Transition: Changes After...
Transcript of Transition: Changes After...
Transition: Changes After Socialism*
November 2014
Leszek Balcerowicz Warsaw School of Economics
*I’m grateful to Magda Ciżkowicz, Aleksander Łaszek, Sonja Wap and Marek
Tatała for their assistance in preparing this presentation.
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Content: 1. The institutional systems, policies, and outcomes
2. Socialism as an institutional system
3. The economic costs of socialism
4. The institutional trajectories after socialism
5. The economic outcomes after socialism
6. The non-economic outcomes after socialism
7. Explaining the differences in economic growth
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1. The institutional systems, policies, and outcomes
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Domestic Institutional System
Propelling institutions
Constraining institutions
Economic Policy
Institutional (reforms)
Fiscal, monetary policies. Direct interventions
Other determinants of policies: - personality factors - political shocks, etc.
Long-run economic growth
External shocks
(1)
(3)
(2)
(8)
(6)
(4)
(7)
(5)
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- Policies – actions of public rulers - Non-institutional policies (institutions x personality
factors) - Constraining institutions:
- primary – the political system (checks and balances) - secondary (e.g. banking supervision, independent
central bank) - Propelling institutions:
- type and the level of protection of property rights - the extent of market competition - fiscal and regulatory burden
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2. Socialism as an institutional system
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2. Socialism as an institutional system
1. The monopoly of the non-private sector. 2. Command economy 3. Non-democracy (the “democratic socialism” is impossible) 4. A long list of “crimes against socialism” (as distinct from
crimes against other private persons) Socialism was characterized by: a) Weak propelling institutions: responsible for the declining rate of economic
growth over a longer run (waste, low innovativeness) b) Weak or non-existent constraining institutions: Responsible for the catastrophic policies which produced deep decline in GDP and sometimes in population (Stalinism, Maoism).
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3. The economic costs of socialism
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Per-capita GDP (in 1990 international dollars) in 1950 and 1990:
Poland vs. Spain Hungary vs. Austria.
12210
2447
5115
23972000
6000
10000
14000
1950 1990
Poland Spain
2480
6471
16881
3706
2000
6000
10000
14000
18000
1950 1990
Hungary Austria
• Countries under socialism lost a lot of distance to Western European
economies.
(102%) (98%)
(42%)
(239%)
(67%)
(149%)
(38%)
(261%)
Source: Maddison Database.
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0%
5%
10%
15%
20%
25%
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001Source: Maddison Database.
Per-capita GDP (in 1990 international dollars) in 1950 and 2003:
North Korea vs. South Korea Cuba vs. Chile
854 1127
15732
854
0
4000
8000
12000
16000
1950 2003
North Korea South Korea
20462569
10950
3670
0
4000
8000
12000
1950 2003
Cuba Chile
Per-capita GDP (in 1990 international dollars) in China (Western Europe=100).
(100%) (100%)
(1396%)
(7%)
(56%)
(179%)
(23%)
(426%)
0%
5%
10%
15%
20%
25%
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
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4. The institutional trajectories after socialism
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-10
-5
0
5
10
Political freedom 2012 (Polity IV)
-5> fully institutionalized autocracies
-5< mixed, or incoherent, authority regimes <5
-5< mixed, or incoherent, authority regimes <5
5< fully institutionalized democracies
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Source: Polity IV Project
0
10
20
30
40
50
60
70
80
90
Private sector share in GDP (%) 1994
2010
Source: EBRD - Structural and institutional change indicators
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Merchandise trade as a share of GDP is the sum of merchandise exports and imports divided
by the value of GDP, all in current U.S. dollars. (WDI)
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0
20
40
60
80
100
120
140
160
180% of GDP
Trade openness (merchandise trade as % of GDP)
1994
2011
Source: World Bank, World Development Indicators
out of scale
2010 Sing: 317% H-K:
376%
Observations
- Democracy was introduced and maintained in the countries which introduced capitalism (CEE)
- Non-democratic political systems co-exist with:
- quasi-capitalist economies (e.g. Russia)
- quasi-socialist economies (e.g. Belarus, Central Asia)
- Important questions regarding the variation of the economic systems after socialism include especially the differences between the capitalist systems in CEE and quasi-capitalist systems elsewhere
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5. The economic outcomes after socialism
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0
2000000
4000000
6000000
8000000
10000000
12000000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
US
$, c
on
stan
t p
rice
s, c
on
stan
t P
PP
s, O
ECD
bas
e
year
, mill
ion
s
GDP levels
China
Russia
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP annual growth rates
China
Russia
Since 1990’s GDP has been growing
more rapidly in China
Source: OECD
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP per capita annual growth rate
China
Russia
1837
7402
China 7844
14730
Russia
0
2000
4000
6000
8000
10000
12000
14000
16000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Pe
r h
ead
, US
$, c
on
stan
t p
rice
s, c
on
stan
t P
PP
s,
OEC
D b
ase
ye
ar
GDP per capita levels
Source: OECD
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Population growth rates
China Russia
1213 mln
China
1353 mln
148 mln
Russia
142 mln 0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Population levels
Population levels and growth rates in China
are very high, especially in comparison to
those observed in Russia.
Source: OECD
China
Russia
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
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95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
% o
f G
DP
Fuels and mining products - export value in relation to GDP
3.1% China
72.3% Russia
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Fuels and mining products export as percentage of total export
0
5
10
15
20
25
30
35
40
45
50
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
% o
f G
DP
Exports of goods and services (% of GDP)
China
Russia
Source: World Trade Organisation and OECD
Source: EBRD Transition Report 2008; WB WDI, IMF WEO
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(GDP per capita growth in
2008 in relation to 1989 level)
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-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25% GDP per capita (constant US$) change between 2007 and 2012 (in %)
Source: World Bank, World Development Indicators
Source: The Conference Board Total Economy Database™ , GDP per capita in 2013 US$ (converted to 2013 price level
with updated 2005 EKS PPPs)
6. The non-economic outcomes after socialism
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Life expectancy at birth indicates the number of years a newborn infant would live if
prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.
63 63
67
68 69
67 68
71
65
70 70 71
69
68
72
70 69
71
69
71 71
73
66
63
71
74 75
74
77
71
76 77 77
77
65
68 68
69 69 70 71 71
73 74 74 74 74 75 75
76 76 77
78
80
73 74
77
79
80 81 81 81 82 82 82
83
60
65
70
75
80
85
Life expectancy at birth, total (years)
1990
2011
Source: World Bank, World Development Indicators
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Under-five mortality rate is the probability per 1,000 that a newborn baby will die before reaching
age five, if subject to current age-specific mortality rates. (WDI)
116
98
77
93
72
57
47
55
37 37
22 27
21 21 18 19 17 17 17 14 21
10
49
59
80
19
8 13 11 9 10
15 8
63
53 49
45
31 28
21 18 16 13 12 12 10 8 8 6 6 6 6 4 4 3
16 16 15 9
5 4 4 4 4 3 3
0
20
40
60
80
100
120Mortality rate, under-5 (per 1,000 live births)
1990
2011
Source: World Bank, World Development Indicators
7. Explaining the differences in economic growth
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Explaining the differences in economic outcomes
Two main determinants of long-term economic growth (see
slide 4):
1. The propelling institutions
2. The negative shocks, which mostly depend on domestic
policies which in turn are the product of personality factors
of the policy-makers and the constraining institutions.
The economic growth after socialism was the stronger:
1. The more progress has been achieved in strengthening the
propelling institutions (the extent of market reforms).
2. The less frequent were the strong negative shocks.
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• Finding no 1 is strongly supported by substantial empirical
literature reviewing the experience of countries in transition.
Polanec, Saŝo (2004)
”(…) we find that in later stages of transition, measures of economic reforms matter for productivity growth, although with a lag, which is in our exercise equal to four years. This result confirms importance of reform efforts in enhancing the potential for growth.”
Krueger, Anne O. (2004)
”(…) it is worth noting that those transition countries that experienced the most rapid structural reforms have, by and large, experienced more rapid growth. This is true, for example, of the Baltic States. In recent years, Russia has also seen higher rates of growth – a result, in large measure, of reforms that were implemented in the 1990s.”
Fischer, Stanley; Sahay, Ratna (2004)
”The general conclusion was that the effect of initial conditions, while strong at the start of transition, wears off over time (…). Moreover, the importance of the fiscal policy variable (the budget balance) increases with the longer period data set. The coefficients on the reform indices (…) are significant throughout the period, irrespective of the time period considered.”
Falcetti, Elisabetta; Lysenko, Tatiana; Sanfey, Peter (2006)
”During transition, a positive correlation between progress in market-oriented reforms and cumulative growth is observed for most countries. This is reassuring to those who have promoted the virtues of reforms; is also serves as a warning of the dangers that arise when ‘reform fatigue’ set in, as it appears to have done in parts of some region (…) We find that the importance of initial conditions as a determinant of growth has declined over time, but that fiscal surpluses remain positively associated with higher growth.”
Aslund (2012) The Baltic States and Central Europe have accomplished the best results. They pursued all major reforms together in a comprehensive, early, and radical package. There reforms were deregulation, macroeconomic stabilization, privatization, institutional reform and democratization. Nothing suggests that it would be advantageous to intentionally hold back on any reform, whereas many reforms were technically complex and could not possibly be done very fast. (…) The slower reforms were, the grater was the danger that rent-seeking interests would become entrenched and block democratization and the combat of corruption, of which they were the main beneficiaries.”
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Why better economic results go hand in hand with better
non-economic indicators (health, environment, etc.)?
Some crucial factors conducive to long-term economic growth are
also conducive to environmental improvement and to favourable
health-related developments, e.g.
• economic reforms
less waste
less environmental deterioration
and less damage to health
healthier foodstuffs become more
available and relatively cheaper
• privatisation (separation
of companies from the state)
• ecological regulations are
more strictly observed
• stronger enforcement of
laws
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• less frequent accidents
on the job