Lessons to be drawn from main mistakes in the transition strategy

Abstract

Let us start our analysis by asking a simple counter-factual question: would the overall transition strategy be the same if the command economy had happened to collapse 20 years earlier? Nobody knows the answer, but we guess that the strategy would be different from the one followed since 1990. Most probably, it would not be concerned almost exclusively with the supply side and not simply assume that full employment depends basically on the wage level. It would also most probably not assume that prices depend directly on the quantity of money and budget deficits. Last but not least, it would most probably not assume that state failures loom larger than market failures and would therefore not require a minimal role for the state in economic matters. At the beginning of the 1970s, the experience of the successful policy of rebuilding market economies after the second World War in Europe was still fresh in people’s minds. Of course, that policy also aimed at getting rid of postwar hyperinflation, but it did not forget that its ultimate goal was to put idle resources to use, and to shift them from less productive to more productive activities. That policy involved government guidance and planning because it did not share the belief that spontaneous market forces alone would take care of post-war reconstruction and of unemployment by creating jobs for everybody.

Article Footnote

Indeed there seems to be a certain instant attraction between the old ideologues of the left and the ideologues of the right. Both are driven by religious fervour, not rational analysis. As many of the ideologues have rejected the Marxian ideology, they have adopted the ideology of free markets.

Joseph E. Stiglitz (1994)