6 On the political economy of transformation
6.5 Success and failure with transformation policies
not incestuous. Rather, it should provide for an arm’s length relationship that accommodates quality, accountability, efficiency, governance, integrity, transparency, trust, and good faith in societal relations in some proper combination depending on concrete circumstances. Finally, poli- tics should focus on providing an environment in which private initiative and other instances of non-state associative undertakings, not just private enterprise, can flourish. It should also be able to formulate broad eco- nomic and social goals and specify the policies necessary to achieve them.
Transformation that elicits and sustains a minimal sociopolitical consen- sus depends on adequate resources to finance mandated objectives. The individual voter may well choose not to endorse such a relationship, espe- cially during the first years of transformation, when legacies of state social- ism tend to widen the gap between claims on state expenditures and the citizens’ willingness to fund mandated tasks. Reality has often forced slash- ing expenditures from desperation rather than from deliberate considera- tion or electoral or legislative support. This only complicates reaching and sustaining, or recovering, the essential sociopolitical consensus.
Inasmuch as the compass of the state, provided governance capabilities are available or can be acquired relatively quickly, must be broader than the night watchman’s, the state must be one core institution of the nascent market. Those arguing for explicitly destroying the venal ele- ments of the state soonest, so that the better-motivated policy makers can embark on the construction of democracy and a market economy (for an extreme view, see Åslund et al. 1996), have equated this with destroying the state. In this they have been out of touch with reality because their assertion that governance capabilities in TEs are absent and it is pointless to acquire such capabilities is unrealistic. Furthermore, it is an oxymoron to assume that good governance capabilities can emerge spontaneously from the transformation processes instigated through “preemptive strikes”. While the venal elements of state socialism need to be swiftly eradicated, a very different strong state is desperately required to nurse along the market- and democracy-building processes and indeed to prevent the “new class” from twisting prevailing opportunities for malfea- sance to their own narrowly defined interests (Poznanski 1999, p. 336).
almost by definition a transition may not be judged a success before it is complete (Flemming 1999, p. 11). Yet that too is almost impossible to define. Conversely, failure should almost by definition be equated with a complete reversal of transition. Yet that too is almost impossible to define, given that a return to the status quo anteis not feasible. This leaves a broad range for asserting different views. One that should not be controversial, however, is that policies be evaluated in terms not only of the drift of the overall stance but also of the concrete elements of each policy package.
An economic upturn, however measured, while welcome, is not necessar- ily indicative of successful transformation. Though growth is now positive in most TEs, the pace continues to be quite uneven, tepid in most cases, and volatile as compared to what should have been feasible when doing away with the purported inefficiencies of state socialism and the impera- tive of catch-up modernization.
Any monistic metric for adjudicating success and failure is, in my view, the wrong way to proceed. This applies to both comparisons over time and across countries. Let’s take a concrete example. Holger C. Wolf (1999, p. 5) recently characterized the private-sector share of gross domestic product (GDP) as “perhaps the single best indicator of progress in trans- ition”. Though the private sector’s share is very high, economic recovery in Russia has been elusive in part because what is private is not quite the private Wolf would like to identify (see Mesnard 1999) and stands as perhaps the greatest obstacle to effective transformation. It would not work for Poland either, allowing for categorical shifts, although it has booked substantial success in terms of growth. One can safely dismiss such monistic approaches, no matter how sophisticated the apparatus wielded to “test” whether this or that country has been successful. At the very least, the criterion of success, and implicitly of failure, must be measured against some reasonable standard, such as what the observer expects the country to accomplish, the path to be travelled, or the starting conditions for transformation. Even when one contents oneself with a single- dimensional metric, the outcomes will be very different depending on which of the three views, with their possible extensions, one is willing to subscribe to.
Adjudicating success and failure must, then, be based on multiple con- siderations, which can usefully be distributed among three categories.
One comprises the elements that form the entire economic, political, and social backdrop against which transition as a shared policy task emerges, ranging from the state socialism’s multiple bequests to the expectations of the population at large. It is impossible to condense all this into some meaningful indicator to capture favourable and unfavourable starting con- ditions. Various organizations have nonetheless based “liberalization”,
“freedom”, “transparency”, “corruption” or “democratization” indices using nonparametric measures of the presumed component indices. Even the most sophisticated leaves a lot to be desired if only because such an
index is likely to be endogenous to at least one measure of performance that one is trying to identify (as usefully surveyed in Krueger and Ciolko 1998) and transformation must be adjudicated at least in its economic, political, and social dimensions.
Second, policies matter as do the determination and vision, including the coherence of views on economic transformation, of the transition’s leadership. Whereas policy makers may well not have the time or inclina- tion to reflect thoroughly on the “best” course to be pursued, the quality and success of the policies adhered to need to be adjudicated in terms of their FIEMAF features. And transition is necessarily a comprehensive exer- cise in social engineering (see section 6.1). None of the “indices” of trans- formation that I am acquainted with comes even close to agglomerating the diverse elements of any encompassing transformation agenda.
Finally, no matter how favourable starting conditions and how visionary and bold new policy makers may be, the external environment may not cooperate. Touching upon the external factors that impinge on trans- formation would take me too far away from matters concerning trans- formation as such. Suffice it to note that I do not find it easy to gauge even approximately the precise impact of positive and negative external forces, if only because the counterfactual is by definition absent. In fact, a negative external event may well impart a positive impetus to reform.
In view of the above, it should not come as a surprise that I find it hard to specify unambiguous criteria for success and failure of the trans- formation policies put in place or to identify unambiguously countries that succeeded or failed. Such a Manichean approach is much too simplis- tic in any case as per the agenda for transformation emphasized here.
Thus a country can do very well in terms of macroeconomic stabilization, liberalization, and privatization and benefit from favourable starting con- ditions, but then falter grossly on other items of the agenda, such as build- ing the institutions of the market as defined or maintaining a minimal sociopolitical consensus. How could one synthesize this into a useful metric of success and failure?
Clearly, it is not very useful to even think about success or failure in terms of only one policy dimension, such as macroeconomic stabilization or private-sector development. That ignores all but one criterion of adju- dication and rarely helps to clarify the daunting aspects of transformation.
For that reason I hesitate to characterize any of the “successful” TEs as per the above metric as being on a path of sustainable catch-up growth (Flem- ming 1999). Inasmuch as one of the goals of transformation is to improve the population’s lot, macroeconomic stabilization should be a means toward meeting other preconditions for building a flourishing market economy; otherwise it leads to nothing more than an illusory inflation or budget target. Speed and commitment per se cannot be good or bad—at best a Pyrrhic victory for Bolshevik-type reformers. It all depends on the particular element of the transformation agenda that is being addressed
and the concrete circumstances of the country in question. In other words, it might be useful to work out a continuum, at least multidimen- sional scale of relative success and failure, utilizing something like the pro- posed transformation agenda. That should, of course, be individualized so that one could ideally compare what needed to be done with what has actually been accomplished in the dimensions of the transformation agenda that matter. I return to these issues in section 6.9.
Whereas I do not have a patent indicator for when the transformation will be over, any answer must be based on what a market economy and pluralist politics are supposed to accomplish. A normal market economy is one that functions well, is not beset by rampant bank failures, where enterprises are largely privately owned and work for their own profit, where governance of economic organizations is effective, where taxes are not onerous, the social safety net is tailored to what is sound social policy and fiscally affordable, where government and external imbalances are not too large and soundly financed, and so on. Absent most of this, effect- ive transformation has yet some way to go. An answer should also heed the need of all TEs to embark on a self-sustainable growth path permitting catch-up with levels of income, wealth, and productivity prevailing in western Europe; a distribution of income and wealth, and influence over societal affairs, that sustains the sociopolitical consensus; and a level of maturity in politics that allows stable, transparent, and reliable governance through the institutions built. Despite resumption of growth in many TEs, there can be no room for complacency in economic transformation. Few if any are on a self-sustainable growth trajectory, as recent events in the wake of the Russian crisis have amply underlined.