1. Whither Reform? Ten Years of the Transition
Kristof FILEMON

2. Joseph Eugene Stiglitz
1943.
Columbia University
2001. Nobel Memorial Prize in Economic Sciences
th Chair of the Council of Economic Advisers
Chief Economist of the World Bank
2011. Time Magazine: one of the 100 most influential people

3. Historical background
1991. End of USSR
Yeltsin  false hopes
Oligarchs
Waiting for the „invisible hand of market”
No drive to EU, no Copenhagen Criteria  no incentives
„Lost decade”

4. Russia China GDP: -50% Rising poverty & inequality Western textbooks
Better starting position
GDP: +100%
Chinese way
Greater challenge

5. Why failure? Too much/little shock? Wrong implementation?
TEXTBOOK ECONOMICS
US style  relies on certain intellectual traditions
Misunderstandings
Not only creating market economy

6. Failures of the Washington consensus
Market economy = Competition + Private property
What if there cannot be both?
Privatization
Giving away to friends
Lack if institutions
Corruption  undermining social structure
Illegitimate privatization
Not necessarily good managers were the new owners  no improvement
Market: unattractive for foreign investors
No competition
Creative destruction  unknown, no institutional background (especially not a tailor-made one!)
No enterpreneurship + lack of capital

7. Essentials of transition
Institutions  not enough
„Social glue”
Narrow self-interest  not enough
Transforming social contract
Norm destruction  creation!
No victim blaming
Participation & self-transformation
Cannot be imposed from above
Restructuring
Separation of ownership & control
Small & medium enterprises (NO)
Large enterprises (YES)
CONFLICT SOURCE
No motivation to restructure

8. Highly developed agency relations Organic development  not overnight
Restructuring one firm in a functioning economy
Restructuring the entire economy
Decentralization of decision-making
Vertical + horizontal
Smaller structures with new managers
Ministry vs market
Increase information efficiency

9. Misunderstanding the reform process
Sequencing
Everything at once  NO  priorities
Go for „low hanging fruits”
3 options:
ASAP
Framework for P, not legal framework
When all is prepared, P is necessary
Privatization  nothing
Functioning market!
Success, rather than speed!
Government failure?
Grabbing hand theory: corrupt state
Privatization without regulatiory safeguards
Solves no problems

10. Shock therapy vs. Incrementalism
Institutional „blitzkrieg”  revolutionary
Same methods to reverse socialism
Russia  Western shock therapy
China: incrementalism, own way
Best way: start from where they were, not clean sheet
Fear from the losing of momentum

11. Summary 2 economic experiences of the XX. Century
Transition to capitalism  not as it was expected
Huge challenges ahead
Basic services need to be financed by tax
More failures than successes  hopes that the lessons were learned

12. Thank you for your attention!