Economic Theory and Transformation of the Soviet-type System: The Challenge of the Late Industrialisation Perspective

That the big bang-type transformation experiments in countries of the former Soviet bloc are losing public trust is widely agreed today. By 1992, one heard such a confident claim by advocates of alternative approaches: ‘the radical reform model begins to break down’ (Murrell, 1992a). Why such a shift of intellectual fashion? One reason is the conspicuous contrast of actual economic performance between the Eastern bloc and China. For the former, what is undermining the credit of the radical model is not only the disappointing performance over the past years but also, and perhaps more important, the bleak prospects that are widely predicted (see, e.g., the projection in Summers, 1992, which is based on some World Bank internal work). In contrast, for China, which has been adopting a vastly different approach to reform, the economic record over the past decade has been outstanding. It is against this background that there has recently been a rush of Western economists to embrace the ‘Chinese model’ for supporting their alternative approaches (see, e.g., Proznanski, 1992).