Doug
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Whither Reform? Ten Years of the Transition Joseph E. Stiglitz
Abstract
Ten years after the beginning of the transition, what are the lessons to be learned? Broadly speaking, most observers would conclude that China's path to the transition has been a success so far, while Russia's path has not been. I argue that the failures of the reforms in Russia and most of the former Soviet Union are not just due to sound policies being poorly implemented. I argue that the failures go deeper, to a misunderstanding of the foundations of a market economy as well as a misunderstanding of the basics of an institutional reform process. For instance, reform models based on conventional neoclassical economics are likely to under-estimate the importance of informational problems, including those arising from the problems of corporate governance; of social and organizational capital; and of the institutional and legal infrastructure required to make an effective market economy. They are also likely to underestimate the importance of the creation of new enterprises-and the difficulties of doing so. The promise, for instance, of quick economic transformation, and the creation of a "people's capitalism," based on voucher privatization with investment funds has proven illusory. An alternative strategy of decentralization, pushing economic decision-making down to the level where the stakeholders can protect their own interests without presupposing elaborate legal machinery that will take much longer to evolve, may under the circumstances prove to be more effective. Given the choice between the momentum of bottom-up popular involvement in "flawed" reforms and top-down imposition of what reformers see as "clean model institutions," an argument can be made in favor of using our knowledge and experience to work to improve the bottom-up approach to transformation.
The varied experiences of the countries going through the process of transition represents one of the most important set of economic and social experiments ever conducted, and should provide a rich opportunity for researchers both to understand the process of reform and to gain insights into the workings of economies. The limited success in so many of the countries means that their remain many opportunities for applying the lessons of such studies.