THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS 1 Leszek Balcerowicz Warsaw School of Economics, Poland 1. THE ANALYTICAL SCHEME: INSTITUTIONAL SYSTEMS VERSUS POLICIES (1) Propelling institutions Domestic Institutional System Constraining institutions (2) (4) (3) Long-run economic growth (5) Institutional (reforms) Fiscal, monetary policies. Direct interventions (6) (8) External shocks Economic Policy (7) Other determinants of policies: - personality factors - political shocks, etc. 2. SOCIALISM AS AN INSTITUTIONAL SYSTEM 1. The monopoly of the non-private sector. 2. Command economy. 3. Non-democracy (the democratic socialism is impossible). 4. A long list of crimes against socialism (as distinct from crimes against other private persons) In other words: socialism was characterized by: a) Weak propelling institutions: responsible for the declining rate of economic growth over a longer run (waste, low innovativeness) b) Weak or non-existent constraining institutions: Responsible for the catastrophic policies which produced deep decline in GDP and sometimes in population (Stalinism, Maoism). 1 I m grateful to Magda Ciżkowicz, Aleksander Łaszek, Marek Tatała and Konrad Wąsikiewicz for their assistance in preparing this presentation. Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 1
LESZEK BALCEROWICZ 3. THE ECONOMIC COSTS OF SOCIALISM Countries under socialism lost a lot of distance to Western European economies Per-capita GDP (in 199 international dollars) in 195 and 199 14 Poland vs. Spain 1221 18 Hungary vs. Austria 16881 1 14 1 6 2 2447 2397 5115 195 199 Poland Spain 6 2 6471 376 248 195 199 Hungary Austria Per-capita GDP (in 199 international dollars) in 195 and 23 North Korea vs. South Korea Cuba vs. Chile 16 15732 12 195 12 8 8 4 4 246 367 2569 854 854 1127 195 23 North Korea South Korea 195 23 Cuba Chile Per-capita GDP (in 199 international dollars) in China (Western Europe=1) 25% 2% 15% 1% 5% % 195 1953 1956 1959 1962 1965 1968 1971 1974 1977 198 11983 Source: Maddison Database 1986 1989 1992 1995 1998 21 Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 2
THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS 4. THE INSTITUTIONAL TRAJECTORIES AFTER SOCIALISM 1 CEE Political freedom (Polity IV indicator 5 5< fully institutionalized democracies -5< mixed, or incoherent, authority regimes <5 CIS -5 China and Vietnam -5< mixed, or incoherent, authority regimes <5-5> fully institutionalized autocracies -1 Source: Polity IV Project *CIS includes Georgia (former member), Ukraine (officialy participating), and Turkmenistan (unofficial associate) The Polity conceptual scheme is unique in that it examines concomitant qualities of democratic and autocratic authority in governing institutions, rather than discreet and mutually exclusive forms of governance Political freedom 211 (Polity IV) 1 5 5< fully institutionalized democracies -5< mixed, or incoherent, authority regimes <5-5 -5< mixed, or incoherent, authority regimes <5-5> fully institutionalized autocracies Source: Polity IV Project -1 Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 3
LESZEK BALCEROWICZ Country Economic Rights (1) Political Rights (2) The Leaders Denmark Finland New Zealand Switzerland Table 1. Economic and Political Rights, 1996-25 9-95 1 The Transition Countries Bulgaria 5 3 2 1 Czech Republic 7 1 Estonia 7 9 1 Hungary 7 1 Latvia 5 1 2 Lithuania 5 2 1 Poland 7 5 1 Romania 3 2 Slovakia 5 2 1 Slovenia 5 6 1 Belarus 5 2 6 7 Russia 5 25 4 6 Ukraine 3 4 3 China 3 2 7 Other OECD Comparators Greece 7 5 1 Italy 7 5 1 Portugal 7 1 Spain 7 1 (1) (1) Heritage Foundation, Index of Economic Freedom, 29 (2) Freedom House, Freedom in the World, 29 Source: Leszek Balcerowicz Institutional Change after Socialism and the Rule of Law, Hague Journal on the Rule of Law, 1: 215 24, 29 9 8 7 6 5 4 3 2 1 1994 21 Private sector share in GDP (%) Source: EBRD - Structural and institutional change indicators Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 4
THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS Trade openness (Merchandise Trade as % Of Gdp) 18 16 14 12 % of GDP 1994 211 1 8 out of scale 6 4 2 21 Sing: 317% H-K: 376% Merchandise trade as a share of GDP is the sum of merchandise exports and imports divided by the value of GDP, all in current U.S. dollars. (WDI) 6 5 % of GDP General government expenditure in 211 (as % of GDP) 4 3 2 1 Source: IMF, World Economic Outlook, April 213 Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 5
LESZEK BALCEROWICZ Observations: Democracy was introduced and maintained in the countries which introduced capitalism (CEE), Non-democratic political systems co-exist with: quasi-capitalist economies (e.g. Russia), quasi-socialist economies (e.g. Belarus, Central Asia), Important questions regarding the variation of the economic systems after socialism include especially the differences between the capitalist systems in CEE and quasicapitalist systems elsewhere. 5. THE ECONOMIC OUTCOMES AFTER SOCIALISM GDP growth (1989 = 1%) 18% 16% 14% 12% 1% 8% 6% 4% 2% % 71% 72% (1998)(1993) GDP 28 Lowest GDP level between 1989 and 28 (year of the bottom) 84% 92% (1994) (1993) 121% 17% 114%115%12% 11% (1993) (1998) (1997) (1993) 138% 143% 13% 154%154% 159%161% 177% (1992) (1991) (1993) (1992)(1993) (1997) (1994) (1992) (1994)(1993) Source: EBRD Transition Report 28; EU Commision Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 6
THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS GPD per capita growth (1989 = 1%) (GDP per capita growth in 28 in relation to 1989 level Source: EBRD Transition Report 28; WB WDI, IMF WEO Transition economies GDP per capita against Germany s GDP (Germany= 1%, GK$ 199, PPP) 55% GDP per capita, ppp, GK$ 199, Germany=1% 5% 45% 4% 35% 3% 25% Poland EU NMS CIS 2% 1989 1991 1993 1995 1997 1999 21 23 25 27 NMS=Bulgaria, Czech R., Estonia, Hungary, Latvia, Lithuania, Slovak R., Romania CIS=Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan,Moldova, Russia, Turkmenistan, Tajikistan,Uzbekistan Ukraine Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 29 Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 7
15% LESZEK BALCEROWICZ GDP per capita (constant US$) change between 27 and 29 (in %) 1% 5% % -5% -1% -15% -2% -25% FDI stock (% of GDP) 12 1 8 6 % of GDP 1993 211 out of scale 4 2 21 Sing: 24% H-K: 467% FDI stock is the value of the share of their capital and reserves (including retained profits) attributable to the parent enterprise, plus the net indebtedness of affiliates to the parent enterprises. (WDI) Source: UNCTAD Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 8
THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS 6, 6. AGRICULTURAL SECTOR AFTER SOCIALISM Agriculture, value added (% of GDP) 5, 4, 199 1992 21 3, 2, 1,, Agriculture value added per worker (constant 25 US$) 16 14 12 1 1992 21 8 6 4 2 Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 9
LESZEK BALCEROWICZ Export of agricultural products (25=1 current US$) 5 45 4 35 3 25 2 15 1 5 1992 1993 2 29 211 Georgia Russian Federation Czech Republic Slovak Republic Poland Hungary Slovenia Lithuania Bulgaria Romania Source: WTO 7. THE NON-ECONOMIC OUTCOMES AFTER SOCIALISM 85 8 75 7 65 65 63 63 199 211 71 68 69 68 68 69 69 7 67 68 67 65 Life expectancy at birth, total (years) 74 74 74 74 75 75 73 73 7 7 71 72 71 71 71 71 71 69 7 69 69 68 78 76 76 77 8 73 74 66 63 77 71 79 83 82 82 82 8 81 81 81 75 74 74 77 71 77 77 77 76 6 Life expectancy at birth indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life. Vol.3. July 213 - www.ifmaonline.org - 19th Congress Proceedings 1
IFMA19 THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS Mortality rate, under-5 (per 1, live births 12 116 98 1 93 72 63 6 53 4 57 49 59 55 49 47 45 37 37 31 28 21 2 199 211 8 77 8 Under-five mortality rate is the probability per 1, that a newborn baby will die before reaching age five, if subject to current age-specific mortality rates. (WDI) 18 16 22 27 21 21 21 18 19 17 17 17 14 13 12 12 1 1 8 8 6 6 6 6 4 4 3 16 16 15 19 15 13 11 9 1 9 8 5 4 4 4 4 3 83 CO2 emissions (metric tones per capita) 18 16 14 1992 29 Carbon dioxide emissions are those stemming from the burning of fossil fuels and the manufacture of cement. They include carbon dioxide produced during consumption of solid, liquid, and gas fuels and gas flaring. (WDI) 12 1 8 6 4 2 EXPLAINING THE DIFFERENCES IN ECONOMIC OUTCOMES Vol.3. The principal factors explaining differences in growth rates are: initial conditions, external developments (e.g. the Russian crisis) including: access to markets, location, extent of market reforms and the nature of macroeconomic policies: most important in the long run. July 213 - www.ifmaonline.org - 19th Congress Proceedings 11