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

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Contacts and the way they are organized in different economic systems matter 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 backwardness 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 with many 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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  • Dirk Bezemer & Uwe Dulleck & Paul Frijters, 2003. "Socialism, Capitalism, and Transition-Coordination of Economic Relations and Output Performance," Vienna Economics Papers vie0305, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0305
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    JEL classification:

    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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