Why the Ex-Communist Countries Should Take the 'Middle Way' to the Market
AbstractThe ex-communist countries of Europe as well as Soviet Union want to find a way out of the command economy to a market system. The common advice (e.g., Lipton and Sachs, Kornai) has been to go quickly "all the way" to a fully capitalist economy. The difficulties of this policy are now becoming clear. This paper argues that a "middle way" with many socialist elements is an attractive path for these countries, for both the transition and as a long-term goal. Economic reform of ex-communist countries must be based on two core elements. First, the primacy of law and stable private property rights must be assured. Second, free markets must be the basis of economic relations. How could reform then be a middle way? First, firms must be independent entities owned by shareholders and responsible for making a profit, but the owners can include local, provincial (republic) and national governments, workers, and social institutions providing pensions and insurance. Government ownership has not made Volkswagen, Lufthansa or Japan Air Lines economic failures. Second, market are institutions that must be developed. It is particularly important for a society without accepted norms and laws regarding market behavior to develop them, and to evolve efficient private contracts. Government legal codes can help. Finally, regulation can provide some of the security of socialist systems and Western welfare states. The economic case for a middle way is supported by its widespread success, including Austria, Germany's "social market" economy, Sweden, Canada and Japan. The cultural case is based on an economy's need to be reasonably consistent with its society's customs and norms. It is less of a shock for an ex-communist society to move to the "middle way" than to a purely capitalist society.
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Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_54.
Date of creation: Jun 1991
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- Shiller, Robert J & Boycko, Maxim & Korobov, Vladimir, 1991.
"Popular Attitudes toward Free Markets: The Soviet Union and the United States Compared,"
American Economic Review,
American Economic Association, vol. 81(3), pages 385-400, June.
- Robert J. Shiller & Maxim Boycko & Vladimir Korobov, 1990. "Popular Attitudes Towards Free Markets: The Soviet Union and the United States Compared," Cowles Foundation Discussion Papers 952, Cowles Foundation for Research in Economics, Yale University.
- Robert J. Shiller & Maxim Boycko & Vladimir Korobov, 1991. "Popular Attitudes Towards Free Markets: The Soviet Union and the United States Compared," NBER Working Papers 3453, National Bureau of Economic Research, Inc.
- Koford, Kenneth J. & Miller, Jeffrey B., 1991. "The natural rate and adjustment to shocks in an efficiency-wage share economy," Journal of Macroeconomics, Elsevier, vol. 13(2), pages 299-316.
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