The Role of the State in Transitional Economies: The Asian Approach and its Implications for Eastern Europe

Abstract

One of the most important developments of this century has been the sudden and dramatic collapse of the seemingly irreversible Soviet-style model. The process began with the experiments in ‘reform socialism’ in some East European countries during the 1960s. It started in earnest with the remarkable liberalization in China after 1978 which comprised the dissolution of the agricultural communes and the development of township and village enterprises (TVEs) which became free from official price controls and central planning. As producers’ incentives greatly improved, output grew rapidly. Despite the substantial realignment of plan with market prices, inflationary pressures were contained (at least during the first few years after the initiation of liberalization). Early successes in China encouraged Mikhail Gorbachev in 1985 to embark on perestroika. Subsequently, other centrally planned economies in Asia, such as Vietnam and Laos, began to adopt reform programmes in the mid-1980s. Myanmar (Burma) followed suit in 1988, although the interventionist bias of the State Law and Order Restoration Council slowed some aspects of its reform programme, including some price reforms and the formation of public-private joint ventures. With the tearing down of the Berlin Wall the winds of liberalization blew into Eastern Europe and eventually led to break-up of the Soviet Union in 1992.