Transition Economics meets New Structural Economics Prof. Slavo Radosevic Welcome and Introduction to the workshop: Research and Policy Rationale London, June 2013

Transition Economics meets New Structural Economics

Context and aims Post-2008 world The ‘unqualified benefits of integration’? 2010 Breugel report Whither growth in CEE? Alternatives to Washington Consensus and ‘big push’ industrial policies (old structuralism) To re-examine the usefulness of Transition Economics as a conceptual perspective in promoting growth and democracy as well as to explore what are viable alternatives. Transition Economics Plus/Augmented Transition Economics? To re-examine potential benefits of New Structural Economics for CEE/CIS and its link to EU Structural Funds Smart Specializaton strategies

The role of ‘structure‘ TE = astructural approach to growth in terms of economic structure TE = quite articulate view regarding the institutional structure. A point of convergence between TE and NSE: market is the major mechanism of structural change and that government should maintain well-functioning and advanced markets. But, …. important differences in nature of the role of government

TE/NSE differences reflected in tools The Growth Identification and Facilitation Framework (GIFF) EBRD transition indicators GIFF: towards sustainable and long-term growth based on current and latent comparative advantages GIFF: focused largely on the process itself by assuming that the government is able to maintain competitive market environment as one if its major preconditions. TE: focused on transition itself which is from the NSE at best an intermediate goal

CAD vs CAF NSE: comparative advantage following (CAF) vs. comparative advantage defying (CAD) strategies. A failure of the old structural economics is largely due to uncritical application of CAD policies. TE rejects all policies that are not consistent with current comparative advantages. What each of these perspectives can say about recent modernization attempts in the region through either EU Structural Funds policies based on the approach of ‘smart specialization’ or through actions like Russian Skolkovo and similar newly emerging initiatives?

NSE vs TE : industrial policy NSE rationalises a gradualist approach to trade liberalisation and a temporary protection to ‘comparative advantages defying’ industries built during the past. TE: no value in maintaining and subsidizing inefficient industries. NSE: governments need to support industry specific infrastructures which are consistent with current or potential (latent) comparative advantage and hence only broad horizontal policies are not sufficient. TE: there is ‘built in’ scepticism of TE towards any kind of vertical policies. NSE: advise ‘dual track approach’ and ‘second best policies’ to which transition economics is sceptical. NSE recognises the role of pioneer firms in the process of industrial upgrading –> firm heterogeneity > evolutionary and neo-Schumpeterian economics. Neo-Schumpeterian political economy (NSPE) can be considered as third conceptual alternative which has many common points with the NSE.

Questions for discussion Is NSE a real alternative for (ex)transition economies? Or, NSE is useful only for countries that are less developed (LIC) and hence less relevant for those TE that are moving towards more knowledge intensive or higher value added activities? Is NSE appropriate for middle income trap countries (Lee, Keung, 2013, CUP, forthcoming) Or, maybe ‘transition region’ is so diverse in terms of levels of development that no single theoretical lens can capture its complexity?

Intellectual origins of the NSE and its relevance for the EU27 `Flying geese´ theory of development (Ozawa, Akamatsu): growth and integration merged in one conceptual framework > tandem theory of growth Comparative advantage recycling via OFDI and trade How can that approach inform EU27 policies ?

Workshop outline: Tuesday 1.Transition Economics and New Structural Economics as policy approaches to development 2.Extended Transition Agenda or replacement of paradigms for supporting growth in Eastern Europe and FSU 3.Growth Identification and Facilitation and Transition indicators as operational tools: benefits and limits 4.Financial integration and financial structure in the post period with special reference to Eastern Europe 11

Workshop outline: Wednesday Journal of Economic Policy Reform 1.The EU Smart Specialization strategies and lessons from TE and NSE for EU new member states 2.The Role of the State in the Dynamics of Structural Change: TE and NSE compared 3.Round Table: Transition Economics meets New Structural Economics: lessons drawn and/or an agenda for future research? 12