institutional alternative). An
early work O Blanchard and M Kremer,
Disorganization, Quarterly Journal of
Economics, 1997 (output decline and lack of
effective governance). In words of Peter
Boettke, evolution of thinking , from getting
the prices right to getting the institutions
right, then to getting the culture right
(cultural factors influence institutions). In a
sense, back to a Weberian understanding (or
Pareto and other 19thc thinkers) interaction of
political, social, legal, economic, and cultural
variables to explain performance and behaviour of
a social systems. Institutional approaches
tended to emphasize case specificity while WC
associated with one-size fits all
approach Methodological problems with the
latter? (i.e. use of averages, unrealistic and
over simplistic assumptions)
27
Transitional Economies in Theory and Practice
  • Issues of institutional convergence and diversity
  • The historical evolution of institutions, path
    dependency
  • Can institutions be transplanted? If not, why
    not?
  • What causes institutional change? market
    forces, government action,
  • external pressure (e.g. with FDI), social
    conflict.?
  • How quickly can institutions be changed? An
    optimal pace?
  • Counterproductive if too fast?
  • An influential normative approach seeking to
    transfer best practice (especially international
    agencies during the 1990s and since)
  • But, a reaction e.g., Dani Rodrik (Harvard) for
    second-best institutions if you think best
    practice is the way to go in institutional
    reform, think again.
  • How to measure institutional performance, best
    practice?
  • Debate continues, but one-size fits all
    approaches increasingly discredited outside basic
    arguments (e.g., relative macroeconomic
    stability, and.?)

28
Transitional Economies in Theory and Practice
A new consensus? Today a new consensus?
Washington Consensus widely acknowledged as too
limited institutions do matter, but do not
explain everything now a more sceptical, less
doctrinaire, approach to policy has become
influential, e.g. work of Dani Rodrik, Harvard
(One Economics, Many Recipes Globalisation,
Institutions and Economic Growth, 2007) William
Easterly, New York University (White Mans
Burden Why the Wests Efforts to Aid the Rest
have Done so Much Ill and so Little Good, 2007)
In part, the encounter of economists with the
ex-communist economies, including the notable
case of China, has helped to promote this new
understanding.
29
Transitional Economies in Theory and Practice
  • Privatisation
  • A particularly contentious topic at the time
    because it dealt with who got what. As such, a
    highly politicized process.
  • Why privatise?
  • Ronald Coase Most important is to assign
    property rights clearly and unambiguously
    someone has property rights better than no-one.
  • Concern for value (present and future) of assets
  • Creation of a market for control
  • Existence of capital markets shares, takeovers,
    mergers etc
  • Market evaluation of assets
  • More open market for managerial skills (cf
    nomenklatura)
  • May be less conducive to rent seeking
  • More credible hard budget constraints?
  • Privatisation increases the transaction costs of
    lobbying government for
  • support (Stiglitz)
  • Political goals build a constituency for further
    reform.

30
Transitional Economies in Theory and Practice
  • Some political arguments in favour of
    privatisation in theory
  • Generation of social support for post-communist
    transformation
  • Creation of obstacle to communist restoration
  • De-politicisation of economy rolling back the
    state (still a politicisation, surely?)
  • Decentralisation of economic power and property
    conducive to democracy
  • Who owns the assets prior to privatisation?
  • Public ownership all owned but in reality
    no-one
  • Contested property rights, especially in late
    communist period state,
  • ministries, managers, workers, population at
    large?
  • Spontaneous privatisation
  • Restitution issues (especially in CEE and
    Baltics)
  • For clarity of rights prior to privatisation
    transfer assets to a State Property
  • Fund

31
Transitional Economies in Theory and Practice
  • How to privatise?
  • Small scale businesses - sell, auction, transfer
    to employees
  • Large-scale businesses - retail model (as in UK
    under Thatcher) one off IPOs problems of
    valuation, finding buyers with money,
    restructuring? But, in most cases considered too
    slow.
  • Wholesale model
  • give them away to employees, free
  • - give entitlements to own shares (vouchers)
    free, for a charge? Who to
  • employees only, whole population?
  • Potential dangers may lead to predominance of
    insider ownership, possibilities for
    corruption, future legal battles....
  • Problems if process drags out
  • Problems if rushed
  • Which enterprises to be left in state hands?
    public utilities, defence companies, other
    strategic enterprises?
  • Land privatisation?

32
Transitional Economies in Theory and Practice
  • After privatisation?
  • Insider or outsider ownership?
  • Restructuring?
  • Development of effective corporate governance
  • Market for shares redistribution of property
  • Post-privatisation consolidation of ownership
  • Emergence of oligarchs
  • Competition policy
  • Bankruptcy legislation
  • New business creation
  • Small and Medium Sized Enterprises (SMEs)
  • Ease of registration
  • Tax regime
  • Access to capital
  • Problem of state interference national
    and local opportunities for bribery

33
Transitional Economies in Theory and Practice
  • Post-communist economic
  • transformation - practice

34
Transitional Economies in Theory and Practice
  • Outline
  • How transition unfolded in practice output,
    privatization, social consequences, political
    developments.
  • What explains patterns of economic performance?
  • What explains patterns of institutional
    development?

35
Transitional Economies in Theory and Practice
  • Leading figures in post-communist economic
    transformation
  • Jeffrey Sachs Anders
    Alsund Marek Dabrowski
    Peter Murrell
  • (Harvard)
    (Sweden) (Poland)
    (USA)

Leszek Balcerowicz Yegor
Gaidar
(Poland)
(Russia)
Václav Klaus (Czech Republic)
Anatolii Chubais (Russia)
36
Transitional Economies in Theory and Practice
  • Reform measures
  • With varying speed and sequencing, most
    countries undertook a common set of measures
  • Liberalisation domestic freeing most prices,
    allowing market forces to develop, freedom of
    trade and business
  • Liberalisation external reducing state control
    of foreign trade, adoption of tariff regimes,
    moves towards convertible currencies
  • Stabilisation measures to bring economy into
    balance and reduce inflation new monetary
    policy moves toward positive real interest
    rates, new fiscal policy (including new taxes
    VAT, profits tax, etc), new approach to budget
    and its role in the economy spending
    cuts/changes
  • Privatisation changing property relations
    large and medium enterprises, SMEs, land,
    housing, etc
  • Institution building new institutions for market
    economy
  • Social support creation of at least basic social
    safety net, unemployment benefit system (as
    allowed by state of budget).

37
Transitional Economies in Theory and Practice
  • Impact of measures in early years of
    transformation
  • Output decline
  • Chaos and uncertainty of transformation
  • Break down of supply links
  • Reduction of value subtracting output
  • But, problems of measurement growth of new
    businesses and informal,
  • unregistered economic activity.
  • Inflation
  • In some cases at very high rates (Ukraine,
    1992-3, Russia, 1992-3, etc)
  • Persisted when stabilisation policies not pursued
    rigorously or consistently
  • Budget deficits
  • Problems of reducing spending, especially social
  • Ineffective tax reforms and inadequate measures
    to collect taxes
  • Deliberate tax avoidance
  • Unemployment
  • In some cases grew rapidly to rates of 15 or
    more (e.g. Poland) and
  • proved to be persistent

38
Transitional Economies in Theory and Practice
  • Privatisation in practice
  • Basic methods of privatisation (medium and large
    enterprises)
  • sale to outside owners (retail privatisation)
    (primary method in Estonia, Bulgaria, Hungary)
  • mass privatisation vouchers (free, or for
    payment named, or anonymous)
  • (primary method in Czech Republic, Russia,
    Latvia, Lithuania, Armenia, Georgia, Moldova,
    Kazakhstan, Kyrgyzstan)
  • management or employee buy outs (primary method
    in Poland, Slovakia, Romania, Ukraine, Tajikistan
    and Uzbekistan)
  • restitution (restoration to pre-communist
    owners) (in some Central, Eastern European and
    Baltic countries)
  • In Russia, 1995, loans for shares as a process
    chosen more for political expediency, i.e.,
    Eltsins 1996 presidential campaign against the
    then potent CPRF.
  • In some countries very limited and slow
    privatisation, e.g. Belarus

39
Transitional Economies in Theory and Practice
Private sector share of GDP,
1992 1997 2002 2007 2009
Bulgaria Czech Republic Hungary Poland Romania Slovakia Estonia Latvia Lithuania Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Turkmenistan Ukraine Uzbekistan 25 30 40 45 25 30 25 25 20 35 10 10 15 10 20 10 25 10 10 10 10 50 75 75 65 60 75 70 60 70 55 40 20 55 55 50 45 70 20 25 55 45 70 80 80 75 65 80 80 70 75 70 60 25 65 65 65 55 70 50 25 65 45 75 80 80 75 70 80 80 70 75 75 75 25 80 70 75 65 65 55 25 65 45 75 80 80 75 70 80 80 70 75 75 75 25 80 70 75 65 65 55 25 60 45


Source EBRD
40
Transitional Economies in Theory and Practice
  • Social consequences of transformation
  • To varying degrees in different countries with
    changes over time
  • Unemployment
  • Widening of income and wealth differentials (new
    poor, oligarchs)
  • Development of social and health problems
    homelessness, alcoholism, drug abuse, HIV-AIDS
  • Demographic consequences reduced birth rates,
    increased death rates (although continuation of
    pre-existing trends)
  • Growth of crime and corruption
  • But
  • New freedoms consumption, travel, occupation,
    expression
  • New career opportunities
  • Winners and losers of transformation
  • Winners tend to be those with good education,
    young, urban, well connected(?)
  • Losers tend to be those with poor education,
    older, rural

41
Transitional Economies in Theory and Practice
  • Recovery and growth

Level real GDP in 2007 cf
1989 (1989 100)
Czech Republic Hungary Poland Slovakia Bulgaria Romania Estonia Latvia Lithuania Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Turkmenistan Ukraine Uzbekistan 139 135 169 154 107 120 150 124 116 143 160 146 60 136 95 51 102 56 204 68 150
Source EBRD
42
Transitional Economies in Theory and Practice
  • GDP in CIS economies, 1991 - 2004

43
Transitional Economies in Theory and Practice
  • Transition indicator scores EBRD
  • Average score, 2008

Czech Republic Hungary Poland Slovakia Bulgaria Romania Estonia Latvia Lithuania Armenia Azerbaijan Belarus Georgia Kazakhstan Kyrgyzstan Moldova Russia Tajikistan Turkmenistan Ukraine Uzbekistan 3.86 4.00 3.86 3.95 3.71 3.52 4.00 3.67 3.86 3.38 2.86 2.10 3.38 3.10 3.24 3.24 3.09 2.71 1.57 3.24 2.24
  • Average of scores for
  • Large-scale privatisation
  • Small privatisation
  • Enterprise restructuring
  • Price liberalisation
  • Trade and foreign
  • exchange system
  • Competition policy
  • Banking reform

44
Transitional Economies in Theory and Practice
  • Relationship between economic growth and EBRD
    transition scores
  • Is there any relationship? If not, what does this
    mean?
  • Well, the top-left quadrant is empty, so reform
    certainly doesnt do any harm

45
Transitional Economies in Theory and Practice
  • Patterns of performance
  • As a rule, Central and East European countries
    have undertaken more far-reaching reforms and
    have shown strong economic growth. The southern
    countries Bulgaria and Romania, which joined the
    EU later, have not performed as well, nor did
    they undertake reform as quickly.
  • Of the ex-USSR countries, the three Baltic
    economies have achieved the highest transition
    scores overall, their performance has been
    similar to that of the CEE countries
  • Of the CIS countries, the most impressive growth
    has been shown by economies undertaking modest
    reforms Turkmenistan (oil and gas), Azerbaijan
    (oil and gas), Belarus (subsidised by Russia).
    As a rule, the CIS countries have not undertaken
    reforms as far-reaching as those in the
    CEE/Baltic countries and rates of growth (with
    the exceptions indicated) have been lower.

46
Transitional Economies in Theory and Practice
  • Patterns of performance why?
  • The CEE countries and the Baltic states lived
    under communism for a shorter period than Russia
    and the other ex-Soviet countries. The planned
    economy was not so deeply institutionalised and
    attitudes were not so moulded by the experience
    of life under socialism.
  • The CEE and Baltic countries have also had more
    democratic political systems and stronger civil
    societies than Russia and other CIS states and
    this appears to have favoured successful market
    reforms. They are also less dependent on
    resource-based development than some CIS
    economies.
  • The CEE and Baltic countries from the outset had
    a realistic prospect of joining the EU and this
    focused the post-communist transformation
    process, providing an external anchor.
  • This prospect was not open to Russia/CIS
    countries, although neighbourhood status has
    had some impact in Ukraine, Moldova and the
    Caucasus (Armenia, Azerbaijan, Georgia).
  • In Russia, the protracted accession process for
    WTO membership has played some role in focusing
    reforms, but this has diminished over time as
    accession has become increasingly illusive.
    Without WTO membership Russia cannot join the
    OECD, which also has potential as an external
    anchor. Russia is being considered for membership
    but prospects are now not good.

47
Transitional Economies in Theory and Practice
  • Summary patterns of performance why?
  • Institutional reform most important, although not
    always decisive.
  • Other factors include
  • Political stability - Frozen states (Belarus,
    some in Central Asia) performed well.
  • Initial conditions the richer you were in 1989,
    the more likely you are to be rich in 2007.
  • Natural resource endowments mineral rich
    countries have higher per capita income levels,
    especially 2000-2008. But negatively associated
    with institutional reform.

48
Transitional Economies in Theory and Practice
  • Explaining institutional change in transition
    economies
  • What is important
  • Structural change (initial conditions, proximity
    to EU, FDI) countries with more diverse
    economic structures have greater political
    competition.
  • Initial economic conditions more sophisticated
    production structures in 1980s lead to greater
    sophistication later on.
  • Initial choice of institutions countries that
    adopted parliamentary systems in early
    post-socialist period made greater reforms. But
    what caused the cause? Structure of economy?
  • All suggest path dependency is of paramount
    importance, lending weight to institutional
    explanations. This applies to cases of positive
    change, as well as negative institutional lock
    in occurs after early 1990s with few exceptions.

49
Transitional Economies in Theory and Practice
  • SUMMARY
  • 1. Widespread desire in early stages, at least
    to create markets and democracies
  • 2. Initial consensus was on Washington Consensus
    prescriptions.
  • 3. As reforms stalled, recognition that reforms
    should be tailored to institutional environment.
  • 4. Privatization, in particular, was a highly
    contentious and politicized process that was
    often subverted because of unfavourable
    institutional environment.
  • 5. But to say that good institutions in sense
    of WC caused growth is not entirely accurate
    rather, formal institutions that match informal
    institutions is more important in explaining
    economic performance so, appropriateness.
  • 6. This is illustrated by patterns of
    performance.
  • 7. Notwithstanding the above, positive WC
    institutional reform didnt tend to cause any
    harm prior to 2008.
  • 8. Drivers of institutional change appear to be
    structural-economic in nature more structural
    change, more institutional change, and vice
    versa.
  • 9. Politics and any assessment of political
    risk needs to appreciate close links with
    economic structure in emerging Europe.
Write a Comment
User Comments (0)
About PowerShow.com