Transition : the market test of market liberalism

Transcription

1 Transition : the market test of market liberalism Ç Avner Offer, Oxford 2007 Suharto signs letter of intent for IMF head, Michel Camdessus All figures from World Bank, Economic Growth in the 1990s: Learning from a Decade of Reform

2 Market Liberalism a response to stagnation, or its cause?

3 Nirvana economics: motherhood and applie pie? Counterfactual: perfectly competitive economy. Coase theorem (1). Welfare criterion: Pareto optimality. Justification: textbook neoclassical economics, invisible hand. Imperfections: Trade barriers Regulation Capital controls Policy discretion Nationalisation Insecure property rights Assumed to serve vested interests, rent seekers But other assumptions also possible: Imperfections functional Coase theorem (2): transaction costs and institutions Welfare state reasoning: insurance function, social peace Property rights unjust/ initial endowments unfair Model not impartial Form of Class conflict. Capital vs. people. Represents interests of (pick your own): property owners, finance, multinationals, imperialism.

4 Agencies of Transition Irony: market liberalism imposed by command. Not itself a market choice. A massive intervention in the name of anti-intervention. International Monetary Fund. Macro-stability. Liberalized capital markets. Lender of last resort [Wall St. as well as governments]. Effectively a central planner. World Bank. Development lending. Conditional help: Structural Adjustment programme [IMF & WB] World Trade Organization. GATT, Uruguay Round, TRIPS, bilateral agreements. Opening up US Treasury: Controls international agencies. USA domestic agendas. Agendas: Globalization, Financial stability, US strategic interests? Coordinates bailouts: Mexico, South-East Asia. Wall Street and Financial Industry interests. Nation-states Civil societies Vested interests

5 Washington consensus: the ten commandments 1. Fiscal discipline; 2. Redirection of public expenditure toward education, health and infrastructure investment; 3. Tax reform - broadening the tax base and cutting marginal tax rates; 4. Interest rates that are market determined and positive (but moderate) in real terms; 5. Competitive exchange rates; 6. Trade liberalization - replacement of quantitative restrictions with low and uniform tariffs; 7. Privatization of state enterprises; 8. Openness to foreign direct investment; 9. Deregulation - abolition of regulations that impede entry or restrict competition, except or those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions; 10. Legal security for property rights. World Bank, Poverty Report 2000

6 Global Arena: The test of market liberalism Eastern Europe: decline, and (partial) recovery. Africa: with few exceptions, basket case. Latin America: Stagnation despite reform. East Asia: Astonishing success, heterodox methods. Europe: mixed record, resistance.

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12 Russia

13 China

14 India

15 What determined outcomes Initial conditions/prior endowments Russian strict planning/ no monetary policy. Chinese loose planning/ prices Russian urbanisation/ Chinese rural base. Russian collective farms/ Chinese family farms. Mobility restrictions force local investment of agrarian surplus. MTVE Property rights Russian failed privatisation: Oligarchs. China: replace fixed-wage by fixed-rent. Creates strong local incentives. External participation Russia: Western economic advice. Shock treatment China: Party & govt control/ minority joint ventures/gradualism/fdi Social protection Eastern Europe: Welfare state stagnation to demographic collapse Rural China: Collective misery to private prosperity [no welfare state]

16 Back to History? Governance Institutions Path dependence Discretion Virtue Policy norms: Science or ideology? Marxist bolshevism vs. Market fundamentalism