Reach, Range, Reason
Edited by José María Fanelli and Lyn Squire
Chapter 8: Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies
Vladimir Popov After the Berlin Wall collapsed in 1989, market reforms were initiated in the post-communist states of Eastern Europe, the former Soviet republics, China, Mongolia and Vietnam.1 However, their economic performance was more than disappointing. Nowhere else in the world was the failure of reforms in terms of Amartya Sen’s ‘three Rs’ – reach, range and reason – more spectacular than in Eastern Europe and the countries of the former Soviet Union. Output collapsed, inequalities and crime increased and life expectancy fell. In contrast, reforms introduced in two Asian communist states, China and Vietnam – but not in Mongolia – had more favorable outcomes. In light of these results, it is not surprising that the question of the ‘reason’ to reform had been at center stage in the policy discussions in the post-reform period. As Sen argues in the foreword to this volume, the basic issue underlying any reform is that some existing arrangements are not right. Therefore, the central question is how can we improve existing institutions and policies and make sure they work better. This chapter analyzes the shock-versus-therapy issue in order to clarify why institutional and policy reforms in transition countries were unable to achieve their goals, and it also contributes to the debate on the reasons to reform. In Eastern Europe the reduction of output lasted for three or four years and amounted to 20–30 per cent; GDP did not reach pre-recession levels until the late 1990s. This is comparable to the Great Depression (1929–33), when GDP...
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