Chapter 2: Comments on Fischer and Sahay
Lajos Bokros The basic question I asked myself when reading Fischer and Sahay was whether output growth is a reliable indicator of economic performance. Apart from the usual shortcomings of income statistics, which I do not intend to discuss here, the real issue is whether the ranking of transition economies (TEs) according to their output relative to the pre-transition level has any reliable explanatory power at all. I do not think it is the case. There are so many factors behind growth patterns and they are so different for individual countries that one can hardly use this ranking for drawing a meaningful conclusion. Fischer and Sahay highlight the problem of Uzbekistan and Belarus as countries showing a relatively small decline in output while being the archetype of no reforms. I think that these countries – and maybe even some others, such as Turkmenistan – should not be compared with the rest of the group at all. The basic reason for this is that we want to compare the countries that have maintained central planning with TEs that have abandoned central planning. My definition of central planning is that a significant share of financial – and maybe even physical – resources is allocated by direct government decision and not by market forces without any consideration for profit and loss. This government intervention could be concealed and its consequences even further exacerbated by a highly distortive set of economic regulations, such as individualized and prohibitive taxation, multiple exchange rates, directed lending and so on. In such...
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