The Great Rebirth: Lessons from the Victory of Capitalism over Communism PDF
Preview The Great Rebirth: Lessons from the Victory of Capitalism over Communism
THE GREAT REBIRTH Lessons from the Victory of Capitalism over Communism THE GREAT REBIRTH Anders Åslund and Simeon Djankov, editors Lessons from the Victory of Capitalism over Communism Anders Åslund and Simeon Djankov, editors Peterson Institute for International Economics Washington, DC November 2014 Title Page_The Great Rebirth_Peterson_Economic.indd 1 8/31/14 6:55 PM Peterson Institute for International Economics Washington, DC November 2014 Title Page_The Great Rebirth_Peterson_Economic.indd 1 8/31/14 6:55 PM Anders Åslund is a leading specialist on postcommu- in professional journals. He obtained his doctorate in nist economic transformation with more than 30 years economics in 1997 from the University of Michigan at of experience in the field. He is the author of 11 books Ann Arbor. and the editor of 16. Among his recent books are How PETERSON INSTITUTE FOR Ukraine Became a Market Economy and Democracy (2009), INTERNATIONAL ECONOMICS Russia’s Capitalist Revolution (2007), and How Capitalism 1750 Massachusetts Avenue, NW Was Built (2007). He has also published widely, includ- Washington, DC 20036-1903 ing in Foreign Affairs, Foreign Policy, National Interest, New (202) 328-9000 FAX: (202) 659-3225 York Times, Washington Post, Financial Times, and Wall www.piie.com Street Journal. Åslund joined the Peterson Institute for International Adam S. Posen, President Economics as senior fellow in 2006. He has worked as Steven R. Weisman, Vice President for an economic adviser to the Russian government (1991– Publications and Communications 94), to the Ukrainian government (1994–97), and to Cover Design: Peggy Archambault the president of the Kyrgyz Republic. Before joining the Cover Photo: © V. Zhuravlev/Fotolia; © Shepard Sherbell/ Peterson Institute he was the director of the Russian CORBIS SABA and Eurasian Program at the Carnegie Endowment for Printing: Versa Press International Peace, and he codirected the Carnegie Copyright © 2014 by the Peterson Institute Moscow Center’s project on Post-Soviet Economies. for International Economics. All rights reserved. No Previously, he served as a Swedish diplomat in Kuwait, part of this book may be reproduced or utilized in Geneva, Poland, Moscow, and Stockholm. From 1989 any form or by any means, electronic or mechanical, until 1994, he was professor and founding director of including photocopying, recording, or by information the Stockholm Institute of Transition Economics at the storage or retrieval system, without permission from Stockholm School of Economics. He earned his doctor- the Institute. ate from the University of Oxford. For reprints/permission to photocopy please contact Simeon Djankov, visiting fellow at the Peterson In- the APS customer service department at Copyright stitute for International Economics, was deputy prime Clearance Center, Inc., 222 Rosewood Drive, Danvers, minister and minister of finance of Bulgaria (2009–13). MA 01923; or email requests to: [email protected] In this capacity, he represented his country at the Eco- fin meetings of finance ministers in Brussels. Prior to Printed in the United States of America his cabinet appointment, Djankov was chief economist 16 15 14 5 4 3 2 1 of the finance and private sector vice presidency of the Library of Congress Cataloging-in-Publication World Bank. In his 14 years at the Bank, he worked on Data regional trade agreements in North Africa, enterprise The great rebirth : lessons from the victory of capi- restructuring and privatization in transition econo- talism over communism / Anders Åslund and Simeon mies, corporate governance in East Asia, and regulatory Djankov, editiors. reforms around the world. He is founder of the World pages cm Bank’s Doing Business project. He was also principal Includes bibliographical references. author of the World Development Report 2013. ISBN 978-0-88132-697-0 Djankov is rector of the New Economic School in 1. Post-communism—Europe, Eastern. 2. Capitalism— Russia and a visiting lecturer at Harvard University’s Former communist countries. 3. Former communist Kennedy School of Government. He was associate edi- countries—Economic conditions. 4. Former commu- tor of the Journal of Comparative Economics (2004–09) nist countries—Economic policy. I. Åslund, Anders, and chairman of the Board of the European Bank for 1952- II. Djankov, Simeon. Reconstruction and Development (2012–13). He is HC244.G6787 2014 also a member of the Knowledge and Advisory Council 330.9470009’049—dc23 2014027141 at the World Bank. He has published over 70 articles This publication has been subjected to a prepublication peer review intended to ensure analytical quality. The views expressed are those of the authors. This publication is part of the overall program of the Peterson Institute for International Economics, as endorsed by its Board of Directors, but it does not necessarily reflect the views of individual members of the Board or of the Institute’s staff or management. The Peterson Institute for International Economics is a private, nonprofit institution for the rigorous, intellectually open, and honest study and discussion of international economic policy. Its purpose is to identify and analyze important issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is widely viewed as nonpartisan. The Institute’s work is funded by a highly diverse group of philanthropic foundations, private corporations, and interested individuals, as well as income on its capital fund. About 35 percent of Institute resources in our latest fiscal year were provided by contributors from outside the United States. A list of all our financial supporters for the preceding year is posted at http://piie.com/supporters.cfm. Contents Preface v Acknowledgments ix Map xi Introduction 1 Anders Åslund and Simeon Djankov I Early Reformers 1 Poland: Stabilization and Reforms under Extraordinary 17 and Normal Politics Leszek Balcerowicz 2 Regression: Reform Reversal in Hungary after a 39 Promising Start Lajos Bokros 3 Czechoslovakia and the Czech Republic: The Spirit 53 and Main Contours of the Postcommunist Transformation Václav Klaus 4 Estonia: The Most Radical Reforms 73 Mart Laar 5 Russia: The Arduous Transition to a Market Economy 89 Anders Åslund II Latecomers and No-Shows 6 Slovakia: The Latecomer That Caught Up 113 Ivan Mikloš 7 Bulgaria: The Greatest Vacillations 135 Simeon Djankov 8 Georgia: The Most Radical Catch-Up Reforms 149 Mikheil Saakashvili and Kakha Bendukidze 9 Ukraine: Greatest Hopes, Greatest Disappointments 165 Oleh Havrylyshyn III Trends 10 The Microeconomics of Postcommunist 187 Transformation Simeon Djankov 11 Twenty-Five Years Later: Macroeconomic Aspects of 205 Transition Charles Wyplosz 12 From Transition to Integration: The Role of Trade 233 and Investment Daniel Gros 13 Transition in Historical Perspective 251 Gérard Roland 14 The Political Economy of Change after Communism 273 Daniel Treisman Timeline of Events in the Region 297 Abbreviations 305 About the Contributors 307 Index 309 Preface A quarter of a century ago, the economies of the former Soviet bloc were in deep political and economic distress. The choice of future direction was wide open, and guidance, while available, was not entirely clear. Soon, each country in the region chose or was forced to choose a new direction for its economic governance and orientation. Those initial choices turned out to be of great and lasting significance, even if some changed course later. For most of Eastern Europe, these decisions led to a great rebirth of economic well-being and polit- ical rights. These momentous, fascinating, and still relevant shifts of policy regime are quickly passing into the mists of memory. Therefore, we at the Peterson Institute brought together all of the greatest living economic policymakers who participated in making and implementing those historic decisions. We wanted them all to hammer out what had worked and what had not. The ini- tiative was taken by Simeon Djankov, former minister of finance of Bulgaria and a visiting fellow at the Peterson Institute, and Anders Åslund, our long- time senior fellow who specializes in research on postcommunist transition. We held this unique conference in early May 2014 in Budapest, in cooperation with Wolfgang Reinicke, director of the Public Policy School at the Central European University. We are most gratified that truly all of the relevant still active great reformers participated, and did so actively. The discussion was im- pressive, and our authors kindly incorporated comments in their papers. At an event of this nature, one always asks what is new, different, and sur- prising. In general, much of the Western economists’ conventional wisdom holds up even after 25 years’ reflection. Early, radical, and comprehensive eco- nomic reforms work best. Belief in the need to start with liberalizing politics and democratization has clearly risen over time. Privatization offers an in- v trinsic dilemma—it is necessary for the success of both democracy and market economic reform, but it has become less popular over time virtually every- where. Even these precepts, however, are being forgotten or actively denied in large parts of the former Soviet bloc, so it is good to have them authoritatively established. Beyond that, three important and original observations stand out from this effort. The first is that the biggest and rising problem of postcommunism is the remaining secret police networks. Being nontransparent, professional, international, and self-serving, they were ideal as the basis for organized crime networks. A second, more positive observation is that a second wave of reform is both possible in transition economies and can work well. Slovakia shows that such reforms can kick-start a half-reformed economy, whereas Georgia impresses as a country salvaged from near state failure by very radical market reforms. The most worrisome observation is that two significant countries in the region have turned around and reversed seemingly successful market eco- nomic reforms, namely, Russia and Hungary. The overall conclusion of the participants is that a well-functioning market economy can be built in a relatively short time span, most of the postcommunist countries managed to do so, and their people benefited from that accomplish- ment. So doing is, however, indeed an accomplishment, requiring leadership— success is far from guaranteed. Several economies in the region pursued a different path or failed in transition reforms and still have not yet recovered their income level of 1989. While the postcommunist countries have tended to converge with their richer neighbors, they have hardly converged among them- selves. At present, reforms are not speeding up but slowing down and as a result, so is economic growth. The Institute would like to thank The Foundation to Promote Open Society, a part of Open Society Foundations; Peter Aven; the Victor Pinchuk Foundation; and the Gaidar Foundation for their generous support of this ambitious and unique project. I believe that this volume will be the lasting analytical testimony of those economic leaders who made transition work— and those reflections are all the more rewarding and relevant by virtue of being brought together and discussed under the guidance of Åslund and Djankov. I hope that they will serve not only as the record of the past achievement but as the inspiration for a renewal of economic liberalization where it is still needed in postcommunist Europe. The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, intellectually open, and honest study and discussion of international economic policy. Its purpose is to identify and analyze impor- tant issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is completely nonpartisan. The Institute’s work is funded by a highly diverse group of philanthropic foundations, private corporations, and interested individuals, as well as in- vi come on its capital fund. About 35 percent of the Institute resources in our latest fiscal year were provided by contributors from outside the United States. A list of all our financial supporters for the preceding year is posted at http:// piie.com/content/?ID=133. The Executive Committee of the Institute’s Board of Directors bears over- a ll responsibility for the Institute’s direction, gives general guidance and ap- proval to its research program, and evaluates its performance in pursuit of its mission. The Institute’s President is responsible for the identification of topics that are likely to become important over the medium term (one to three years) that should be addressed by Institute scholars. This rolling agenda is set in close consultation with the Institute’s research staff, Board of Directors, and other stakeholders. The President makes the final decision to publish any individual Institute study, following independent internal and external review of the work. In- terested readers may access the data and computations underlying Institute publications for research and replication by searching titles at www.piie.com. The Institute hopes that its research and other activities will contribute to building a stronger foundation for international economic policy around the world. We invite readers of these publications to let us know how they think we can best accomplish this objective. AdAm Posen President August 2014 vii PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903 (202) 328-9000 Fax: (202) 659-3225 Adam S. Posen, President BOARD OF DIRECTORS * Peter G. Peterson, Chairman * George David, Vice Chairman * James W. Owens, Chairman, Executive Committee * C. Fred Bergsten Sheikh Hamad Saud Al-Sayari Mark T. Bertolini * Lawrence H. Summers Ben van Beurden Paul A. Volcker Ronnie C. Chan Jacob Wallenberg Louis R. Chênevert Marina v.N. Whitman * Andreas C. Dracopoulos Ronald A. Williams * Jessica Einhorn Robert B. Zoellick Peter Fisher Arminio Fraga Ex officio Stephen Freidheim Nancy Birdsall Jacob A. Frenkel Richard N. Cooper Maurice R. Greenberg Barry Eichengreen Herbjorn Hansson * Carla A. Hills Honorary Directors Yoshimi Inaba Alan Greenspan Hugh F. Johnston Lee Kuan Yew Karen Katen Frank E. Loy Michael Klein David Rockefeller Charles D. Lake II George P. Shultz Andrew N. Liveris Jean-Claude Trichet Sergio Marchionne Ernesto Zedillo Pip McCrostie * Hutham S. Olayan Peter R. Orszag * Michael A. Peterson Victor Pinchuk Ginni M. Rometty * Lynn Forester de Rothschild * Richard E. Salomon * Member of the Executive Committee Acknowledgments We would like to thank Vijay Khosa and Krisztina Moricz for assistance with organizing the conference. Vijay also provided valuable research assistance for the volume. We also thank the Peterson Institute publications staff—Steve Weisman, Susann Luetjen, and Madona Devasahayam—for their assistance with producing the volume. ix
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