ECON 238 : TRANSITION FROM CENTRAL PLAN TO MARKET

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1 1 Department of Economics Queen s University ECON 238 : TRANSITION FROM CENTRAL PLAN TO MARKET Winter Term, 2009 Prof. Oleh Havrylyshyn Classes: Thurs. 6:30-9:20 ( w. 10 m. break) ; Room 11, Dunning oleh@econ.queensu.ca Office: MCA 418, hours: Th: 4:00-6:00 COURSE DESCRIPTION The course will analyse the transition experience of formerly communist countries in Central Europe and the successor states of the former Soviet Union since Part I will briefly review the theoretical concepts of a socialist central plan economies, the history of why they failed, and the theoretical meaning of the challenge they faced : transformation to a capitalist, market economy. Part II will then use the best available evidence to describe the actual changes they have undergone: policy reforms, market liberalization, privatization, and the resulting economic performance. Part III will focus on the competing analytical explanations in the transition literature on why some countries did better than others. This will include discussing some of the major debates in this literature such as: what strategy was better: big-bang (shock-therapy) reforms or gradual reforms? has the evolution of oligarchs /new capitalists been a step forward towards the market, or does it hinder market liberalization? has transition improved the welfare of individuals or worsened it? GRADING: Mid-term Test, Feb % Short Essay due Mar % Final exam 55 % Decc.19,2008

2 2 TEXT AND OTHER MAIN READINGS: The Main text used will be Divergent Paths in Post Communist Transformation by Oleh Havrylyshyn, Palgrave MacMillan Publishers (2006) henceforth OH06. Frequent use will be made of the following which will be on Stauffer short-term Reserve: Anders Aslund,How Capitalism Was Built, Cambridge University Press (2007) Daniel Gros and Alfred Steinherr,Economic Transition In Central and Eastern Europe, Cambridge University Press, (2004) European Bank for Reconstruction and Development (EBRD), Annual Transition Report and Other required readings from journals or book chapters that are not accessible electronically will also be made available in short-term reserve; these are marked *. All other readings are accessible electronically;look for journal name and dates. Extra readings are not on reserve. Econ.Requirements: the minimal requirement for the course is Econ.111, but many students will have done or be doing more advanced economic courses. To permit use of some more advanced economic tools that are very important for this topic, the entire session of week 2, Jan. 15 will be used to develop and /or refresh some of these tools. As an example: all transition countries were faced at outset with high inflation pressuresnearly hyperinflationary. To discuss the policies used for stabilizing the economies, and the outcomes, it will be important to introduce a few basic concepts of macro-economics such as fiscal and monetary policy. Other tools covered are described in the readings below.

3 3 SYLLABUS Required readings are shown for each class session as closely as possible though some repetitions and overlaps do occur. For some topics, additional readings in [[ ]] are given for background, more technical/econometric works, and more history-polisci oriented readings. The course is made up of five building blocks as follows: I. OVERVIEW OF STATUS IN 1990 ( week 1) II. NEW ECONOMIC TOOLS AND CONCEPTS ( week 2) III. THEORETICAL DEBATES :HOW TO TRANSFORM SOCIALISM INTO MARKET CAPITALISM? (weeks 3-4 ) IV. TRANSITION OUTCOMES TWENTY YEARS AFTER (weeks 5-8) V. EXPLAINING DIFFERENCES IN OUTCOMES (weeks 9-12)

4 4 REQUIRED READINGS I. OVERVIEW OF STATUS IN 1990 Jan. 8 : session 1 Overview of course, logistics, marks, issues covered OH06, pp.1-11 GS, Introduction,pp.1-9 Janos Kornai (2006), The Great Transformation of Central Eastern Europe, Economics of Transition,vol 14(2), p Jan.8: session 2 What Was Wrong With Socialist Planning? GS. skim pp.13-35, read pp II.REVIEW OF SOME KEY ECONOMIC TOOLS Jan.15 : Some Key Economic Tools (production isoquants and Production Possibilities Frontier; National Accounts: GDP, Consumption, Investment, Government Expenditures ; fiscal and monetary policies to control inflation and stimulate growth) III. THEORETICAL DEBATES :HOW TO TRANSFORM SOCIALISM INTO MARKET CAPITALISM? Jan. 22: Session 1: Is There a Theory of Transition? OH06. pp GS pp Jan. 22. Session 2 : How to do Transition? Main debates. OH06 pp GS pp Janos Kornai (1994) Transformational Recession, Journal of Comparative Economics, Vol.19, pp Jan. 29. Big-Bang, Gradualism or Institutionalism? For Big-Bang: AA p ;GS p.59-75

5 5 Statements by early practitioners: (POLISH MIN.of FIN..)** L.Balcerowicz (1993), Economic Transition In Central and Eastern Europe; IFC Second Annual Lecture;(CZECH MIN.OF FIN.)** V. Klaus, (1995),The Ten Commandments Of Systemic Reform, IFC Fourth Annual lecture For gradualism: **Gerard Roland,(2001) Ten Years After Transition and Economics, IMF Staff PaperS,Vol. 48, Special Issue,p For Institutionalism **Peter Murrell, (1992), Evolution in Economics and in the Economic Reform of the centrally Planned Economies; pp in C. Clague and G.Rausser, eds., The Emergence of Market Economies in Eastern Europe, Blackwell Publishers IV. TRANSITION OUTCOMES TWENTY YEARS AFTER Feb. 5. Session 1: Progress to a Market Economy. OH06-, p TR 99-p (skip Box2.2) TR07 p.4-11 Feb.5. Session 2: Economic Performance **O. Havrylyshyn (2007), Fifteen Years of transformation in the Post- Communist World, Cato Institute Wash. D.C., Policy Analysis Paper No.4, Nov. 9,2007 AA -pp TR-99. p [[ for those interested in political-historical interpretations of the outcomes look at the following items: Adam Przeworski (1991) Democracy and the Market Ch.4, pp ; OH 06, pp.55-58; Michael McFaul, ( 2002) The Fourth Wave of Democracy and Dictatorships, World Politics, vol.54, Jan.2002, pp ; M.Steven Fish (2005) Democracy Derailed in Russia, Cambridge University Press. AA- pp also covers democratization issue. A very critical view of big-bang approach as it applied to Russia is found in : P.Reddaway and D.Glinski, (2001) The Tragedy of Russia s Reforms,Wash.D.C. The United States Institute of Peace; and J. Stiglitz (1999), Wither Reform:Ten years of Transition, The World Bank Economic Review, Sept ]] FEB.12 : MID-TERM TEST

6 6 FEB. 19: NO CLASS WINTER BREAK Feb.26. Session 1 and 2 : Social Welfare Effects OH06 p **World Bank (2005) Growth,Poverty, and Inequality: Eastern Europe and the Former Soviet Union pp.1-16 TR 2007, scan chs.3 and 5 selectively [[for an early and pessimistic view see UNDP (1998),Poverty in Transition;.]] Mar. 5 ; Formation of Oligarchs OH 06 pp and pp Marshall Goldman (2003) The Piratization of Russia, pp AA- pp ( Aslund gives a much more positive view of oligarchs than preceding two readings.) V. EXPLAINING DIFFERENCES IN OUTCOMES Mar. 12 : What Was Best Way to Privatize? AA pp GS. P A more technical treatment with econometric analysis is:** C.Zinnes, Y.Eilat, and J. Sachs, (2001) The Gains From Privatization in Transition Economies: Is Change of Ownership Enough? IMF Staff Papers, vol.48, Special issue, p Read for general comprehension. [[ the most thorough review of privatization effects is : S. Djankov and P. Murrell, (2002),Journal of economic Literature, vol.xl, Sept., pp ]] Mar.19: Determinants of Growth OH06-pp AA-. Pp [[ detailed and more technical discussions : O. Havrylyshyn, (2001),IMF Staff Papers. Vol 48, Special Issue, pp.53-87; N.Campos and F. Coricelli, (2002) Growth in Transition : What We Know, What We Don t Know and What We Should Know, Journal Of Economic Literature, vol XL, Sept., pp ]]

7 7 Mar. 26: EU Membership : Carrot or Stick? OH06-pp GS-pp and [[ for a quick backgrounder on what the EU is all about and its history since 1950, see The European Union, at en.wikipedia.org/wiki/eu ]] Apr. 2: The Bottom Line on Big-Bang, vs. Gradualism vs.institutionalism OH06-pp AA-pp Kornai (2007), pp and Roland (2001).pp [[ the additional readings under Feb.5 session 2 focusing on non economic dimensions of transition, usually also address the bottom line question of which strategy was better ]]

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