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Socialism, Capitalism, and Transition - Coordination of Economic Relations and Output Performance

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  • Dirk Bezemer

    (University of London)

  • Uwe Dulleck

    (University of Vienna)

  • Paul Frijters

Abstract

Contacts and the way they are organized in different economic systemsmatter for the economy. In this paper we introduce the notion of Relational Capital to model contacts. Contacts are an input into sold output in our macro model based on matching theory (Pissarides, 1990). We argue that the destruction of some contacts in search for better ones is an integral part of technological advancement. This destruction carries a negative externality on former business partners. Socialist economies restricted such creative destruction, which we argue lead to their increasing technological backwardness. This is our explanation of the output fall during (unrestricted) transition: the technological catch-up implied high levels of destroyed and replaced relational capital. This not only had high direct opportunity costs (more labor is used for the production of relational capital) but also led to a loss in overall relational capital. The basic model is used to simulate plausible transition paths which appear compatible withmany stylized facts of the transition experience. Finally we discuss empirical observations as well as policy issues brought up in the literature.

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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 168a.

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Length: 44 pages
Date of creation: 19 Nov 2003
Date of revision:
Handle: RePEc:qut:dpaper:168a

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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Keywords: Transition; Economic Systems; Relations; Innovation;

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