New Comparative Economics Glasgow 19 New Format Ready

7/31/2019 New Comparative Economics Glasgow 19 New Format Ready

1/23

The Economic Transition to the Emerging Global Economy

Two Research Workshops on New Comparative Economics;

- A Research Workshop Paper -

Research Workshop I

Department of Economic theory

Interim Center for Management and Economic Development,

V.N. Karazin Kharkiv National University,

Kharkiv, Ukraine

&

The University of Texas at Arlington,

School of Urban and Public Affairs,

Arlington, Texas:

Raymon Bruce, Yuliya Gonoratska, Olga A. Titar,

Research Workshop II

School of Public Administration,

Renmin University of China,

Beijing, P. R. China

Raymon Bruce, Fulbright Senior Specialist;

ZHANG Yuwen, QING Li, HUANG Bihong, JIANG Wenxi,

and WANG Zhenyu

A paper prepared for

The Tenth International Research Symposium on


2/23

Public Management (IRSPM X)10 12 April 2006

Glasgow Caledonian University, Scotland

2


3/23

Two Research Workshops on New Comparative Economics;

The Economic Transition to the Emerging Global Economy

- A Research Workshop Paper -

Raymon Bruce, Yuliya Gonoratska, Department of Economic Theory & Olga A. Titar,

(Research Workshop I: Department of Economic theory - Interim Center for Management and Economic

Development, V.N. Karazin Kharkiv National University, Kharkiv, Ukraine & the University of Texas at Arlington,

School of Urban and Public Affairs, Arlington, Texas)

Raymon Bruce, ZHANG Yuwen, QING Li, HUANG Bihong, JIANG Wenxi, and WANG Zhenyu

(Research Workshop II: School of Public Administration, Renmin University of China, Beijing, P. R. China)

Abstract: Two research workshops one Ukraine and one in China conducted a review of the Institutional

Possibilities Choice (IPF) framework presented in the World Bank policy working paper No. 3054 New

Comparative Economics, by Djankov, et al. The research workshops then examined the practical process of

implementing intuitional possibility choices and in developing additional dimensions to the IPF framework. Two

case studies examined the practical aspects of using the IPF framework in making the transition from a Command &

Control national economy to a free market global economy in applying the IPF Framework Model. The first case

study, Ukraine A Difficult Dismount? examines that nations efforts to recover and reform from its sudden

nationhood after the dissolution of the Soviet Union. The second case study, Chinas Dual Track Approach to

Economic Transition, examines an innovative application of the framework presented in the World Bank policy

working paper. The papers conclusion includes the notion that each nation can learn from each other and that the

IPF framework can inform all nations because they are all making the transition to the global economy. Might the

framework be applied to that larger community as well?

Key words: New Comparative Economics, New Institution Economics, Neo Institution Economics, Comparative

Economic Systems, Transition Economies, Institutional Possibility Frontier, dictatorship, social disorder, social

losses, civic capital, social capital. Organization Development, Institution Building, and cross-walk

Introduction

New Comparative Economics was first described in World Bank Policy Research Working Paper No. 3054,

The New Comparative Economics, by Simeon Djankov, World Bank; Edward Glaeser, Harvard University;

Rafael La Porta, Harvard University; Florencio Lopez-de-Silanes, Yale University; Andrei Shleifer, Harvard

University in May 2003. 1Two research workshops were conducted in order to examine the policy workshop paper

and apply it to the national economic situation in Ukraine and China respectively. The approach was to conduct

research workshops by participants in these two countries that would share their research with each other.

Therefore, the co-authors were all participants in at least one of the research workshops. The research workshops

paper from the Ukraine workshop was presented at the NISPAcee Conference in Moscow, Russia, May 2005. The

3


4/23

workshops paper from the Beijing workshop was presented at the International Conference on Public

Administration in ChengDu, China, October, 2005.

This paper merges the two research workshop papers. In Section 1, New Comparative Economics a Critique.

It is a brief review of the Institutional Possibilities Choice (IPF) framework presented in the World Bank policy

working paper No. 3054 New Comparative Economics, by Djankov, et al. Section 2, Advancing the IPF

framework, examines the practical process of implementing intuitional choices, and building additional dimensions

to the IPF framework. Section 3, Riding the Tiger - Case Studies for Developing Flexibility for the IPF

Framework, presents two comparative economic transition analysis case studies of transition economy efforts. The

first case study is 4. Ukraine Case Study A Difficult Dismount? examines that nations efforts to recover and

reform from its sudden nationhood after the dissolution of the Soviet Union. The second case study is 5. Chinas

Dual Track approach to economic transition, examines an innovative application of the framework presented in the

World Bank policy working paper. The papers conclusion includes the notion that each nation can learn from each

other and that the IPF framework can inform all nations because they are all making the transition to the global

economy. Might the framework be applied to that larger community as well?

1. New Comparative Economics a Critique

New Comparative Economics has its foundations in the ideas of New Institutional Economics. New Comparative

Economics strategy to reform various stagnate economies in Eastern and central Europe is to provide protection to

people and their property by designing and developing institutions that will provide this protection assurance. The

fundamental role of such institution development relates back to New Institutional Economics concern with the

importance of institutions in economic theory and practice. Djankov, et al point out, A fundamental problem of

institutional design is the conflict between the twin goals of controlling disorder and dictatorship. Hobbes, most

fearful of disorder, favored absolutism, but subsequent writers recognized that extreme solutions are generally

suboptimal. . . . This concern with institutional design continues in modern writing, most importantly in institutional

economics.2

Besides New Comparative economics there are several fields of economics that are involved in institutional

economics such as New Economics, Neo-institutional Economics and Comparative Economics Systems. It is not

within the scope of this paper to critique these fields, but only to point to their deep roots in the field of Organization

Development and Institution Building. This influence has led many economic theorists to recognize the primary roll

of people not only in work processes and organizations, but in the ultimate robustness of any economys outcomes.

The Focus of New Comparative Economics, keeping its foundation and importance of these other fields mind, is

in comparing the efforts of those nations whose centrally controlled economies that are now in a transition phase to

participate more successfully in the open global economy. These nations included the former republics of the USSR,

Yugoslavia, and China. Some of these nations in transition have had economies experiencing either an extremely

high degree of central control of their economies or an extremely high degree of social disorder or both. In these

situations, the national economies have often become stagnant.

4


5/23

Djankov, et al, suggest that the stagnant performance of transitional economies can arise from peoples fear that

their property will be expropriated by unruly people during periods of social disorder or by unscrupulous powerful

government officials expropriating other peoples property for their own personal use.. Peoples property, of course

is not limited to personal ownership of possessions, money, buildings, land, intellectual property and other assets.

Also included in peoples property are:

Peoples skills, knowledge, ideas and abilities

Peoples time and commitment to participate productively in the economy

Peoples families health, well being, and lives

These properties are important in the communitys work economy. To the degree that they are withheld from the

economy, and therefore the commonwealth of the community can be commensurately diminished.

The fear that there are other people who desire to take ones property forces prudent people to hide what

property they have from this loss. This hidden property is a value that is withheld from participating efficiently in

the nations economy. Therefore the economy stagnates. The cost of a stagnated economy is the failed growth of the

stagnant economy which constitutes real social losses to a nations economy and to the citizens commonwealth.

Social losses are the unrealized Growth of the Economy due to property being withheld from the market by fearful

citizens. The term Social Losses does not refer to the personal losses of the property expropriated but to the losses

of the community through a diminished economy. Djankov, et al, suggest that one of the first principles for any

nation in transition from a centrally controlled economy to an open economy is to secure and protect people from

expropriation of their property by others.3

Djankov, et al, propose this security can best be achieved by developing institutions to safeguard property rights

and property transactions from an unruly society and from powerful unscrupulous government officials. Djankov, et

al, point out that each nation has many possibilities to design efficient institutions that can protect peoples property

from expropriation by others and that will encourage people to include their property in an open economy. The

Action Objective proposed in New Comparative Economics is to design and develop those private and public

institutions that can most effectively and efficiently protect people from having their property being expropriated,

thus minimizing social losses. The ultimate goal is, of course, to have a more robust economy for a greater national

commonwealth.

5

Figure 1. IPF Framework


6/23

1.1 Institutional Possibility Frontier (IPF) framework; Dilemmas & Tradeoffs

The question becomes, therefore, Which institutions to select for design and development that will best protect

people and their property? Djankov, et al present a framework to help nations choose institutions that will most

efficiently protect people and their property. The framework arrays degrees of central control (Dictatorship) and

social disorder, the two threats to peoples property on and X-Ygrid as The Institutional Possibility Frontier (IPF) in

figure 1 IPF Framework. It is interesting to note that although Central Control and Social Disorder are divergent in

their extremes their meet at the base of the framework as Harmonious Society. Featured in the framework is a

convex isoquant curve representing all of the possible combinations of the two coordinate positions. Along this IPF

curve are the nations possible choices of institutions that can be

designed to function to control the twin dangers to peoples property from social disorder or from unscrupulous

government officials. Each institutional development choice is a point on the frameworks IPF curve.4

However, when a nation in transition that has a high degree of social disorder chooses to implement an

institutional development to reduce social losses, it finds that choice faces a countervailing dilemma of the

possibility of increasing social losses from increasing central control (see Figure 2 IPF Dilemmas). In similarfashion, another countervailing dilemma cycle occurs when nations that have strong central control of their

economies find that their institutional choices to allow people freer use of their property in the market economy also

have the possibility of increasing social losses from loss of control and social disorder.

Djankov, et al, refer to the countervailing dilemmas as tradeoffs. This tradeoff occurs because the total social

losses are always computed as the sum of the social losses from those measured on the central controlx-axis and the

social losses measured on the social disordery-axis of the IPF framework. If the sum is positive, and the selected

institutional choice can be expected to reduce social losses significantly more than the countervailing negative

countervailing effect increases social losses, then that institutional choice is efficient. It can reasonably be expected

to improve the economy. Bruno Dallago described this dilemma tradeoff as: The tradeoff between the need to

control disorder that pushes toward greater state intervention and the goal of controlling dictatorship that pushes

against state power is applied to the problem of social control of business. 5

Even so, social losses cannot be eliminated totally due to ambient anti-social behavior levels in the communitys

culture. Therefore, the IPF curve is positioned on the grid at a constraint indicated on the IPF framework as Total

Social Loss Minimization for a given society.

Dallagos view is that the constant, has a 45 o inclination to represent the symmetric cost deriving to society

from social losses due to private expropriation (disorder) and social losses due to state expropriation (dictatorship).

Economies can move along the curve and the curve can translate and rotate. The point of tangency of the line of

Total Social Loss Minimization with the IPF is the efficient institutional choice for a given society or a sector within

a society. Although the NCE [New Comparative Economics] does not clarify this point, we can suppose that

different degrees of social preferences for disorder or dictatorship can be represented by this Total Social Loss

Minimization line having a different inclination. This would generate a different mix of disorder and dictatorship in

equilibrium.6 When the Most Efficient Institution Choices optimum Point is reached on the IPF curve the

calibrations on theX-axis and Y-axis still indicate that some degree of social losses still remain.

6

Figure 2. IPF Dilemmas


7/23

These are minimal social losses that cannot be reduced by additional institutional choices along the IPF curve

because these social losses occur in the area beyond the Institution Possibility Frontier indicated by the IPF curve.

Clearly, with the economy at the point of Most Efficient Institutional Choices shown in Figure 3. Any additional

institutional choice that can move the economy along the IPF curve will, of course, be an inefficient choice because

it will be moving the economy toward one of the extreme ends of the IPF curve or the other. Therefore, to reduce

social losses beyond the frameworks frontier we must consider another venue in the IPF framework.

1.2 Institutional Possibility Choices

Every nation has an array of possibilities to create, alter and reduce various institutions that impinge on their

economys performance, and that can make the economy more robust within of the political structure of its

governance. Clearly central control and social disorder can be ameliorated to the common cause of the nations

economic robustness, depending upon the particular situation in which they find their nation. The rising tide of a

robust economy should benefit all, albeit to a greater and lesser degree. The IPF framework is designed as an

analytic tool to aide nations in searching for the possibilities of the most efficient institutional development choices

and developing an efficient and effective strategy for change.

Without presenting a huge catalog of these possibilities, Djankov, et al, provide a set of example Categories of

Strategic Institutional Possibility Choices which have been reconstructed and amended in this paper:

The private Sector - Professionalize private market practices, accounting transparency, business ethics and

reputation.

The Judicial Sector - people can rely on private law suits in impartial courts to enforce contracts and recover

losses. Keeping courts fair and unbiased, setting up professional court and tort processes, standards for lawyers,

etc.

The Public Administrative Sector- Professionalize Public Administration, establish regulatory agencies, revise

public service delivery processes to support citizens, and to facilitate the communitys commonwealth, i.e., the

economy

The Governance Sector Create and revise constitutions, policies, laws, taxes, balance government controls and

citizen participation. For example, include local communities in economic planning and decision making.

The Cultural Sector This category relates more to developing civic capital that addresses choices outside the IPF

curve. Religious and social custom institutions that promote civil behavior among elements of society through

social mores, morals and ethics. Therefore, institution building in this category may reside beyond the IPF curve.

Civic capital will be examined in the next section.

Each efficient institutional development choice that brings people more effective protection from expropriation of

their property will encourage those people to include more of their personal resources in the market place. The

economy becomes more and more robust, reducing social losses, and increasing the nations commonwealth. As

institutions are selected, designed and developed along each side of the IPF curve, the nations economy is likewise

moved along the IPF curve and the IPF curve moves with the lowered Total Social Loss Minimization.

7

Figure3. Most Efficient Instructional Choices


8/23

2. Advancing the IPF Framework

The World Bank Policy Working Paper # 3054, by definition is an invitation for the field of Economics to

conduct further testing of the theory and developing the IPF framework into a more useful analysis tool. Perhaps the

most comprehensive critique to date is that by Bruno Dallago in his first draft of, Comparative Economic Systems

and the New Comparative Economics: Foes, Competitors, or Complementary? 7 Although Dallagos focus was on

examining New Comparative Economics proper place in the field of Comparative Economics Systems, he included

a valuable analysis of the New Comparative Economics paper by Djankov, et al. In addition, a previous New

Comparative Economics Workshop held in Kharkiv, Ukraine in 2004 also created a paper on the New

Comparative Economics paper by Djankov, et al, which responded to the World Banks invitation as well.8

Both papers have identified several areas requiring further research, study and clarification of the IPF framework

and have contributed to the research and development effort. However, the areas we are addressing here are 2.1)

Civic Capital & Adding Dimensionality to the IPF Framework and 2.2), the practical process of institution building

once the Most Efficient Choices are made, and 2.3) building another dimension to the IPF framework as a strategicanalysis planning tool.

2.1 Civic Capital & Adding Dimensionality to the IPF Framework

The Institutional Possibilities Frontier (IPF) framework presented by Djankov, et al is based on the assumption

that the best strategy is to choose and to develop public and private institutions that will move the economy toward

the most balanced position point on the IPF curve called, The Most Efficient Institution Choices. This is the point of

tangency where the IPF curve meets with the Total Social Loss Minimization. This point represents the goal for

selecting the Most Efficient Institutional Choices for a given society or a sector within a society. Djankov, et al,

refer to the location of the IPF frameworks Total Social Loss Minimization as determined by the nations amount of

civic capital.9

There is a difficulty in reducing the social losses beyond the Most Efficient Institutional Choice. It would require

developing institutions deep in the communitys cultural core values because any change must operate quite beyond

the economy side of the IPF curve. It is in the cultural sector of community norms where the community develops

the civic values that can self-regulate central control and social disorder order issues on a more informal cultural

base.

Civic values are formed when strictly homogenous social groups start to include other groups that may have

some differences in social values. In order to coalesce as an enlarged and diversified social group, a reconciliation of

values must somehow be reached in order for the new larger social group to get along together harmoniously in a

mutually beneficial commonwealth and with an effective level of live and let live tolerance and trust .10Harmony

among people does not mean that all speak with one voice, but harmony among people means that people of

different voices blend themselves into music. When they do not blend, then dissonance, dissidence and cacophony

are often the result. This harmonious reconciliation actions create new civic values that form the new norms of

8


9/23

behavior in the enlarged more diversified community. Civic values and norms are the glue that binds the greater

community together in a diverse yet harmonious manner.

Civic capital results when the community has the ability to develop new civic values required in dealing with

new situations and that are required for the improvement of the communitys commonwealth. Therefore, the

communitys possibility of institutional choices for investing its civic capital are located in the communitys deeper

culture components which include religion, human capital, technology, education, historical experience, families,

religions, philosophy, arts, markets, and other social groups that participate in and work for the common interests in

the communitys commonwealth.

Djankov, et al, point out that the time frame for such changes in civic capital institutions has a medium term

impact horizon.11However, since institutional possibility choices occur beyond the frontier of the IPF curve they can

be expected to have a more unpredictable outcome, strategically. When civic resources are developed they often

occur more as evolutionary process than from a national economic policy. History has shown that such change

occurs constantly in every community and nation over time anyway. The difficulty here is that efficient change

coming from the bottom up rather than the top down can often be less predictable. .However, civic capital can bring the Total Social Loss Minimization closer to the origin, i.e. to zero base of the

IPF framework they can also result in lower social losses. Societies with more civic capital at hand have an IPF

closer to the origin; namely, there is a lower ambient level of threats to expropriation of peoples property, because

the community is more capable of achieving ongoing cooperation among their members without excessive controls,

yet without encouraging higher levels of social disorder. More directly, with the of Total Social Loss Minimization

constant moving closer to the point of origin, the IPF curve moves down with it, therefore the IPF curve has access

to reduce those additional social losses newly exposed by the moving of Total Social Loss Minimization constraint.

There are many components of civic capital beside ability of the community to get along socially and work

harmoniously for the common good. Also, civic capital can be induced in the medium run through institution

development choices such as public investments, or large interventions, such as land reform. Djankov, et al, admit

that their use of civic capital is a somewhat vague: Admittedly, civic capital is a somewhat vague concept . . . . For

lack of a better term, we refer to the location of the IPF as civic capital, with the idea that societies with more such

capital, and an IPF closer to the origin, are better capable of achieving [harmonious] cooperation among their

members. We use the term civic capital rather than social capital because we have something similar but broader

in mind. We stick with the idea of capital because investments in civic capital pay off in the medium run.12

The IPF framework as presented by Djankov, et al, is very narrowly focused on protecting property from the

threats of expropriation by government officials and from unruly agents during social disorder. Dallago pointed out

that the IPF framework was basically unidimensional: Given this unidimensional approach to the economic system,

also the concept of institutional efficiency is unidimensional. The only dimension under which different economic

systems are compared, and consequently the only kind of predicting power of the theory, is one in which economies

differ as to the degree of protection they provide to property rights. It is this simplification that allows the NCE

[New Comparative Economics] to depict the entire issue in a bidimensional chart, whose core is the Institutional

Possibility Frontier (IPF).13

9


10/23

Although civic capital appears in the current framework as a vague function of the Total Social Loss

Minimization constant, civic capital may very well constitute a hidden third dimension in the framework. As such, it

would be subject to having a down side just as central control and social disorder have in their extremes. Clearly,

when a social group reaches a certain threshold of diversity it needs civic capital to keep the society together as a

growing, functioning community, and economy. However, just as central control and social disorder develop sinister

characteristics when the community moves to the extreme limits of those framework co-ordinates, civic capital,

when pushed to its unbalanced extreme limits can lead to a society of hidebound special interest groups whose

replacement of inclusiveness with exclusiveness can set up group barriers rather than open links to the community.

This extreme kind of civic capital can then become the seed bed of self-righteous values with which the group can

exclude innovation in the community and thus having the effect of making the economy stagnant. Special interest

groups, left unchecked, can also move the community to either of the extremes of social disorder or dictatorship by

capturing the power of the community and using it to further only the groups best interests.14Nevertheless, the level

of human and civic capital in the society determines the location of the constant of Total Social Loss Minimization

and the IPF curves tangent point of Most Efficient Intuition Choices.

2.2 Implementing Institutional Possibility Choices

In regard to institution development, the fields of Institution Building and Organization Development can help

inform us here. Clearly, organization or institution developments are not trivial tasks. There are several basic

strategies for nations in economic transitions from one economic regime to another. Djankov, et al, propose evolving

institutional change from within the nation and transference of institutions from more successful nations either

voluntary transfers through exchange of experts or external diplomatic or forceful colonial interventions.15 While

Dallago suggests voluntary transfer of institutions on the part of the receiving nation offers a better strategy for

change.16Clearly, the various strategies are not mutually exclusive. The commonsense and realistic approach is for

each nation will be a mix to suit its own situation.

Nevertheless, changes in organizations or institutions take on a life of their own. People are not very predictable

in their reactions to institutional change. Human natures reaction to change is too complex for an exact step by step

engineering form of planning. Change in human behavior as Kurt Lewin described it, requires people to accept new

knowledge, new values, and to be able to perform new actions, i.e., growing .17 Although there is a wealth of

literature on institution and organization development methodology, perhaps the definition by Joseph Eaton and

Milton Esman in Institution Building and Development; from Concepts to Application can provide a flavor and a

caveat regarding this difficulty in predicting the human complexity of implementing any Institutional Possibility

Choices at hand:

Micro-system [Institution Building] Changes; The planning, structuring and guidance of new or reconstituted

organizations which advocate and embody change in values, function, physical and/or social technology. Macro-

system [Institution Building] Changes: The establishment, protection and fostering normative relationships and

action patterns with linked organizations in the larger social system and the attainment of normative acceptance in

the environment (complimentarity)18

10


11/23

In the contemporary context, most such [Institutional Building] changes do not occur by autonomous diffusion

or by evolution. They do not just happen. They are deliberately inducedby individuals or groups who see such

changes as beneficial both to themselves and to society. Thus IB has a pronounced social engineering basis. But

there is much uncertainty in the introduction of changes into any social system, many consequences that are

unexpected, and responses that are unpredictable, even in well-planned experiments in social change. Indeed,

induced innovations should be looked upon as experiments. These experimental ventures must be guidedby

individuals or groupswho are consciously prepared to engage in organizational learningfrom the data of experience

and to adapt their technological innovations and their original plans for introducing them to what proves to be

feasible in the environmentbut without abandoning their innovations as the price of survival. IB [Institutional

Building] is thus a guidance and social learning process, not the "installation" of prepackaged technologies. It thus

excludes both autonomous and coercively imposed innovations.19

It is not the purpose of this paper to present practical guidance in implementing Institutional Possibility Choices,

but to point out that the identification and choosing of them is merely the tip of the iceberg that is involved in

successful change. In addition, there must be a strong voluntary reaching out on the part of the community involvedwhen seeking outside assistance if the institutional transference is to take root and endure.

3. Riding the Tiger - Developing Flexibility in the IPF Framework

One of the advantages of an economy that is totally controlled by the central power of a Great Leader is that the

leaders ideas for change can be more readily implemented. This advantage comes because the leadership can often

command the compliance of the citizens through the attributes of the Great Leader. These attributes include 1)

power personally gained (usually through revolution of an oppressive regime), 2) a timely vision for the nations

situation and needs, and 3) possession of charisma that can engender adoration in the eyes and hearts of the people.

In these cases the centrally controlled economy often becomes an insulated domestic market that is guarded by and

subject to the laws and rules of the powers of the Great Leader. This is because in an economy that is dependent on

strong central control cannot expect to control economic events from external economies.

Making the transition from a centrally controlled economy to an open economy requires a strategy for leaders to

get off the tiger without being devoured. As Shakespeare demonstrated in his historical plays, the critical problem in

the economies of Great Leaders is in the succession of the Great Leader by the next generations of Later Leaders

who often lack one or more of the three attributes required to be a Great Leader. This is the problem of the Riding

the tiger. Admittedly, it is an exhilarating ride for the Great Leader and even the Later Leaders, but one dare not get

off. However, at some point after the Great Leader has left the scene, the successions of Later Leaders may lack

some or all of the three elements required to control the insulated economy; yet they find that they are still riding the

tiger. Sooner or later they come to the realization that at some point in the future they may need a strategy to

dismount the tiger; the tiger being, of course, the aroused citizens when market stagnation threatens general

economic collapse. The perceived weakness and distrust of the ability of central control can make order quickly

dissolve directly into complete social disorder, i.e., revolution or worse.

11


12/23

Former Russian Premier Mikail Gorbecovs Glasnost and Perestroika describe one such dismount strategy in the

former Soviet Union. However, Gorbecovs transparency and openness without the institutions to run an open

economy led to the dissolution of the Soviet Union ultimately through social disorder in the form of a failed coup

detat and finally a brief revolution; the tiger devoured many of its riders. Former Yugoslavia and Iraq are other

examples of dismounting-the-tiger strategies under different circumstances with similar results.

4. Ukraine Case Study A Difficult Dismount?

Ukraine was one of the main industrial centers for the Soviet Union, building planes, missiles, vehicles, etc.

With the conversion of Ukraines governance status from a Soviet Republic to a sovereign Commonwealth

Independent State (CIS) in 1991 the complete central control of its economy devolved from Moscow directly to

leaders in Kiev. In the change Ukraine lost its only customer for its industrial market goods, namely the Soviet

Union and its economy began not only to stagnate but to revert to an agrarian economy. Ukraines economy under

the new President, Lenoid Kuchmas strong central control, pegged the economy at the extreme end of the IPF curveof State Central Control (seeFigure 4 IPF Formwork - Ukraine 1991-2005).

President Kuchma although not gaining power through revolution was not well known enough to display

significant charisma. However, by 2002 Kuchma and his cabinet did form a new vision for Ukraine, developed for

the in part by one of his previous Prime Ministers, Victor Yushchenko, invoking a new model for the transition to

the open global economy. In citing the great social losses in his administration in the 1990s Kuchma proposed a new

economic transition strategy in 2002, Life requires unbiased evaluation of transformational model formed in the

first years of transformations. In terms of economic essence and direction this was a model based on simplified

principles of market transformation, recommended from outside, that was mostly implemented throughout many

decades in Latin America and Africa without results (or with low efficiency). . . . This model, in fact, came to the

logic of one-sided economism without taking into account priorities of institutional transformations, the need for

strengthening of capability of the state in the course of reforms, interconnection of economic and non-economic

factors of social development, economy and society in general. Hence, a considerable share of existing problems

was born by misbalance of economic, social and political factors of social transformations.

The model of market transformation did not have necessary social orientation. The Reforms first, then

realization of social development tasks formula, chosen at the start of transformation period, turned out to be not

simply wrong, but deeply destructive. In practice, it came to reforms at the expense of social losses. In many cases,

even the social values that once were borrowed by the western countries and integrated into the modern civilization

processes, were often taken down. Accordingly, economic processes did not promote achievement of determinant

goal of transformation process establishment of middle class as the mainstay of democracy, social and political

stabilization within the society and economic progress. There was no establishment of a principally new social

infrastructure adapted to market economy. Reforms did not promote overcoming of poverty and deep social division

of population that greatly exceeds relevant figures of developed countries and does not promote establishment of a

reliable social and political stability within the society [emphasis added].20

12

Figure 4. IPF Framework - Ukraine 1991-2009


13/23

President Kuchma envisioned a strategy to reverse Ukraines great social losses experienced in the 1990s by

reforming Ukraines governance and economic institutions to be compatible with EU membership. However, by

2003 these significant institutional changes were not made. For example, Kuchma still appointed all the Oblast

governors, university rectors and held Public Administration development in the Office of the President. In October

of 2003, at a Ukraine-European Union summit meeting in Yalta, Lenoid, Kuchma, President of Ukraine, and S.

Berlusconi, President of the European Council described some of these possible institutional choices. We reiterated

that strengthening and ensuring the stability of institutions guaranteeing democracy, the rule of law and respect for

human rights is of vital importance for Ukraine's development and for an intensified relationship with the EU. We

noted the importance of a continued commitment from the Ukrainian authorities to reform further the judiciary and

to strengthening administrative capacity, to fostering the development of civil society, and to supporting the freedom

of the media. We stressed the importance of tax reforms, as well as on completion of banking sector reform and

reinforcing the independence of the National Bank of Ukraine. 21

Kuchma described Ukraines long-term strategic goal to be fully integrated into the EU, recognizing that

developing fully the potential of their partnership, as well as nurturing its long standing market relationship withRussia, would contribute to Ukraines progress in its political and economic reforms. The two leaders agreed that

one of the most effective ways to use the opportunities of the current EU enlargement is for Ukraine to intensify its

work in aligning its legislation, institutions, norms and standards with those of the European Union.

For example, President Kuchma and EU Council President Berlusconi agreed to strengthen their joint co-

operation to address issues of readmission and migration, border management, combating organized crime,

including trafficking in human beings, sexual exploitation and child pornography, money laundering, terrorism,

drugs and corruption. These were very admirable and very promising institutional development choices in Ukraines

governance, social, and market systems. However, appropriate institutional implementation did not follow and social

disorder continued to grow Ukraines economic transition toward the extreme social disorder end of the IPF curve,

finally resulting in the Orange Revolution in late 2004.22 Although the Ukraine governance leaders had recognized

that they needed to develop the economic institutional infrastructure to perform in the open global economy, few of

the Institutional Possibility Choices described by Kuchma were actually developed.

4. 1 The Orange Revolution

It was frustrating to keep hearing the correct words and policies expressed and yet none of the required deeds of

institution building to protect property and business ever enacted. Instead, those institutions that continued to

develop, gaining more and more political power, ranged from organized groups of insider government officials, their

friends and relatives buying up privatized state property cheaply, to groups organizing gangs for running various

grey market schemes on the shady side of the law. By late 2004 the Ukrainian economy and governance moved

along (or across) the IPF curve to extreme social disorder. By the time of the 2004 election for a new president, the

two above mentioned extreme institutions banded together to assure through illegal means that their chosen

candidate was elected to replace the retiring Kuchma. The result was the Orange Revolution. The tiger had a

banquet.

13


14/23

Because the newly President Yushchenko had braved the worst of the previous regime on a physical, economic,

and political level and had led the Orange Revolution, he now has the power qualification of the Great Leader. Since

he was involved in Kuchmas first cabinet as Prime Minister and was one of the authors to Kuchmas original vision

statements, Yushchenko has the vision qualification. Even under Kuchma Yushchenko had recognized the need to

go ahead and begin selecting, designing and developing institutions to build the missing economic infrastructure.

Yushchenko is currently on the way to attaining a degree of charisma in Ukraine, as well.

For example, in recent remarks to U.S. Chamber of Commerce, President Yushchenko sought to reassure that

peoples property will be protected. He stated that the rules of the game changed in Ukraine and that the law is now

working in Ukraine. From now on, the Ukrainian state and the Ukrainian government are going to protect the

citizens interests and property. Yushchenko promised to reduce the corruption and the shadowy economy that had

become characteristic under Mr. Kuchma, during which a few people closely allied with the Kuchma power base

accumulated vast fortunes. We shall create a democratic power - honest, professional and patriotic. The wall that

separates government from the people will be destroyed. . . Armed only by their faith and beliefs, the people won a

beautiful and peaceful victory. It is a victory of freedom over tyranny, of law over lawlessness, of future overpast.23

From the point of view of the IPF framework, the proof will be in the Institution Possibility Choices Ukraine

makes and their ability to get them implemented for and by the citizens. For example, recently Yushchenko called

for and end of corruption in the Universities and a reinstatement of all university employees and students that were

expelled from the universities during the past election because they supported him. As a command from central

control he can expect that there will be a countervailing reaction. However, what institutional choices does

Yushchenko have to help end corruption in the universities and political harassment of their employees and

students? The most recent indication is President Viktor Yuschenkos September 15 th Presidential Decree

#1276/2005, On providing participation of the public in forming and realizing state policy: In pursuit to establish

effective mechanisms of partnership between the state and institutes of civil community, to improve the activity of

state authorities and institutions of local governing, and to provide its clarity and openness, I decree to support the

initiative of the public regarding creation of system of continuous dialogue and interaction between the institutes of

civil community and state authorities and institutions of local governing.24

This Presidential decree contains a time line implementation plan charging Ukraines cabinet of ministers to

provide proposals for implementing change by January of 2006. Our IPF framework analysis indicated that the

following case study of China could well inform Ukraines institutional possibility choices today. In the same

manner, perhaps China could take note of Ukraines efforts to transition its economy and governance to the global

economy as well. Nevertheless, as one Ukrainian official put it, the IPF tends to promote the myth of economic

analysis over pragmatic social change. It is certainly helpful for governments and the private sectors to select

efficient institutional choices as a path to making the national economy more robust. However, the political and

social realities are far more complex than the two dimensional IPF framework model can address with sufficient

insight. Therefore, the model does not address the ability or inability of the Ukraine administration to develop their

espoused efficient institutional choices into social and civic institutions that could efficiently and effectively protect

14


15/23

peoples property. This inability has only contributed to making Ukraines economy more and more stagnant. The

recent elections and constitutional changes in Ukraine will once again be a test of the authors of New Comparative

Economics theories. Both Kuchma and Yushchenko have taught Ukraine that all of the politically correct rhetoric

in the form of espoused efficient institutional choices will not turn the nations economy around to become more

robust; efficient social and civic institutional choices are required as well. Otherwise Ukraine can expect that its

citizens trust in the protection of their property will not improve; nor will the economy.

5. The China Case Study; a Dual-Track Approach to Institution Possibility Choices

Djankov, et al, cite The Peoples Republic of China as using two strategies in their designing economic transition

reforms of gradually reforming federal control in step with incremental and experimental economic reforms: China,

did not embrace democracy, but undertook significant economic reforms and grew, in Chinas case spectacularly.

Scholars of China credited its federalism and resulting competition among regions with the success of reforms.25

To begin with Chinas dual approach was for an evolutionary change from within China. Later, China undertook

a voluntary change approach through exchange of experts and students with other nations to begin to help China todevelop the organizations, businesses and regulatory institutions through their mini-industrial revolution to become

a respected trade partner in the global economy.

The transition process from planned economy to market economy in China is different from Ukraine in two key

aspects. First, China began their gradual and incremental transition as early as the 1970s. In Ukraine the complete

control was devolved to them very suddenly. Therefore, China has been working on its economic transition for a

much longer time than Ukraine.

Secondly, the economic reform in China uses dual-tracks; one track is the federal central controlled economy

track. The other track is the private sector economy development (see below: Figure 5. Chinas Dual Track

Approach). The process of this dual-track approach is to relax central control to let the private sector experiment in a

business incrementally. Then if the business process is successful, there is a return to the central controlled economy

track to institutionalize the successful experiment by changing the central control regulations, laws, and even the

constitution. This progress of walking back and forth between the two economic tracks is a cross-walk of

institutional choices and implementation. China did not privatize in one night. Economic transition in China started

from the careful development of private economy, instead of rapid privatizing or state-owned economy as in

Ukraine. In the last three decades, private economy (including Foreign Development Investment) has made a

remarkable contribution to Chinas economic miracle. The proportion of private economy in Chinas national GDP

has exceeded that of state-owned economy. Contrarily, its central control over the economy shrank only gradually

after the successful levels of development and prosperity of the private sector markets were proven. This dual-track

incremental approach to institutional change has prevented China from falling into the economic disorder

experienced by many Central and Eastern European nations and Commonwealth Independent States. In contrast to

the Ukrainian case, the reform of state-owned economy in China has been a dual-track, step-by-step, cross-walk

between the state and private economies began over thirty years ago.

15

Figure 5. China's Dual Track Approach

Eliminated for

causing runaway

disharmony.


16/23

5.1. Institution Building as an Evolving Process in China

The story of the Lianxiang Computer Company (Legend Group) provides an excellent example of the

incremental dual track approach that China has taken in its transition to the open markets of the global economy.

Lianxiang was not chosen as an example because of its long success record. Of course, Lianxiang Computer

Company under it new name Lenovo recently bought into IBMs PC business as the major co-owner for an

estimated $1-2 Billion. Lianxiang in interesting as an example of Chinas dual-track strategy because Lianxiang

Computer Company got its start back in 1984 and has been a player in Chinas long intricate cross-walk approach to

its economic transition.26Also, Lianxiangs story highlights the process of evolutionary development of institutions

of choice from native soil, so to speak, and then later to using the voluntary transplantation of useful institutions

from many other foreign sources.

The Lian-xiang Computer Company was formed by eleven scientists, headed by Mr.Liu Chuanzhi, of the

Institute of Computer Science in the Chinese Academy of Science. The important scientific Institute of Computer

Science, in an innovative step, managed to borrow funds in amount equal to $25,000 USD from the Chinese

Academy of Science in order to establish their firm the New Technology Developer Inc. (the predecessor of theLegend Group) as a State Owned Enterprise (SOE). The start-up firms objective was to manufacture and market

personal computers and peripheral equipment. The actual ownership of the firm however, was not entirely clear and

unambiguous. No one was able to be certain as to who the owners were, the eleven scientists of Liangxiang as a

group, or the Institute of Computer Science? Is it always important to know?

The following account is a summary of David Lis The Story of Lian-xiang Computer Company27 in his paper;

The Theory of Ambiguous Property Rights in China's Transition28 David Li makes a compelling case where

transparent protection of property rights may not always be the best choice all the time. Lis paper is also a brief that

depicts how the firms entrepreneurs, the research institutions, and the central control government regulators

evolved their respective institutions development incrementally as they gingerly cross-walked their respective

institutional choices along both sides of the IPF curve towards Most Efficient Choices point.

Li uses the story of Lian-xiang, as Lenovo was originally called, to make a case where ambiguity of ownership

can be temporarily beneficial in unusual situations, and that China in 1984 was a case of one of those unusual

situations. Ambiguous property rights refer to situations where owners rights are not set in transparent legal records

at the start. Instead, owners have to struggle among themselves from time to time for actual control when various

key decisions needed to be made. The concern regarding property rights were just coming into the picture in 1984

China. As Li describes the situation, Winter 1984, Beijing--The country was on a honeymoon with reform.

Decollectivization of agriculture proved to be a huge success; scattered experiments of granting state enterprises

autonomy and incentives were encouraging; Nobel Economics Laureates were invited to participate in an

unprecedentedly open debates on strategies of reform; and most important, the top leadership of the Chinese

Communist party had just given an unequivocal green light to comprehensive reform in a recent Party session.29

Nevertheless, the institutions that grant and guarantee property ownership were just in their infancy, and could

easily conflict with current laws and government regulations. In 1984 the institutionization of ambiguous property

rights is a natural arrangement, given China's strategy of co-opting bureaucrats for reform (see Basu and Li,

16


17/23

1995)30. That is, China's reform process has not sought to eliminate bureaucratic institutions overnight. As a result,

bureaucratic connections and skills (which can be called bureaucratic human capital, (see Huang and Li, 1996) 31 are

still useful, and are often indispensable for entrepreneurs struggling to creates new businesses. Thus, it is very

natural for new businesses to involve bureaucrats and register as government sponsored enterprises [SOE]. At the

same time, incumbent bureaucrats benefit enormously through sponsoring new businesses, both through obtaining

increased bureaucratic resources (e.g. extra-budgetary and off-budgetary revenues) and through enlarged

opportunities for personal benefits, including corruption.32

Li described the way the institution of ambiguous ownership worked in 1984 China and beyond. The eleven

scientists needed the help from the Institute and it parent, the Chinese Academy of Science whenever they ran afoul

with government regulations. If the institute did not have a stake in the firm and have access to the inner operations

of the firm, the Institute could not be in any position to advise the scientists regarding how to resolve troubles

governmental regulations. However, the ambiguous property rights arrangement allowed the eleven scientists and

the Institute to co-own the firm, and to share operational information. The co-owners could now negotiate which co-

owner should best serve as the active partner depending on the firms issues at hand. When technical operationsissues arise, the scientists would take over; when there are problems involved government regulations, the Institute

would take over.

When the Lianxiang firm was in its start-up mode in 1984, the Chinese Academy of Science and its the Institute

of Computer Science helped the firm with liberal interpretations of and skillful tactics for irksome government

regulations and by providing a safe haven in case anti-reform politicians regained power. The inevitable cost risk to

the firm of this arrangement was that the Academy and the Institute could then interfere in business decision, and

also negotiate for increase in their management fee from the firms revenues.

With the institutional development of ambiguous property rights through co-ownership, the Institute was able to

enlist the bureaucrats as stakeholders by turning back to the government regulators institutions some of the firms

earnings in the form of extra-budgetary and off-budgetary revenues. Thus the incentives of the bureaucrats become

compatible with reform because when the government official benefit from reform, therefore the government

officials did not block reform so strictly, at least initially.

However, this strategy of co-opting bureaucrats has some serious countervailing effects in later stages of

economic reform. The government officials quickly experienced how rewarding their bureaucratic power can be.

They become more and more reluctant to give up their power and make way for reform and simply demand greater

transfer of funds from the firm to the bureau. Therefore, in many cases, China's property rights arrangements are

evolving. Ambiguous property rights are now being clarified and redefined gradually. Forces from two directions

are driving the evolutionary process, according to Li, From the top [central control], reformers seem to be fully

aware of the danger of institutionalizing ambiguous property rights and have constantly called for clarifying

property rights arrangements and separating government agencies from businesses. In 1994, a new Company

Law was established, which provides the legal underpinning for relatively transparent and unambiguous property

rights arrangements.

17


18/23

From the bottom [private sector social disorder], founding entrepreneurs of successful but yet ambiguously

owned enterprises have strong incentives to re-shape their ownership and control right arrangements just as the

Liang-xiang case. Control rights of governments are bought out, and many times officials simple retire from

governments and join their companies to become major shareholders or managers.33

5.2. Taming the Tiger

It appears that China has taken a new strategy in regard to the perils of Riding the Tiger, namely one can try to

tame it first. It is clear that the dual tracks of institutional development choices need to occur in tandem towards both

ends of the IPF curve. Central control must tentatively relax its grip on the economy, even if it means looking the

other way from time to time on promising market experiments. Without this slack, entrepreneurs have no room to

innovate in institution development. At the same time, institutional choices need to be implemented to

institutionalize the experiment successes and remove the failures in order to proceed with new economic

development experiments in this incremental and evolutionary approach. Experiments that do not work are put back

on the shelf; experiments that work are kept and used as a guide for further implementation.But this strategy is tricky and dangerous. The minute the government loosens its hard grip, some see it as

weakness and rush to exploit the opportunity to the fullest. The advantage of ambiguous ownership is that the

government officials, having only looked away in the recent past for experimental purposes, when things get out of

hand, the government needs only to look back around to eliminate an experiment gone wrong.

In an interview with editors from the Foreign News and Washington Post correspondents, Chinas Premier Wen

Jiabao described Chinas approach to the political and economic turmoil, including the Tiananmen Square episode

in 1989, which accompanied changes in Eastern and Central Europe.34 Premier Wen Jiabao emphasized the

importance of retaining the current degree of state control while making incremental changes in the social and

economic institutions of the public and private sectors as indicted by the IPF framework. Premier Wen Jiabao

pointed out, In the last century, at the turn of the 1980s and 1990s, drastic changes took place in the Soviet Union

and countries of Eastern Europe. In China, a political disturbance occurred. At that time, the party and government

of China adopted resolute measures in a timely fashion to safeguard social stability and became more determined to

press ahead with China's reform and opening up. Our development over the past years has proven that stability is of

vital importance for China. As Premier of this country, I think the most important issue for me is to ensure stability

and development. This is because China has 1.3 billion people.35

For the successful economic experiments the government and the private sector institutionalized the gains and

the new market infrastructure allowed the experiments to continue. The new businesses become guides as to the

institution choices that are needed to facilitate new successful experiments. The institutional choices also include

those needed in order to rein in excessive exuberance on the part of the business community (society) and the

government (central control) to exploit the change far beyond the original intent.

18


19/23

5.3 New Comparative Economics - China

As we saw in Ukraine, a strong central control over the national economy has some interface problems in the

global market. While the central powers can control the national economy, they cannot control the global economy

in the same way. Therefore, the central powers look for a way to become viable players in the emerging global

economy. Djankov, et al, skirt the issue of political systems because their framework focuses on protection of

property. Their view is that political systems are not so relevant to making an economy more robust as are the

institutions that protect peoples property from the excesses of whatever political system prevails. Therefore, their

framework is essentially politically neutral.36

In comparing Chinas approach to economic change with other transitional economies such as Ukraine, the

political response in China has been a much slower form of economic reform. The economic power is firmly

managed by the government, which serves to maintain a stable social environment and prevent China from falling

into severe social disorder during the ups and downs of developing of a more open market for the national economy

destined to participate better in the global markets. Although the political reform is more gradual, the judicial sector

is also developing quite fast in China in recent years. Reflecting this change, as is the better protection of propertyrights as has been written into the Constitution. Clearly, there is more to follow.

An incremental cross-walk of institutional change between the public and private sectors is rationalized by the

need to lower the state control gradually and develop private sector institutions to minimize possible social disorder

and unfairness in the market. This incremental cross-walk between the dual threat tracks is an instructive example of

the value of adding another dimension to the IPF Framework in managing strategic change.

For example, in the above interview with editors from the Foreign News and Washington Post correspondents,

Chinese Premier Wen Jiabao explained that China leadership recognizes that public ownership and multiple forms

of ownership, e.g., private property, can develop side by side. He referred to Chinas commitment to this dual

approach, using the term, unswervingly to both property security policy tracks, We will unswervingly uphold the

public ownership system and develop the public sector, and we will unswervingly encourage, support and guide the

development of the non-public sector, the private-sector included.37 Premier Wen Jiabao pointed out to his

interviewers that this kind of dual approach has been written into Chinas constitution. In the recently held third

plenary session of the 16th Central Committee of the Chinese Communist Party, the concept of property rights was

introduced in a way that made it very clear that Chinas leadership would formulate new legislation to protect public

and private property.

Premier Wen Jiabao went on to explain, Such a move was entirely based on China's actual conditions in the

spirit of seeking truth from facts, because this will help accelerate China's economic development. It will also help

ease the pressure from employment. It will also give greater scope to the creativity and enterprising spirit of the

Chinese population and will in the end help us achieve the goal of common prosperity.38

Fan Gang, director of the National Economic Research Institute in Beijing elaborated on Chinas use of this kind

of cross-walk development as a dual-track system to avoid resistance to economic reform and prevent social

disorder, The so-called "dual-track system" was first introduced in price reform, but it actually had been used

extensively in most reform areas, including urban reform, foreign trade reform, labor reform, housing reform, social

19


20/23

security reform, and most important, ownership reform. "Dual tracking" refers to adopting some aspects of a market

economy while simultaneously operating under the old planned economy regimen.

Transition from a planned economy to a market economy through the dual-track system reflects the most

fundamental characteristic of Chinese economic system reform. -- Develop the elements (or sectors) of a new

system side by side with the old unreformed system, and then, if things go well, reforming the old system in line

with the positive developments emerging from the new components of the economy. This reform strategy may not

be justified by "eliminating efficiency loss" or "minimizing the implementation costs" of the reform, but may be

rationalized by reducing the costs of political conflict the reform may generate in the real world.39

The changes under a strong central control need to be small and sure, or the regime invites wholesale social

disorder. Therefore, the loosening of the reins on the market is done in small steps as well, in order for governance,

social, and market participants to experiment in regulatory intuition reform and to learn the processes of unleashing

and regulating the power of a more open market. This semi-informal window allows the various elements and

stakeholder to harmonize their differences and their contributions to develop a more robust and harmonious

economy. Chinas recent past experiences have shown this cross-walk along their Institution Possibility Frontier is ahigh wire balancing act that often can be only one step or so away from the dangers posed by each of the dual

threats. Such changes take courage, and sufficient civic capital resources, but must be supported by the desire to

understand the nations present situation at risk.

5.4 Implications of Civic Capital Development for China

Modern China is not a stranger to top down programs on the part of a strong central government to develop civic

capital. Although more recently, China has developed its economy transition using its own the dual track cross-

walk of institution building, our brief analysis regarding Chinas future institution possibility choices highlighted a

growing disconnect between the transitioned industrial and service economies of urban centers and the continuing

stagnation of the economies of rural villages. For example, under the collectivization of rural land 1966 to 1978,

90% of the farmers were forced to participate in the Collective Health Insurance. Since the land reform of 1978-80

fewer than 10% of the farmers have had Health Insurance (See Figure 6. Are Rural Villages Left Behind?).40 The

rural decollectivization done prior to 1980 may need to be reexamined in light of the current growth of Chinas

industrial and service economies. Civic capital as well as economic institutional resources may be needed to be

developed in order to bring the rural regions and farming villages into a harmonious pace with the rest of the

nations developing economic sectors. Several of the papers produced by the workshop participants focused on this

situation in farming village economies, namely utilities,41 health care, 42rural taxation, and land management. The

institutional possibility choices to engender harmonious society throughout the many Chinas would include

education in everyones stake in participating in civil governance, as well as education in health, agriculture,

marketing, unambiguous land ownership for farmers, agricultural research, and ecology support.

6. Conclusions - Scaling the IPF Framework

20

Figure 6. Are Rural Villages Left Behind?


21/23

One test of any new organization theory is how well it scales up and how well it scales down. As shown above

the IPF framework can be usefully applied to sub-economies such as regional and rural economies. In scaling down

further, institutions and organizations can be considered sub-economies. Therefore, institutions can be expected to

be subject to organizational (and social) losses due to excessive internal central control and social disorder from

within the organization or institution itself.43Perhaps the same could be said to be true for families and individuals,

only from a deeper core of their humanity. It is beyond the scope of this paper to examine the theory and dynamics

of Institution Development, but only to point out that this is not a trivial task in the best of situations. It requires

extensive research and analysis to put any credibility into Most Efficient Institutional Choices and move the

communities social, civil, and markets to a more robust and harmonious place.

By the same token, the IPF framework can be scaled up as well. The IPF framework applies to supra-economies

such as the European Union, the United Nations and the global economy itself. All nations, whether large or small,

developed, being developed or undeveloped alike must find their way to transition their economies to the new global

economy. Television, airplanes, and computers have made us all partners in this new global community where

change is the ruse rather than the exception. We are all in this new global community together. Applying the IPFframework to the global economy would make a very interesting analysis indeed. What are the social losses in that

economy? What are the Institutional Possibility Choices that abound there?

Endnotes

21


22/23

1 Djankov, Simeon, Edward Glaeser, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, NewComparative Economics, World Bank Policy Research Working Paper, 3054, May 2003,http://econ.worldbank.org/files/26865_wps3054.pdf,Accessed: 2/21/04.

2 Djankov, et al, New Comparative Economics, World Bank Policy Research Working Paper, 3054, May 2003, p. 63 Djankov, et al, New Comparative Economics, p. 14 Djankov, et al, New Comparative Economics, p. 65 Dallago, Bruno, Comparative Economic Systems and the New Comparative Economics: Foes, Competitors or

Complimentary, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University, Tokyo, ,

First Draft, October 29 2003, Dallago notes that in standard charts of this type, there is a convex isoquant, which is theinstitutional possibility frontier (IPF) p. 15, which is a graph of all possible combinations of inputs that result in theproduction of a given level of output used in the study of microeconomics to measure the influence of inputs on the levelof production or output that can be achieved. http://eaces.gelso.unitn.it/Eaces/BB/BB_BD_FQ.htm. Accessed June 29,2005, p. 12.

6 Dallago, Bruno, p. 15-16.7 Dallago, Bruno, 2003.8

Bruce, Raymon R., Yuliya Gonoratska, Olga A. Titar, Developing NEW COMPARATIVE ECONOMICS as a Tool

for Joint Public and Private Sector Research and Training for Eastern, Central, CIS Countries, and China to Use to BuildMore Robust Economies, a paper presented at the NISPAcee 13th Annual Conference, Moscow, Russia, May, 2005.

9 Djankov, et al, New Comparative Economics, p. 6.10 Potapchuk, William R. and Jarle P Crocker Jr., Exploring the Elements of Civic Capital,National Civic Review; Making

Citizen Democracy Work, Vol. 88, No. 3, Fall 1999, p. 175-6.9. See also Putnam, R. Making Democracy Work: Civic

Traditions in Modern Italy, Princeton N.J.: Prentice, Princeton University press, 199311 Djankov, et al, New Comparative Economics, p. 6.12 Djankov, et al, New Comparative Economics, p. 5-6.13 Dallago, Bruno, 2003, p. 13.14 Portes, Alejandro, and Patricia Landolt, Unsolved Mysteries: The Tocqueville Files II; The Downside of Social

Capital , The American Prospect Online Edition, Vol. 7, No 26, May 1 1996, www.prospect.org/web/, accessed 7/6/05.15 Djankov, et al, p. 14.16 Dallago, Bruno, 2003, p. 11-22.17 Lewin, Kurt, and P. Grabbe, Conduct Knowledge, and Acceptance of New Values, The Journal of Social Issues, Vol.

I, No. 3, August 1945.18 Eaton, Joseph W. Institution Building as Planned Change, Institution Building and Development; From concepts to

Application, Joseph W Eaton, Ed., Sage Publications :Beverly Hills, 1972, p. 1.19 Esman, Milton J., The Elements of Institution Building,Institution Building and Development; From concepts to

Application, Joseph W Eaton, Ed., Sage Publications :Beverly Hills, 1972, p. 24.20 Kuchma, L., Address of the President of Ukraine to the Verkhovna Rada of Ukraine, 2002/08/21, Embassy of Japan in

Ukraine, http://www.ukremb-japan.gov.ua/eng/news/address_of_the_president/226/, Accessed: January 18, 2004.21 Kuchma, L., and S. Berlusconi, Ukraine-European Union Summit - Joint Statement.22

Bruce, Raymon R., Yuliya Gonoratska, Olga A. Titar, Developing New Comparative Economics, p. 17.23 Meyers, Steven Lee, Ukraine President Sworn In, Promising to Promote Unity, New York Times, January 24, 200524 Yuschenko, Viktor, President of Ukraine, September 15, 2005, The Decree of the President of Ukraine #1276/2005,

http://www.preident.gov.ua/documents/3167.html. Also see Appendix A. for the full text of this decree.25 Jin, Hehui and Yingyi Qian, Public versus Private Ownership of Firms: Evidence from Rural China, Q. J. Econ. 113,

3:773-808, Nov. 1998. Cited by Djankov, et al, in New Comparative Economics, p. 2.26 Lenova Home Page, http://www.lenovo.com/lenovo/us/en/index.html, accessed July 1, 2005.27 Li, David (1996), Ambiguous Property Rights in China's Transition, The Davidson Window, Winter, 1996, pp. 1-6.

28 Li, David (1996), Ambiguous Property Rights in China's Transition, p.129 Ibid.30 Basu, Susanto and Li, David D., Corruption and Reform, Mimeo Department of Economics, University of Michigan,

1995.31 Huang, Yasheng and Li, David D., Bureaucratic Capital Utilizing Reforms versus Bureaucratic Capital Destroying

Reforms, mimeo, University of Michigan, 1996.32 Li, David (1996), p.?.33 Li, David (1996), p ?34 Washington Post interview with Premier Wen Jiabao, Interview with Chinese Premier Wen Jiabao, Nov. 21, 2003 by

Executive Editor Leonard Downie Jr., Assistant Managing Editor for Foreign News Philip Bennett, and Washington Post
http://econ.worldbank.org/files/26865_wps3054.pdfhttp://eaces.gelso.unitn.it/Eaces/BB/BB_BD_FQ.htm.%20Accessed%20June%2029http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20/web/page.ww?name=View+Author&section=root&id=313http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20/web/page.ww?name=View+Author&section=root&id=126http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20/web/view-print.ww?id=4943http://www.prospect.org/web/http://www.ukremb-japan.gov.ua/eng/news/address_of_the_president/226/http://www.preident.gov.ua/documents/3167.htmlhttp://www.lenovo.com/lenovo/us/en/index.htmlhttp://econ.worldbank.org/files/26865_wps3054.pdfhttp://eaces.gelso.unitn.it/Eaces/BB/BB_BD_FQ.htm.%20Accessed%20June%2029http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20/web/page.ww?name=View+Author&section=root&id=313http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20/web/page.ww?name=View+Author&section=root&id=126http://www.prospect.org/web/%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20%20/web/view-print.ww?id=4943http://www.prospect.org/web/http://www.ukremb-japan.gov.ua/eng/news/address_of_the_president/226/http://www.preident.gov.ua/documents/3167.htmlhttp://www.lenovo.com/lenovo/us/en/index.html


23/23

correspondents John Pomfret, Philip P. Pan and Peter S. Goodman; last updated at: (Beijing Time) Monday, November24, 2003.

35 Washington Post, Wen Jiabao Interview36 Djankov, et al, p. 2-3.37 Washington Post, Wen Jiabao Interview.38 Ibid.39

Fan Gang, China's Dual-Track Transition Toward the Market: Achievements and Problems, The 1990 Institute,

August 1994, accessed January 12, 2002, http://www.1990institute.org/publications/pubs/ISUPAP9.html.40 Jiang, Wenxi Analysis of Institution Development of Chinas Health insurance in Countryside by Framework of NewComparative Economics, a Working paper from the New Comparative Economics Workshop, School of PublicAdministration, Renmin University of P. R. China, May-June, 2005.

41 Qing, Li, Case Study of Institutional Economics Chinas Reform in the Natural Monopoly of Pubic Utilities, a

Working paper from the New Comparative Economics Workshop, School of Public Administration, Renmin Universityof P. R. China, May-June, 2005.

42 Jiang, Wenxi Analysis of Institution Development of Chinas Health insurance in Countryside.43 Dallago, Bruno, 2003, p. 10.
http://www.1990institute.org/publications/pubs/ISUPAP9.htmlhttp://www.1990institute.org/publications/pubs/ISUPAP9.html

New Comparative Economics Glasgow 19 New Format Ready

Documents

Transcript of New Comparative Economics Glasgow 19 New Format Ready