August 08, 2011

Reform of the West: Lessons from the East

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Twenty years ago, the idea of post-communist "transition" looked straightforward. There were 30 or so economies that qualified as "transitional." The starting point (communism) and the end point (a democratic market economy) would be roughly the same for all of them, with a short one-way street in between.

Looking back, what impresses is the astonishing variety of routes out of communism, more and less marketized and more and less democratic. Compare Poland with Russia, China, Belarus, and Uzbekistan, for example. Explaining that diversity is a vast and worthy undertaking.

I'm reading Timothy Frye's new book, Building States and Markets after Communism: The Perils of Polarized Democracy (Cambridge University Press, 2010). Using lots of quantitative and narrative data from the former Soviet bloc, Frye argues that post-communist reforms were faster and more consistent, with more social transfers, when the political system was democratic. He shows, however, that the benign influence of democracy was conditional on low political and socio-economic polarization. Polarized democracies pursued reforms at a slower pace, with less perseverance and more wavering, and less generous assistance for the losers. The outcomes of polarized democracy were scarcely better than those of autocracy.

Polarized democracy: What Western country does that remind you of? America springs to mind. Growing socioeconomic inequality and increasing Red-Blue polarization have made America's problems increasingly intractable. America's public finances demand reform, but reform has been delayed and inconsistent. The debt-ceiling process was just a high-profile symptom.

Before Europeans start thumbing their noses at America, remember that the reform gridlock in the European Union looks as insoluble, or worse. Europe is polarized between debtors and creditors. And, for the purposes of the only reform that looks able to solve this polarization, a fiscal union, Europe lacks democratic government at the centre.

It turns out that reform of the West could be informed by the experience of reform in the East.

An afterthought: Let me belatedly advertise the most insightful comment that I've read on America's fiscal stalemate, Risk and the government's credit rating, by my Hoover colleague Keith Hennessy, published online just before the decisive vote in the House of Representatives. He argues that American leaders were balancing liquidity risk, solvency risk, and political risks (to themselves). Did they get it right? Read and find out.

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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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  • Thanks Tony! by Mark Harrison on this entry
  • A very good read, Mark. I hope you write more of these! by Tony Addison on this entry
  • I appreciate the kind words. by Mark Harrison on this entry
  • Fascinating read, thanks. by Andrew Sebastian on this entry
  • Mark, An excellent piece and great rebuttal. Those who do not remember history are doomed to repeat … by Mark Allen on this entry
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