This will constitute a combined response to
Jim D., Yoshie, and Paul P. Obviously I was at
least being deliberately provocative, but not entirely so.
The analysis of this must be done in a detailed way.
Let me begin with Yoshie. I thank her for providing
the info from the EBRD on what is the state of things
in Yugoslavia. I am also not at all surprised that the
removal of price controls has led to an immediate
decline of living standards (already pretty low) due
to sudden price increases. A quick reminder here is
that when there are widespread price controls, there are
also frequently shortages and lines. The removal of those
and the gains due to that were not mentioned in the story.
Let us remember what is involved here, a claim by
a Serbian/Yugoslav official that they wish to pursue a
"Polish" version of "shock therapy," maintaining a
"Scandinavian" version of a social safety net, and a
"Slovenian" path of gradual privatization, all simultaneously.
The counterclaim has been that this will be impossible,
although it is only Jim D. who has specifically made that
point, citing the pressure from international lenders and
capitalists who presumably won't like such a combo. I
have not seen anybody specifically say that such a
combination would be a bad thing in itself, if it could be
achieved, although Yoshie may have hinted at that with
her story about prices rising faster than wages.
Let me start with the privatization issue. I think here
the note from Paul P. is very relevant, and I fully agree
with it. Serbia, like most of the rest of the former Yugoslavia,
has remnants of the old worker managed/market socialist
system (is Louie P. around these days to huff and puff on this?).
The rest of the world does not like this system, and the
Times article Paul cited is a good example of this. Certainly
the IMF and EBRD, especially the former, strongly support
having lots of foreign direct investment, that is, takeovers by
outside capitalists, be the main mechanism of privatization.
Slovenia has resisted this and maintained more of a worker
ownership system in its system of gradual privatization. Paul
and I both agree that this has been admirable and working
pretty well in Slovenia (a former republic of the former Yugoslavia
for anybody not aware of this fact). Slovenia is now under
pressure from the EU to open up more, and probably will as
it wants to join the EU. But, I see nothing wrong with Yugoslavia
or Serbia wishing to emulate what has been the policy in
Slovenia, unless somebody simply wants no privatization at
all, which may be the case on this lists. BTW, the recent
resocializations were probably a good thing, as many of
the supposedly privatized SOEs were indeed run by corrupt
cronies of Milosevic.
Nor do I think anybody on the list would oppose having
Scandinavian style social safety nets.
Clearly the more controversial issue involves "Polish
shock therapy" and the apparent claim from Jim, and perhaps
implied by the EBRD piece from Yoshie (particularly about
cutting pensions and other spending cuts), that shock
therapy, especially as envisioned by outside lenders, will
imply cutbacks or non-implementation of decent social safety
nets. Well, this is where I disagree.
Let us consider Poland in particular, and what is involved in
"Polish shock therapy." First of all, everyone should be aware,
if they are not, that Poland has had by far the best macro
performance of any of the European transition economies. It
is probably the only one that is clearly and definitively ahead
of where it was in 1989 in real per capita GDP terms. Second,
although "shock therapy" has been associated in many minds
with total sudden change, including privatization, etc., this was
not what happened in Poland. Indeed, Poland itself has been
slow to privatize, much to the annoyance of various international
agencies. Also, it has maintained very generous pensions,
although some other parts of its social safety net have not
been as well maintained. I remember hearing Jeffrey Sachs
whining in a major speech at the ASSA several years ago
about "what is it the Poles want anyway," complaining about
how they just would not follow his advice and cut their pensions
"enough." So, the Poles have themselves to a large degree
managed what many say is impossible.
The shock therapy in their case basically involved, a)
price decontrols (which have already happened in Yugoslavia,
I gather), b) loosening regulations for new businesses (also,
I gather mostly in place already in Yugoslavia), c) a vigorous
anti-inflation program, and d) full convertibility of the currency.
I would suggest that the latter is not necessary, as the experience
of Hungary and some other transition economies shows. But,
Yoshie's own evidence suggests that what is needed is a
successful anti-inflation program. Now, the question is how
to achieve that. In Poland it crucially involved ending the soft
budget constraint for the remaining state-owned firms. This
involved a rise in unemployment, no fun at all.
But, this is where a generous social safety net comes in,
including retraining and unemployment compensation. Not
perfect, but the unemployment rate has been steadily falling
for quite some time now in Poland.
So, there are lot of nasty counterpressures, but I would
argue that the goal of the Serbian official is far from wrongheaded,
even if it may be difficult to pull off. And, based on the Polish
and Slovenian experiences, it may not be as difficult as many
think.
Barkley Rosser
