Transition as Development Working Group

Economists had provided arguments that the centrally administered economies of the Soviet Union and Eastern Europe, due to their highly bureaucratic structure, were inefficient and lacked creativity and, thus, inhibited progress. For these reasons, it was not difficult to predict the ultimate collapse of the centrally administered economies especially, as it were, after the event. However, while there was widespread belief among economists that these economies were not viable, this was not formalised by developing models which would address, and facilitate, the transition from a centrally administered to a market economy. Meanwhile, there has been a vast amount of literature on how to transform capitalist economies into socialist economies, nothing appeared to offer advice on how to change centrally administered socialism into a market economy. This can in part be attributed to the difficulty associated in predicting the timing of the collapse.

During the transition process itself, elements of centrally administered socialism and embryonic market relations co-existed. This seriously challenged the relevance of traditional economic theory. While the collapse of centrally administered economies did not surprise economists, the transition process did. In Russia and Eastern Europe, it was one of the most dramatic non–marginal adjustments in economic systems ever experienced. The complexities involved did not have any historical parallels, and the general desire for quick results caught economists unprepared if not irresponsible. Consequently, the transition process turned out to be far more troublesome and painful than initially hoped and expected.

Economic science responded by developing an appropriate body of economic analysis to facilitate and provide some form of direction for the transition process. The movement from a centrally administered to a market-based economy was commonly referred to as the ‘transition problem’. While the word ‘transition’ – the passage from one state to another, in this case from a centrally administered to a market-based economy – might seem appropriate, it did not explicitly capture all the totality and diversity involved. The transition process entailed superseding the essential properties of the centrally administered economy, consequently destabilising the economic system and replacing it with a market economy.

Exposition of the transition problem in economic literature appears to oversimplify the complexities involved. In most cases, economists writing on transition have reduced it to one or other isolated variable within the economic arena. The transition problem was “pigeonholed” into thematic subcategories like pricing policy, government expenditure, investment policy and unemployment, thus ignoring the interrelated nature of economic policies, institutions and behaviour. Alternatively, economists provided a solution to the problem by sometimes explicitly, but mainly implicitly, assuming specific behavioural assumptions and/or economic relationships. These assumptions resulted in a pre-determined position, usually consistent with orthodox economic theory, which was presented and defended as the only appropriate approach. Thus, modelling of the transition process was highly technicist and grounded in a narrowly conceived notion of what was involved and how it should be understood.

Today, most commentators have decided that the transition process is over as most countries have established a market economy and some of the countries of Eastern Europe have joined the EU. Again, this is a narrow conception of “transition” as the scars of the process of implementing a market economy remain visible. Conceiving the transition process as development offers the opportunity to root it appropriately in the past, to see it as continuing, and to address it through both political economy and interdisciplinarity.

Links

Contact

To apply to join the IIPPE Transition as Development Working Group, email iippe@soas.ac.uk.