1. jlinn@brookings.edu1 The Evolving Balance of State and Market: History, Systems and Border Lines The Global Institute Conferences Second Annual China-Russia Conference in Moscow, October 13-14, 2006 Johannes Linn, Wolfensohn Center for Development The Brookings Institution, Washington, DC

2. jlinn@brookings.edu 2 A simplified state-market history (some might call it a caricature) Long swings Recent cycles  19 th Century: market dominant  1920-80: state revival  1980-2000: neo-liberal backlash  21 st Century: back-lash against the back lash Is the cycle breaking down?  Multiple parallel systems with their one dynamics  Boundaries between state and market – public and private – breaking down

3. jlinn@brookings.edu 3 Parallel Systems: A Simplified Picture Market Economy Social Market Economy State Capitalism Centrally Planned Economy Production/ Allocation Market State (comm. heights) State Welfare/ Distribution MarketStateMarketState ExamplesUS, Chile, Hong Kong Continental Europe Some East Asian NICs, China, Russia Soviet Union

4. jlinn@brookings.edu 4 Parallel Systems: Tensions and Dynamics Market Economy Social Market Economy State Capitalism Centrally Planned Economy StrengthsFlexible, competitive, growing Social harmony, low poverty Stable, high growth possible Equitable, mobilizing for special effort StressesInequality, poverty, environment, crisis Ineff. labor markets, fiscal problems, low growth Inequality, environment, corruption, pol. control Inefficient, stagnant, repressive DynamicsPressures towards greater state; cycles Pressures towards less state; cycles Could go either way (more or less state) Long-term survival unlikely

5. jlinn@brookings.edu 5 Fading Dividing Lines between State and Market Approaches Rising role of CSOs  Public-CSO partnerships needed Social/environmental agendas for private enterprises  Private-CSO partnerships needed Role of governments in “commanding heights”  Public-Private partnerships needed

6. jlinn@brookings.edu 6 Some Principles of Success No blue prints, no extreme solutions Ensure basic government functions Accountability for all  Transparency  Feedback  competition Take care of big market failures with least possible economic distortions Minimize bureaucratic overload