Grzegorz W. Kolodko

Transition to a market economy and sustained growth. Implications for the post-Washington consensus

Abstract Transition to a market economy is a lengthy process comprised of various spheres of economic activities. The belief that a market economy can be introduced by “shock therapy” is wrong, and in several cases has caused more problems than it has solved. Since a market economy requires adequate institutional structures, transition can be executed only in a gradual manner. Despite the fact that so-called Washington consensus, i.e. a set of policies aiming to shift from stabilization to growth, was developed without concern for post-socialist transformation, these ideas have significantly influenced the path of thought and action in Eastern Europe and the former Soviet Union. After a decade of transition and lasting depression, a new, post-Washington consensus is developing. Major policy conclusions suggest that the core of emerging consensus, also based on the lessons from transitions, is institutional building. Only with strong institutions can liberalization and privatization put emerging post-socialist markets on the path of sustainable growth. Yet, to accomplish such a task the policy reforms must also take into consideration the need for equitable growth and the new role of the state. The latter must not retire from economic activities, but ought to change its role to support the reforms and integration of the post-socialist countries into the world economy in the era of globalization, of which the post-communist transition is an important part.

Transition to a market and entrepreneurship: the systemic factors and policy options

The political and ideological concerns aside, the fundamental economic argument in favor of postsocialist transition to a market system has been a supposition that it will improve allocative efficiency and thus the competitiveness of the industries and standard of living of households. It is believed that the shift of property rights from the state to private sector must quickly facilitate such an improvement. Yet in the majority of cases, even after the first decade of transition, the economies have not returned to the path of sustainable growth. The countries tackling the issues of recovery and growth relatively better are these which were able to focus not only on de-nationalization of the state assets, but mainly on the development of venture entrepreneurship. The grass-rooted development of especially small and medium enterprises has contributed significantly to overcoming the transitional depression and then to recovery and fast growth. Yet to accomplish such a sequence specific systemic and policy conditions must be met. To facilitate such a path of development proper institutional arrangements must be executed by the governments, legal framework must be established and the government policies ought to support the rise and competitive performance of the small and medium enterprises (SME). Liberalization is a prerequisite of growth of this sector in transition economies, but is not a sufficient condition. The crucial factors involve the institutional arrangements.

Globalization and catching-up: from recession to growth in transition economies

Abstract The transitional recession in countries of Eastern Europe and the former Soviet Union has lasted much longer than expected. The legacy of the past and recent policy mistakes have both contributed to the slow progress. As structural reforms and gradual institution building have taken hold, the post-socialist economies have started to recover, with some leading countries building momentum toward faster growth. There is a possibility that in the wider context of globalization several of these emerging market economies will be able to catch up with the more advanced industrial economies in a matter of one or two generations.

GLOBALISATION AND TRANSFORMATION: ILLUSIONS AND REALITY

The globalisation of economic relationships and the systemic transformation in post-socialist countries are two interlacing processes and a mark of the turn of the century. Globalisation, that is, the institutional and real integration of national and regional markets into a single worldwide organism, is neither restricted to the last few decades, nor is it, as yet, an irreversible, let alone complete process. Even in its most advanced form it does not absolve nations from adopting sound economic policies, and their quality remains essential for economic efficiency and growth. In contrast, the market transformation of post-socialist economies and their integration with the world economy along capitalist lines is irreversible — precisely because of globalisation. The transformation will soon be complete, unlike globalisation, because the latter, being a dynamic, open-ended process, has no end, just as there is no end to socio-economic development. For this reason, and bearing in ... La globalisation des relations economiques et la transformation systemique intervenue dans les anciens pays socialistes sont deux processus entrelaces et qui marquent d’un jalon le tournant du siecle. La globalisation — autrement dit l’integration institutionnelle et reelle des marches nationaux et regionaux dans un mecanisme planetaire unique — n’est pas l’apanage des quelques dernieres decennies, pas plus qu’il constitue un processus irreversible, et encore moins acheve. Meme dans sa forme la plus avancee, il ne dispense pas les pays d’adopter des politiques economiques saines, et la qualite de ces politiques reste un element essentiel de l’efficacite economique et de la croissance. Inversement, le passage a l’economie de marche des pays issus du monde socialiste et leur integration dans l’economie mondiale sur la base de principes capitalistes est, lui, irreversible — precisement du fait de la globalisation. Cette transformation des ex-pays socialistes sera bientot terminee ...

Equity Issues in Policymaking in Transition Economies

The biggest challenge an economist can face is not answering a difficult theoretical question but introducing reforms and making the day-to-day policy decisions that will prove that theory works. However, often that theory does not work. The next challenge, then, is to modify the theory or to keep trying to change the reality to follow that theory. In the real world, far from the ivory tower of academia and elegant models, political life is brutal. What matters is political power, not the logical arguments and statistical evidence. In a classroom or at a conference, it may be enough to be right and to be able to prove it in a scholarly way; policymakers, however, need a majority in the parliament and, more important, social and political support for reforms. Policymakers need to be wise and effective, but these attributes do not always go together. Equity issues in policymaking are difficult to resolve because they are linked not only to economic matters but also to social constraints and political conflicts. What is fair and what is not, seems to be more a matter for ideological or philosophical dispute, not mathematical models. Equity is always a concern of policymaker, especially in transition economies? early years of systemic change and severe contraction. This paper discusses first the characteristics of income distribution under the former centrally planned system, then the changes taking place during transition to a market economy. Expectations for income patterns and wealth distribution are examined as is the issue of increasing inequality. This paper then reviews the policy options and evaluates the transition?s impact on inequity and inequality, and concludes that although inequality inevitably rises during transition, policymakers must link income distribution and growth to sustainable development. The recent successful implementation of Poland?s transition strategy suggests that it is feasible.

From Output Collapse to Sustainable Growth in Transition Economies. The Fiscal Implications

The paper considers the issues of severe breakdown of production and the causes of persisting fiscal deficit in the economies in transition from a centrally planned to a market system. Although these events are due to a legacy of the previous system and to macroeconomic stabilization policies, it appears that the excessive tightness imposed upon the state sector and some policy measures implemented out of sequence have led to unnecessary contraction and caused the perverse effect of fiscal adjustment. Taking into account different composition of expenditure and revenue at the second stage of structural adjustment, it is even more difficult to get rid of the current deficit. This aim can be accomplished only on the path of long-lasting growth and requires proper reorientation of financial policies as well as enhanced foreign assistance, especially a technical one. However, in the transition economies a fiscal deficit, accompanied by a threat of inflation acceleration, will persist for some time--even after the phase of growth is achieved. Therefore, a special policy effort has to be carried out in favor of fiscal stance improvement, recovering output and sustaining growth in the long run.

Globalization and Catching-up: From Recession to Growth in Transition Economies

The transitional recession in Eastern Europe and the former Soviet Union has lasted much longer than expected. It has been the result of both the legacy of the past and policy mistakes. Due to structural reforms and gradual institution-building, the postsocialist economies have started to recover, and some leading countries have been able to build up a certain amount of momentum towards fast growth. There is a possibility that, within the wider context of globalization, several of these emerging market economies will be able in a matter of one or two generations to catch up with the more advanced industrial countries.

Inflation Stabilization in Poland: A Year After

The fundamental problem to be considered in this paper concerns the theoretical and practical problems of the stabilization in post-communist economy, in particular the Polish experience, since stabilizations of this type must, by their very nature, differ from the classical stabilization policies (Bruno — Di Tella — Dornbusch — Fischer [1]) (*) in at least two fundamental aspects.

Globalization and Catching-Up in Emerging Market Economies

The study discusses conditions and prospects for fast and durable growth in emerging market economies. In the course of history less than 30 nations have become rich and still more than 80 per cent of the world population lives in the middle and low-income countries, some of them in extreme poverty. It is true not only for the majority of economies traditionally considered as ‘developing countries’, but also for the new, post-socialist emerging markets. Thus the questions arise: what is the influence of globalization process on economic growth and how real are the prospects for these emerging markets to catch up with more advanced countries? What factors may contribute to sustained and rapid growth over the long term? The paper examines strategies that can help taking the contemporary wave of globalization to the advantage of fast growth of less advanced countries and hence containing the existing development gaps.

Polish hyperinflation and stabilization 1989–1990

In the latter half of the 80ties, inflationary processes in Poland were undergoing an ever greater intensification. Their characteristic feature was the parallel existence of both price (open) inflation and shortages. In the second half of 1989 it came to near-hyperinflation. The economic situation was extremely disequilibrated, a recession appeared, external debt was growing. Against this background — after the political breakthrough of summer 1989 — a successive economic program was developed consisting of two currents. The first one aimed at a radical acceleration of previously initiated market-oriented institutional changes. The second current consisted in a fundamental change in economic policy towards preponderance of fiscal and monetary instruments.