Russia
initiated its transition path with shock therapy, as did Poland, which has
produced the most successful of the Soviet bloc economic transitions. However,
Russia’s initial economic conditions and implementation of reforms were very
different from Poland’s. In Russia, the necessity of shock therapy came from
the pressing need to overturn economic collapse by bringing in market forces
and to strengthen the political power of then President Yeltsin.[1]
China's
transformation was gradual. In
1978, the Chinese Communist Party leadership committed the nation to gradualist
market-oriented reforms. There was an opening up of the
economy to the outside world.[2]
In 1989, the first post-Communist
Polish government undertook an economic transition rapidly through big bang or
shock therapy policy. Known as the Balcerowicz Plan, after then Finance
Minister Leszek Balcerowicz, Poland’s market transition was implemented in
January 1990.[3]
During the 1992–1994 period of price liberalization, mass
privatization, foreign trade liberalization, and the introduction of full
convertibility of the ruble, Russia abolished the last vestiges of a planned
economy.[4]
In early 1992, small shops and restaurants privatized. There were two tracks:
one for the insiders, one for the public at large. Each citizen was then issued
a voucher worth his or her proportional share. Voucher program was announced on
August 18, 1992 and 10,000 ruble vouchers, approximately $25 issued. Hundreds
of voucher funds, essentially Ponzi pyramids, were created by 1994; half of
them collapsed. 25 million shares lost through voucher funds. 37 million sold
for cash and exchanged for food, etc.[5]
The State retained full ownership of some enterprises like
electricity and owned large shares of others. Large shares did not mean a significant
role in management. In addition to dramatic privatization schemes, Yeltsin rid
the country of the Communist Party’s rule, the step that Gorbachev shied away
from, and finished off the remnants of the command economic system.[6]
In terms of international trade, there were market-determined consumer price
restrictions on imports and currency conversion. In 1990, an outline of a
strategy of step-by-step movement to market was made out in the G7 summit.[7]
On the other hand, the Polish plan
called for instantaneous decontrol of most prices, devaluation and then pegging
of the Polish currency (zloty) to the U.S. dollar, elimination of all foreign
exchange controls and legalization of all types of private enterprise. The plan
also called for privatization of State Owned Enterprises, but privatization was
not entirely put into operation because a political backlash surfaced that slowed
the program down.[8]
With the move to free markets
after 1989, privatization of state farms followed and was almost complete by
1994, with leasing as the main method but with restrictions on foreign
purchases of real estate still in place.[9]
There was an increase in exports to the EU, led by manufactured goods such as
chemicals, steel, and transportation equipment, which continued into 1991. There
was also resistance
to privatization due to fear of unemployment and a fear of foreign buyers,
especially Germans, gaining control of the holding companies and thus of the
assets of the economy as a whole at low prices. Polish privatization has by and
large been reasonably gradual and varied. After the early drastic change
and shock therapy, Poland has become the model of evolutionary gradualism in
privatization.[10] [11]
The
Chinese gradual transition started with the agricultural reforms introduced in
1978 which included the acknowledgement of property rights and of production
teams’ adherence to the principle of “to each according to his work”. There was
then a restoration of the right to private plots and respect for household
boundaries. Furthermore, allowance of free-market rural bazaars followed and
there were more state purchases of agricultural products together with price increases
for these goods.[12]
In
1999 the private sector was recognized as legitimate in the constitution, and
in 2000 an agreement was reached for China to join the World Trade Organization,
which it did in 2001.[13]
With
Dengist marketization came greater income inequality, but there were some
countertrends. The overall Gini coefficient for urban income in 1981 was a
highly egalitarian 0.16. This inequality
decreased during 1979–1984 when rural incomes rose sharply.[14]
The striking development of the 1990s in China was that income inequality
increased rapidly. In urban areas, the Gini coefficient rose from 0.23 in 1988 to
0.28 in 1995. Whereas, in rural areas it rose from 0.301 in 1988 to 0.340 in
1995, and overall nationally it rose from 0.338 in 1988 to 0.429 in 1995.[15]
Unemployment
rates were low in China, although it has substantial disguised unemployment.
Economic growth focused on local government-owned Township and Village Enterprises
and on coastal Special Economic Zones where direct foreign investment was
encouraged through loosened rules.[16]
From 1980-1990, GDP growth was 10.1 percent and from 1990-1998 it increased to
11.1 percent. From 1980-1990, inflation was 10.1 percent and then it fell to
8.60 percent from 1990-2000.[17]
[18]
For Russia, 10 years of negative economic growth resulted
in the halving of GDP. At the same time, inequality doubled as measured by the
gini coefficient. Severe
economic instability and hyperinflation triggered massive capital flight, which
ranged from $10 to $40 billion in 1992, according to various estimates, reached
$80 billion by 1998, and continued at the rate of $20 billion per year through
2001. Shock therapy failed to produce viable entrepreneurs and was pronounced
to be harmful because of the spiraling inflation.[19]
In 1993, China had the world’s
highest economic growth rate and Poland had Europe’s highest. Taking all
factors into consideration, Poland has been one of the most successful of the
transition economies.
Poland’s
transition experience demonstrates both the peril and the promise of a shock
therapy approach. Output fell sharply and a considerable increase in
unemployment followed, leveling off in late 1993 at around 16 percent. Furthermore,
a rapid rise in price levels due to triple-digit inflation took place. Then it
was down to about 1 percent by the early 2003. The Gini coefficient rose from
.28 in 1989 to .34 in 1998.[20]
Unemployment continues to be a predicament,
having crept back up above 10 percent after temporarily falling below that
level in 1998.[21]
In
1993, Poland had the highest economic growth rate in all of Europe at around 4
percent. This occurred in the mid to late 1990s with even higher growth rates. However,
Poland’s growth started from a very low base after the economy’s preliminary
decline. It also slowed considerably after 2000 and it was a little less than 1
percent at the beginning of 2003. Poland’s
growth in the 1990s was led by strong export performance because of complete
currency convertibility at a credible rate. The majority of the growth happened
in a speedily growing private sector based on native Polish entrepreneurship, in
spite of the slowness of privatizing existing State Owned Enterprises.[22]
[2]
Selden, The Political Economy of Chinese Development, p.
157. See also Kai-yuen Tsui, “Decomposition of China’s Regional Inequalities,” Journal
of Comparative Economics 17 (1993): 600–627.
[3]
Leszek Balcerowicz, Reforma Gospodardarcza. Propzycje,
tendencie, kierunki dyskusji (Government Reforms:
Proposals,
Tendencies, and Brief Discussion) (Warsaw: PWE, 1981), pp. 279–373.
[5]
M.
Boycko,A. Shleifer, and R.Vishny, Privatizing Russia (Cambridge, Mass.:
MITPress, 1995), pp. 86–87.
[6]
Berkowitz, Daniel, and David N. De Jong.
“Policy Reform and Growth in Post-Soviet Russia.” European
Economic Review 47 (2003): 337–352.
[7]
Natalia Tabatchnaia-Tamirisa, “Trade
Liberalization and Industry Protection in Russia during 1992–1995,”
Hitotsubashi Journal of Economics 38 (1997): 84. See also Simeon Djankov and
Caroline Freund. “New Borders:
Evidence
from the Former Soviet Union.” Weltwirtschaftiches Archiv 138 (2002): 493–508.
[8]
Mark E. Schaffer, “The Polish State-Owned
Enterprise Sector and the Recession in 1990,” Comparative
Economic Studies 34 (1992): 58–87.
[9]
Ben Slay, “The Polish Economic Transition:
Outcome and Lessons,” Communist
and Post-Communist Studies
33 (2000): 65; OECD
Economic Surveys: Poland, January 2000 (Paris: Organization for Economic Cooperation
and Development, 2000), pp. 50, 176; Darla Munroe, “Economic
Efficiency in Polish Peasant Farming,”
Regional Studies 35 (2001): 461–480.
[10]
Grzegorz Kolodko and D. Mario Nuti, “The
Polish Alternative: Old Myths, Hard Facts and New Strategies
in the Successful Transformation of the Polish Economy,” Research for Action 33 (Helsinki: UNU/WIDER,
1997).
[11]
Christine A. Bogdanowicz-
Bindert and Jan Czekaj, “Poland: A Privatisation Model That
Works,” in S. Faulkner, J. McLoughin, and
S. Owsiak, eds., Polish Transition Ten Years On—Processes and Perspectives (Aldershot, U.K.: Ashgate, 1999),
pp.
78–118.
[12]
Cao, Yuan Zheng, Gang Fen, and Wing Thye Woo.
“Chinese Economic Reforms: Past Successes and Future
Challenges.” InWing ThyeWoo, Stephen Parker, and Jeffrey D. Sachs,
eds., Economies
in Transition: Comparing
Asia and Europe. Cambridge, Mass.: MIT Press, 1999: pp.
19–39.
[13]
Naughton, Barry. “China’s Emergence and Prospects
as a Trading Nation.” Brookings
Papers on Economic
Activity (2) (1996): 273–344.
[14]
Aizur Rahman Khan and Carl Riskin, Inequality and
Poverty in China in the Age of Globalization [New York: Oxford University
Press, 2001], p. 48). See also Long Gen Ying, “China’s Changing Regional
Disparities during the Reform period,” Economic Geography 75 (1999):
59–70.
[15]
Zhao Renwei, “Increasing Income Inequality and its Causes
in China,” The Chinese Economy 33(4) (2000): 11.
Per capita GDP levels in 1966 are in U.S. dollars from
Alvin Rabushka, The New China: Comparative
Economic Development in Mainland China, Taiwan, and Hong
Kong (Boulder, Colo.: Westview Press, 1987),pp. 206, 217, and 226.
[16]
(Shujie Yao,
“Economic Development and Poverty Reduction in China over 20 Years of Reform,” Economic
Development and Cultural Change 48 [2000]: 451).
[17]
GDP growth rates and CPI inflation rates for 1970–1980
and 1980–1990 are from Asian
Development Bank, Asian Development Outlook (Hong
Kong: Oxford University Press, 1992), pp. 288 and 296.
GDP growth rates for 1990–1998 are from John Wong and Lee
Ding, China’s Economy into the New Century:
Structural Issues and Problems (Singapore: World Scientific, 2002), p. 275.
[18]
Inflation rates for 1990–2000 are
from The U.N. Human Development Report, 2002 (New
York: Oxford University Press, 2002), pp. 190–191
[19]
Evgeny
Gavrilenkov, “Permanent Crisis in Russia: Selected Problems of Macroeconomic
Performance,”
Hitotsubashi
Journal of Economics 40 (1999): 53.
1992],
p. 86. Also, see Mark E. Schaffer, “The Polish State-Owned Enterprise Sector
and the Recession in 1990,” Comparative
Economic
Studies 34 (1992): 58–87.
[21]for unemployment
in Poland for 1997–1999 from OECD Economic Surveys: Poland January 2000 (Paris:
Organization for Economic Cooperation and Development, 2000), p. 31
[22] Marie Lavigne, The
Economics of Transition:
From Socialist
Economy to Market Economy, 2nd ed. (NewYork: St. Martin’s Press, 1999), pp.
284–286; for output
and inflation in all countries for
1997–1999 from World Economic Outlook 2000: Focus on Transition Economies
(Washington, D.C.: International
Monetary Fund, 2000), pp. 203, 215.
