Transistional Political Economy

Transistional Political Economy - 12 ama -gi The Journal of...

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Electronic copy available at: http://ssrn.com/abstract=1698845 12 ama -gi The Journal of the Hayek Society at LSE An ‘Austrian’ Economist Perspective on Transitional Political Economy Peter J. Boettke I N 1989, MOST economists thought the problem of transition was one of allowing prices to float to market clearing levels. After all one of the most observable problems throughout the former socialist economies was the existence of pervasive shortages. Indeed prices did need to be freed up. But we learned in the process that free pricing required a network of institutional reforms to define and enforce private property rights and secure the freedom of contract. By the mid-1990s economic attention had moved away from the macroeconomic stabilization, privatization and price liberalization agenda to a broader notion of institutional reform. Since that time, political economists have also learned that discussion of institutional reform is incomplete unless we can talk meaningfully about cultural attitudes and beliefs. There is no doubt that perhaps the most important advice an economist (of any stripe) can provide to a reforming government is to stress how much incentives matter. But we do not adequately understand incentive mechanisms unless we also understand how individuals within a specific context attribute social meaning to the incentives they face. Thus, we economists are faced with a dilemma at the beginning of the 21 st century that was widely recognized in the 19 th century – to do good economics one must study the interaction of the economy, polity, and society and that nothing is as dangerous as an economists who attempts to pro-offer advice based on a study of the economy isolated from all other factors. In this talk I want to stress three simple points about the transition from the former socialist system to a market economy: •Transition problems are not economic problems , but political and legal problems; •Change requires an accurate defining of the “here” from which reforms start and a good idea of the “there” to which change is to accomplish; •Effective change of the political and legal institutions requires government to establish a binding and credible commitment to reform The sad reality is that throughout East and Central Europe and the former Soviet Union there has been a general failure to take the necessary political and legal reforms. Moreover, the analysis of the transition problem has been stymied over the past decade by a general failure to recognize the de facto organizing principles that governed the former socialist economy and thus analysts have failed to deal adequately with the socialist legacy in designing reforms. Especially foreign advisors have been content to proceed as if the de jure economic relationships in the former system defined economic life. But such intellectual laziness means that one can never develop a good political economy model of the transition because you have failed to accurately describe the “here” from which you hope to transition to a “there”.
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This note was uploaded on 12/09/2011 for the course VARIOUS Various taught by Professor Various during the Fall '11 term at S.F. State.

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Transistional Political Economy - 12 ama -gi The Journal of...

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