THE TRANSFORMATION OF THE COMMUNIST ECONOMIES

Transcription

1 THE TRANSFORMATION OF THE COMMUNIST ECONOMIES

2 Also by Ha-Joon Chang THE POLITICAL ECONOMY OF INDUSTRIAL POLICY Also by Peter Nolan CHINA'S ECONOMIC REFORMS IN THE 1980s: The Costs and Benefits ofincrementalism (editor with Fan Qimiao) GROWTH PROCESSES AND DISTRIBUTIONAL CHANGE IN A SOUTH CHINESE PROVINCE: The Case of Guangdong INEQUALITY: India and China Compared, MARKET FORCES IN CHINA: Competition and Small Business the Wenzhou Debate (editor with Dong Fureng) STATEAND MARKET IN THE CHINESE ECONOMY: Essays on Controversial Issues THE CHINESE ECONOMY AND ITS FUTURE (editor with Dong Fureng) THE POLITICAL ECONOMY OF COLLECTIVE FARMS: An Analysis of China's Post-Mao Rural Economic Reforms

3 The Transformation ofthe Communist Economies Against the Mainstream Edited by Ha-Joon Chang Assistant Director ofdevelopment Studies University ofcambridge and Peter Nolan Director ofstudies in Economics Jesus College. Cambridge MSt. Martin's Press

4 Ha-JoonChang and Peter Nolan 1995 Softcover reprint of the hardcover 1st edition 1995 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraphof this publication may be reproduced, copied or transmittedsave with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WIP 9HE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published in Great Britain 1995 by MACMILLANPRESS LTD Houndmills,Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughoutthe world A catalogue record for this book is available from the British Library. ISBN ISBN (ebook) DOI / I First published in the United States of America 1995 by Scholarlyand Reference Division, ST. MARTIN'S PRESS, INC., 175Fifth Avenue, New York, N.Y ISBN Libraryof Congress Cataloging-in-Publication Data The transformationof the communist economies: against themainstream / edited by Ha-Joon Chang and Peter Nolan. p. ern, Papers presented at a conference held at Sidney Sussex College, Cambridge, in July Includesbibliographical references and index. ISBN Communist countries-economic conditions--congresses. 2. Europe, Eastern-Economic policy-1989-congresses. 3. Former Sovietrepublics-Economic policy-congresses. 4. China-Economic policy-l976-congresses. 5. Privatization-Europe, Eastern -Congresses. 6. Privatization-Fonner Soviet republics-congresses. 7. Economic stabilization-europe, Eastern-Congresses. 8. Economic stabilization-former Soviet republics-congresses. 9. Economic stabilization-china-congresses. I. Chang, Ha-Joon. II. Nolan, Peter. HC704.TI dc CIP

5 .Contents Preface Notes on the Contributors VB xi PART I THEORETICAL AND HISTORICAL OVERVIEWS 1 Europe versus Asia: Contrasting Paths to the Reform of Centrally Planned Systems of Political Economy 3 Ha-Joon Chang and Peter Nolan 2 Capitalist Triumphalism in the Eastern European Transition 46 Peter Wiles 3 Economic Theory and Transformation of the Soviet-type System: The Challenge of the Late Industrialisation Perspective 78 Dic Lo PART II POLICY ISSUES 4 Wasted Sacrifices: Real Wages and Reconstruction in Eastern Europe 113 Andrew Glyn 5 The Transition in Eastern Europe: The Case for Industrial Policy 136 Michael A. Landesmann and Istvan Abel 6 Reflections on the Privatisation Issue 162 Keith Cowling 7 Financial Fragility in the Transition to Market Economies 177 Laurence Harris 8 Equality, Efficiency and Economic Progress: The Case for Universally Applied Equitable Standards for Wages and Conditions of Work 203 Frank Wilkinson v

6 vi Contents 9 Social Security Reform in Urban China: The Case of Shanghai 230 Steve Pudney 10 The Role of Foreign Direct Investment in the Transformation of Eastern Europe 282 Hugo Radice PART m LEARNING FROM EXPERIENCES 11 The Lessons of History: New Economic Policy in China and the USSR 313 Chris Bramall 12 Nicaragua: The Sandinista Experiment and its Aftermath 340 Gabriel Palma 13 Return to Europe? Is There Anything for Eastern Europe to Learn from East Asia? 382 Ha-Joon Chang 14 Political Economy and the Reform of Stalinism: The Chinese Puzzle 400 Peter Nolan Index 419

7 Preface This book arose from a conference organised at Sidney Sussex College, Cambridge in July 1992.* When we began to plan for this conference in 1991, the reforms in Eastern Europe were in their infancy. There was a widespread belief that the task of reforming the commun ist systems of political economy was basically analogous to that of implementing 'structural adjustment and reform' programmes in developing countries. It was widely felt that if the communist economies seriously pursued the policies advocated by the major international institutions, such as the World Bank, the IMF and the European Bank for Reconstruction and Development, then there would be a relatively short period of 'pain' followed by sustained growth. This optimism ignored both the mixed record of structural adjustment policies in developing countries (see, e.g., Taylor, 1987, ch. 4) and the vastly more complex nature of the problems confronted in reforming the communist systems of political economy. The classic statement of such naive, technocratic optimism came in the Report produced on the Soviet economy in 1990 by the IMF, World Bank, the OECD, and the European Bank for Reconstruction and Development. It strongly advocated a 'radical' programme of stabilisation and structural adjustment, including privatisation, hard budget constraints on reforming enterprises, price liberalisation and close integration into the international economy: [A] comparison in general terms that draws on worldwide experience of stabilisation and reform programmes may help illustrate the tradeoffs involved [in choos ing between 'conservative' and 'radical' programmes]. In advocating the more radical approach we are well aware of the concerns of those who recommend caution... Output could fall sharply as nonviable production was cut, and unemployment would rise. But since investment would be curtailed initially and inventories run down, and with some availability of external assistance, aggregate consumption levels might be broadly maintained. A recovery from the reduced level of output should be able to get under way within two years or so. If financial We are most grateful to Alan Hughes for his assistance in both the intellectual aspects and the practical organisational tasks of preparing for this conference. vii

8 viii Preface policies were kept tight, inflation would then be under control and the conditions for a much more efficient allocation of resources, guided by market prices, put in place. A period of catching up with Western standards of efficiency could begin, during which growth in productivity and output would likely exceed that of most mature market economies. Unemployment would be expected to decline as the initial labour shakeout gave way to a strong recovery in employment. Further strong growth of output and rising living standards could be expected for the remainder of the decade and beyond, and there would be a good possibility of significant financial inflows from abroad. (IMF et ai., 1990, pp ) By the time we were doing the final work of editing this volume, in the Autumn of 1993, the early optimism had disappeared. Indeed, a huge paradox had arisen. The reforming country that had most strongly gone against the prevailing orthodoxy of Western social science, namely China, was booming. Moreover, the communist countries around it were taking the same path and beginning to show good results. The reforming countries of Eastern Europe and the former USSR, which had in different degrees pursued the paths advocated by orthodox Western opinion, were in deep decline. In his introductory speech for the launch of the EBRD's Annual Report for 1993, John Flemming, the EBRD's chief economist, made it clear that inflation was likely to remain at high levels in the reforming countries of Eastern Europe and Russia and that there existed 'dismal prospects' for private investment in these countries. Moreover, he predicted that it would take several decades before income levels in these countries approached those of Western Europe (quoted in Financial Times, 22 September 1993). Despite holding different political and theoretical perspectives, the participants in the conference shared a common view that the prob lems of reform were much more complex than the conventional wisdom suggested. They agreed that mainstream Western social science was inadequate to the task of trying to construct policies for successful systemic reform. They share a common perspective of looking upon the economy as a complex social and political institution. Such a perspective is especially important at times of massive system change, when one is not tinkering with variables within a reasonably stable framework of parameters. Rather, the essence of the change is that the parameters of economic life are themselves being transformed. There was no precedent for the magnitude of the task faced by the reforming communist countries. A first step to

9 Preface ix good policy formation should have been a recognition that caution and experimentalism should be the watchword in policy formulation. Sadly, over much of the former communist system, both internal and external advisors failed to exhibit such modesty or common sense. Instead, crude and arrogant simplifications, derived from models developed in sophisticated market economies and then applied in less relevant circumstances in non-communist developing countries, were in tum applied in the still less relevant situation of reforming the communist economies. These rapidly came to dominate policy formation. They resulted in calls for 'revolutionary' changes in order to establish a textbook version of Anglo-Saxon capitalism, with stock markets and perfect competition. This did not even correspond with many of the key features of advanced capitalism such as the dominance of massive oligopolies. The essays in this volume share a common conviction that the dramatic contrast in results between the reform programme in Europe and the former USSR on the one hand, and Asian communist countries on the other derives primarily from differences in policy choices. The overarching contrast is between an experimental, evolutionary approach and a revolutionary approach towards system change. It is deeply paradoxical that a 'revolutionary' approach towards the political economy of reform of communist countries emerged from the mainstream of Western social science, much of which had itself been deeply hostile to the revolutionary transformation into communism a generation earlier. The supporters of this revolutionary 'great leap' out of communist planning would have done well to re-read Karl Popper's scathing critique of the 'historicist' attempt to leap into communism: Every version of historicism expresses the feeling of being swept into the future by irresistible forces... Modem historicists... believe that their own brand of historicism is the latest and boldest achievement of the human mind... Contrasting their 'dynamic' thinking with the 'static' thinking of all previous generations they believe that their own advance has been made possible by the fact that we are now 'living in a revolution' which has so much accelerated the speed of our development that social change can now be directly experienced in a single lifetime. This story is of course sheer mythology. (Popper, 1957, p. 160) HA-JOON CHANG PETER NOLAN

10 x Preface References IMP, World Bank, OECD and EBRD (1990) The Economy of the USSR, Summary and Recommendations (Washington, DC: The World Bank). Popper, K.R. (1957) The Poverty ofhistoricism (London : Routledge & Kegan Paul). Taylor, L. (1987) Varieties of Stabilisation Experience (Oxford: Oxford University Press).

11 Notes on the Contributors Istvan Abel teaches at the Department of Business Economics, Budapest University of Economics, and is also associated with Budapest Bank, Hungary. He has published several articles on industrial and financial reforms in Eastern Europe. Chris Bramall is a fellow and Director of Studies in Economics of Sidney Sussex College, Cambridge. He has worked on the Chinese political economy and recently published In Praise of Maoist Planning. Ha-Joon Chang teaches at the Faculty of Economics and Politics, Cambridge University. He works on the political economy of state intervention and the development experience of East Asia. He has recently published The Political Economy of Industrial Policy. Keith Cowling is a professor at the Departmentof Economics, University of Warwick. He has published numerous books and articles in the area, including the well-known Monopoly Capitalism. Andrew Glyn is a fellow at Corpus Christi College, Oxford University. He has published numerous books and articles on macroeonomics and structural change in Britain and Western Europe, including the popular Capitalism since 1945 (with P. Armstrong and J. Harrison). Laurence Harris is a professor at the Department of Economics, School of Oriental and African Studies, London University. He has published numerous articles in the areas of monetary and financial economics and Marxian economics, including the widely-used textbook, Monetary Theory. Michael A. Landesmann is a professor at the Department of Economics, University of Linz, Austria, after several years at the University of Cambridge. He has widely published in the areas of trade, industrial performance, and structural change in Western and Eastern Europe. xi

12 xii Notes on the Contributors Die Lo is a Lecturer in the Department of Economics, School of Oriental and African Studies, London University. Peter Nolan, teaches at the Faculty of Economics and Politics, Cambridge University. He has published numerous books and articles on Chinese political economy, including The Political Economy ofcollective Farms. He is also currently general editor of the Macmillan series, Studies in the Economies ofeast and South-East Asia (with Malcolm Falkus), and Studies on the Chinese Economy (with Dong Fureng). Gabriel Palma teaches at the Faculty of Economics and Politics, Cambridge University. He has published widely on dependency theory, the political economy of industrialisation in Latin America, and the international debt crisis. Steve Pudney is a professor at the Department of Economics, Leicester University. He has published widely on microeconometrics, including the book Modelling Individual Choice. Hugo Radice teaches at the Department of Economics, School of Business and Economic Studies, Leeds University. He has published widely on the political economy of multinational corporations and the Hungarian economy under socialism. Peter Wiles, an eminent authority on Eastern Europe and the former USSR, is Professor Emeritus at the London School of Economics and Political Science. He has published numerous books and articles, including the well-known Economic Institutions Compared. Frank Wilkinson is Senior Research Officer at the Department of Applied Economics, Cambridge University. He has published numerous articles on labour economics and social policy.