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Explaining Postcommunist Economic Performance

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  • Lawrence P. King

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    Abstract

    This article critiques neoliberal transition theory from a neoclassical sociological perspective. Neoliberals argue that postcommunist economic failure is the result of inadequate adherence to neoliberal precepts. This paper argues that the neoliberal policy package of “Shock Therapy” (consisting of the radical transition to a market economy through rapid and extensive price and trade liberalization, stringent monetary and fiscal stabilization, and the implementation of a mass privatization program) creates severe supply-and-demand shocks for enterprises, inducing firm failure. This leads to a fiscal crisis for the state, and an erosion of its capacity and bureaucratic character. This in turn reacts back on the enterprise sector, since the state can no longer support the institutions necessary for the effective functioning of capitalist economies. The neoliberal theory is tested against a neoclassical sociological theory by examining the experience of 12 postcommunist countries and two reform Asian communist countries.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp559.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-559.

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    Length: 75 pages
    Date of creation: 06 May 2003
    Date of revision:
    Handle: RePEc:wdi:papers:2003-559

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    Keywords: postcommunist performance; state capacity; liberalization; privatization;

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    1. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    2. Jeffrey Sachs & Andrew M. Warner, 1996. "Achieving Rapid Growth in the Transition Economies of Central Europe," CASE Network Studies and Analyses 0073, CASE-Center for Social and Economic Research.
    3. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
    4. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
    5. Peter Murrell, 1996. "How Far Has the Transition Progressed?," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 25-44, Spring.
    6. Burawoy, Michael, 1996. "The state and economic involution: Russia through a China lens," World Development, Elsevier, vol. 24(6), pages 1105-1117, June.
    7. Randall K. Filer & Jan Hanousek, 2002. "Data Watch: Research Data from Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 225-240, Winter.
    8. Stanley Fischer & Alan Gelb, 1991. "The Process of Socialist Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 91-105, Fall.
    9. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "From plan to market : patterns of transition," Policy Research Working Paper Series 1564, The World Bank.
    10. Olivier Jean Blanchard & Maxim Boycko & Marek Dabrowski & Rudiger Dornbusch & Richard Layard & Andrei Shleifer, 1993. "Post-Communist Reform: Pain and Progress," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023628.
    11. Anders Åslund & Peter Boone & Simon Johnson, 1996. "How to Stabilize: Lessons from Post -communist Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 217-314.
    12. John King, 2011. "Foreign Direct Investment and Pollution Havens," Journal of Economics and Econometrics, Economics and Econometrics Research Institute (EERI), Brussels, vol. 54(1), pages 39-47.
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