The Political Impediments to Economic Reform: Political Risk and Enduring Gridlock

Why do entrenched interests so often oppose economic reform? This phenomenon is especially vexing because successful reform increases prosperity, allowing all to be better off. This paper argues that the answer to the question is often political risk. This reflects the uncertainty that • the prospective returns from reform will fail to materialize due to political factors, for example, due to corruption, technical or administrative incompetence, or political pressure that forces a policy reversal. When the political risks are too high, groups will fail to support reform plans with sound economic design. Analyzing the politics underlying economic reform is therefore complementary to analyzing the economics of reform. The approach is applied to topics such • as agrarian reform in Africa and the former Soviet Union; the removal of exchange rate controls and patronage systems in Zambia; central political considerations underlying the rise of Korea and Taiwan; and sequencing considerations in China's successful economic reform.