Changes After Socialism*

Transcription

1 Changes After Socialism* November 2016 Leszek Balcerowicz *I m grateful to Magda Ciżkowicz, Aleksander Łaszek, Sonja Wap, Marek Tatała and Tomasz Dróżdż for their assistance in preparing this presentation. 1

2 Content: The institutional systems, policies, and outcomes; socialism as an institutional system. The economic costs of socialism. The institutional trajectories after socialism. The economic outcomes after socialism. The non-economic outcomes after socialism. Explaining the differences in economic growth. 2

3 1. Dimensions and types of Institutional Systems 1. Socialism (communism) Democracy Civil Rights Rule of Law Economic freedom Fiscal stance Examples of countries Non-D. Banned V. low None; Command Economy North Korea, Cuba 2. Quasi-socialism Non-D. Banned V. low Dominance of SOE s. A little private sector Belarus, Central Asia, Venezuela 3. Free Market Capitalism Usually D. Extensive High Wide Hongkong, Switzerland, Ireland 4. Crony capitalism Usually non-d. Limited Low Limited due to uneven protection of property rights Russia, Ukraine 5. Overregulated and/or fiscaly unstable capitalism D. or non-d. Rather high Limited - due to arbitrary regulations Limited due to overregulation and/or fiscal instability Italy, France Examples of available measures Political Rights (Freedom House) Civill Liberties Rule of law (World Bank) Economic Freedom Index (Fraser Institute), Spending/ GDP ratio Range % 3

4 2. The economic costs of socialism. Countries under socialism lost a lot of distance to Western European economies. GDP per capita (in 1990 international dollars) in 1950 and 1990 (2005 for Koreas, Chile and Cuba) Spain Poland Austria Hungary South Korea North Korea Chile Cuba Source: The Maddison-Project, version. 4

5 The economic costs of socialism. Countries under socialism lost a lot of distance to Western European economies. GDP per capita in China % 35% 30% 25% 20% 15% 10% GDP per capita (in 1990 international dollars) - Western Europe=100% 5% 0% Source: The Maddison-Project, version. 5

6 Estonia Czech Republic Lithuania Slovenia Slovakia Latvia Poland Romania Hungary Croatia Ukraine Russia Tajikistan Belarus Uzbekistan Norway Canada Germany United States United Kingdom Japan Taiwan South Korea Hong Kong Mexico Singapore Zimbabwe Venezuela China Cuba 3. The institutional trajectories after socialism. Freedom of the Press 2016 (Freedom House). Degree of pressure placed on the flow of objective information and the ability of media platforms to operate freely and without fear of repercussions POST-COMMUNIST COUNTRIES Source: Freedom House Freedom of the Press 2016 report, 6

7 Turkmenistan Tajikistan Belarus Russia Armenia Albania Kyrgyzstan Kosovo Macedonia Ukraine Bosnia and Herzegovina Georgia Hungary Moldova Montenegro Bulgaria Croatia Latvia Romania Slovakia Lithuania Czech Republic Poland Slovenia Estonia North Korea China Venezuela Zimbabwe Argentina Singapore Peru Turkey India Botswana Brazil South Korea Chile Taiwan 3. The institutional trajectories after socialism. Rule of Law (Transformation Index BTI 2016). Evaluation of the rule of law with an eye to the Separation of powers, Independent judiciary, Prosecution of office abuse, Civil rights POST-COMMUNIST COUNTRIES Source: Transformation Index BTI 2014, 7

8 Czech Republic Estonia Lithuania Poland Slovakia Slovenia Hungary Romania Albania Bosnia-Herzegovina Macedonia Moldova Montenegro Ukraine Armenia Kosovo Kazakhstan Kyrgyzstan Belarus Russia Turkmenistan Canada Chile Denmark France Germany Japan United Kingdom United States Argentina Greece Taiwan Peru Singapore Turkey Thailand Zimbabwe North Korea 3. The institutional trajectories after socialism. Civil Liberties 2016 (Freedom House). Each country is assigned a numerical rating from 1 to 7 for civil liberties, with 1 representing the most free and 7 the least free. 7 6 POST-COMMUNIST COUNTRIES Source: Freedom House 2016 report, 8

9 Estonia Czech Republic Lithuania Poland Slovak Republic Hungary Georgia Macedonia Romania Bulgaria Kosovo Ukraine Armenia Belarus Bosnia and Herzegovina Russia Tajikistan Turkmenistan Denmark Australia Canada Hong Kong SAR Ireland Singapore Chile Japan United States Korea, South Taiwan Brazil Greece Peru Thailand Turkey Zimbabwe Korea, North Venezuela 3. The institutional trajectories after socialism. Protection of property rights 2016 (Heritage Foundation). Measures the degree to which a country s laws protect private property rights and the extent to which those laws are respected. Each country s property rights are scored from 0 to POST-COMMUNIST COUNTRIES Source: Heritage Foundation Index of Economic Freedom 2016 report 9

10 Georgia Lithuania Armenia Estonia Romania Latvia Czech Rep. Poland Bulgaria Kazakhstan Hungary Montenegro Macedonia Kyrgyz Republic Croatia Tajikistan Bosnia and Herzegovina Russia Ukraine Hong Kong Singapore New Zealand Canada Ireland Australia United Kingdom United States Taiwan Germany Germany Norway Sweden Korea. South Japan Greece Turkey Thailand Brazil Congo. Dem. R. Zimbabwe Venezuela 3. The institutional trajectories after socialism. Economic Freedom of the World 2016 (Fraser Institute). Measures the degree to which the policies and institutions of countries are supportive of economic freedom POST-COMMUNIST COUNTRIES Source: Economic Freedom of the World, Fraser Institute 2016, 10

11 3. The institutional trajectories after socialism. Private sector share in % of GDP (1991 and 2010). 90% 80% POST-COMMUNIST COUNTRIES 70% 60% 50% 40% 30% 20% 10% 0% Source:*The private sector shares of GDP in 1991 represent rough EBRD estimates, based on available statistics from both official (government) sources and unofficial sources; Transition Report 2000; 11

12 Russian Uzbekistan Azerbaijan Armenia Kazakhstan Turkmenistan Tajikistan Georgia Romania Poland Ukraine Kyrgyz Moldova Latvia Belarus Bulgaria Estonia Slovenia Hungary Czech Republic Slovak Brazil Greece Italy Spain Turkey Chile Portugal Mexico Ireland Korea, Rep. Singapore Hong Kong 3. The institutional trajectories after socialism. Trade openness (merchandise trade as % of GDP) in 1995 and 2014 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. 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% POST-COMMUNIST COUNTRIES Source: World Bank, World Development Indicators 12

13 Social spending in percent of GDP 3. The institutional trajectories after socialism. Fiscal Stance (the State of the Public Finance) GDP per capita and social spending (years *) Finland Denmark France Sweden Austria Ukraine Slovenia Belgium Holland Portugal Italy Germany Serbia Latvia Greece UK Iceland Slovakia SpainJapan Hungary N. Zealand Brazil Croatia Poland Malta Ireland Moldova Mongolia Belarus Estonia Cyprus Bulgaria Lithuania Israel Czech Rep. USA Macedonia Russia Canada Turkey Australia Uzbekistan Switzerland Romania Lesotho Egypt Iran S. Africa Albania Tunisia Chile Georgia Colombia Mauritius C. Verde China Mexico Azerbaijan Seychelles El Salvador Maldives Kazakhstan Korea Hong Kong Bhutan Peru Taiwan Jamaica Yemen Timor-Leste Indonesia Norway UAE Singapore Luxembourg GDP per capita based on PPP in current international dollars * or the closest available. Sources: IMF Government Finance Statistics, OECD.SOCX, World Bank, Eurostat, IMF World Economic Outlook 13

14 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 14

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18 Ukraine Tajikistan Serbia & Montenegro Moldova Georgia Kyrgyz Republic Croatia Macedonia Russian Federation Hungary Romania Czech Republic Bulgaria Slovenia Latvia Lithuania Kazakhstan Azerbaijan Uzbekistan Belarus Turkmenistan Estonia Armenia Slovak Republic Poland Albania Brazil Germany Hong Kong Chile South Korea 4. The economic outcomes after socialism. GDP per capita growth (1989= 100%).. GDP per capita in 2014 US$ (converted to 2014 price level with updated 2005 EKS PPPs) 350% 300% 250% 200% 150% 100% 50% 0% POST-COMMUNIST COUNTRIES Source: The Conference Board Total Economy Database 18

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20 5. The non-economic outcomes after socialism. Life expectancy at birth, total (years).. 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 POST-COMMUNIST COUNTRIES Source: World Bank, World Development Indicators 20

21 Turkmenistan Uzbekistan Tajikistan Russian Federation Kyrgyz Republic Azerbaijan Kosovo Ukraine Moldova Kazakhstan Belarus Lithuania Latvia Georgia Romania Macedonia, FYR Hungary Montenegro Bosnia and Slovak Republic Estonia Poland Croatia Albania Czech Republic Slovenia Chad Congo, Rep. India China Argentina United States Germany Canada 5. The non-economic outcomes after socialism. Life expectancy at birth, total (years).. 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 POST-COMMUNIST COUNTRIES Source: World Bank, World Development Indicators 21

22 5. The non-economic outcomes after socialism. Mortality rate, under-5 (per 1,000 live births). 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 POST-COMMUNIST COUNTRIES Source: World Bank, World Development Indicators 22

23 5. The non-economic outcomes after socialism. Improvement in social indicators in Poland have reached even higher level than that of economic growth.. Human Development Indicator Education Moderate Inequalities Improving overall satisfaction 39th place in terms of the UNDP Human Development Index 47th place in terms of income per capita Index takes into account the results of education and life expectancy Polish students achieved very good results in international OECD PISA competency tests: 13th place in mathematics 9 in life sciences 10 in reading comprehension Since 1996 the Gini coefficient remained stable at around 33% And remains below the average for OECD countries and the EU In terms of the OECD Better Life Index Poland ranks 24th among 34 OECD countries In terms of income per capita occupies 29th place among OECD countries 23

24 6. Explaining the differences in economic growth. Two main determinants of long-term economic growth: 1. The propelling institutions (property rights, competition, rule of law) 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. 24

25 6. Explaining the differences in economic growth. 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. less waste economic reforms stronger enforcement of laws privatisation (separation of companies from the state) less environmental deterioration and less damage to health healthier foodstuffs become more available and relatively cheaper ecological regulations are more strictly observed less frequent accidents on the job 25

26 6. Explaining the differences in economic growth. Finding no 1 is strongly supported by substantial empirical literature reviewing the experience of countries in transition. Fischer, Stanley; Sahay, Ratna (2004) Falcetti, Elisabetta; Lysenko, Tatiana; Sanfey, Peter (2006) Aslund (2012) Christopher Hartwell (2014) 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. 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. 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. Institutional Barriers in the Transition to Market. Examining Performance and Divergence in Transition Economics - Palgrave