Pinter on NATO "bandits"

[Brad De Long]

>      With regard to the transition issue I would suggest
>that things are not quite as clearcut as the "Harvard/IMF
>consensus" that you basically repeat (and which has been
>published ad nauseum in the JEP).  It certainly is true that
>if one cooks up some "liberalization index" and then runs
>a regression of it against per capita GDP growth in the last
>five years or so over a sample of "transition economies." one
>gets a significant positive correlation, despite some outliers.
>     But I would suggest that this is not as simple as it
>appears and that what may be more important are the
>details of what is going on.   For example, you list the
>Czech Republic as a great success story.  But it has gone
>into recession after a major flop of its shock therapy program
>(arguably "just an outlier").  To pick on one crucial element,
>privatization, it is now pretty clear that rapid privatization is not
>a good idea and has generally led to very bad outcomes, with
>Russia and the Czech Republic being prime examples.
>      Curiously, Poland, which you pose as a highly reformed
>economy (and it is) has been much slower to privatize.  There
>remains a much larger state-owned sector in Poland than there
>is in either Russia or the CR (although Poland has pretty much
>always maintained private ownership in agriculture).  In effect,
>Poland has followed more the model of China, with at best
>a gradual to non-existent privatization of the large SOEs and
>most of the private sector development coming from newly
>established enterprises.
>     What seems to be much more significant is the removal of
>state subsidies and the soft budget constraint.  This was done
>in Poland and so the SOEs have had to behave in an efficient
>manner (leading unfortunately to the high unemployment rate that
>lies behind the inability of any government in Poland to get itself
>reelected), whereas the officially privatized firms in Russia and
>the CR continued to get propped up and have not restructured.

My reading was that in Poland reform has been fast even though
*privatization* has been slow--that privatization was only one element of
reform, that there were others that were more important, and that the view
taken in, say, Shleifer, Vishny, and Boycko's _Privatizing Russia_ that if
you can do only one thing you should privatize--and so create a class with
a strong material interest in economic reform and growth and the potential
political voice to make its interest heard, in short that you should create
a "bourgeosie"--that that view was wrong. Better to have (as in Poland)
concentrated on bringing rational calculation to the state sector,
privatizing small-scale agriculture, eliminating inflation, and putting
together an efficient tax-collection system.

I haven't talked to Andrei Shleifer about this since before the launching
of voucher privatization. But if I recall correctly (and I may not) he
thought back then that rapid privatization was the only way to break the
links between enterprises and government that led to widespread state
subsidies and the soft budget constraint.

One way to read the current situation is that *not* *even* privatization
was enough to eliminate the soft budget constraint in Russia--that, as
Andrei says, most bourgeoisies are more interested in sucking at the teat
of the state than in economic growth, and that it remains largely a mystery
just how the "progressive" western European bourgeoisie that Marx admired
was formed...

But here I should defer to you, as "transition" is well beyond my area of
expertise. I think your comments on income inequality are very important,
however...

Brad DeLong