I mostly (but not completely) agree with Barkley on this. For me, the
main point of macroadjustment is an interconnected set of conditions:
1. There is massive disguised un- and underemployment on the rolls of
SOE's.
2. This is financed through a combination of price controls and
subsidies (and typically the subsidies are unaffordable or
hyperinflationary).
3. These enterprises are unable to compete internationally; hence
enormous barriers to trade, soft currencies, etc.
The first two have to be altered simultaneously and fairly quickly; the
third, by its nature, takes more time. I think insufficient thought has
been given in most shock therapy programs to two major issues: what are
all the unemployed supposed to be doing when they lose their jobs in the
SOE's, and how long will it take before firms are able to hold their own
in world markets, so that trade opening and convertibility can be
sustained?
A socialist approach, IMO, would use temporary public service
employment, etc., to deal with unemployment, and it would only very
gradually open the economy to competition -- and even then leave scope
for managing the current account in the long run. (This is in relation
to macro adjustment -- obviously a socialist approach to transition
itself would be much more substantial and far-reaching...)
Peter
"J. Barkley Rosser, Jr." wrote:
> 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
