>Doug
>----
>
>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.