19th International Farm Management Congress, IFMA19 SGGW, Warsaw, Poland Plenary Paper

THE POST-SOCIALIST TRANSITION IN A COMPARATIVE PERSPECTIVE: THE LESSONS1 Leszek Balcerowicz

Warsaw School of Economics, Poland

1. THE ANALYTICAL SCHEME: INSTITUTIONAL SYSTEMS VERSUS POLICIES

(1)

Domestic Institutional System Propelling Constraining institutions institutions

Long-run (3) economic growth (2) (4)

(5)

(8) Institutional Fiscal, monetary policies. (reforms) Direct interventions (6) 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.

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3. THE ECONOMIC COSTS OF SOCIALISM

Countries under socialism lost a lot of distance to Western European economies

Per-capita GDP (in 1990 international dollars) in 1950 and 1990

Poland vs. Spain Hungary vs. Austria 16881 14000 18000 12210

14000 10000

10000 5115 6000 6471 6000 2447 2397 3706 2480 2000 2000 1950 1990 1950 1990 Poland Spain Hungary Austria

Per-capita GDP (in 1990 international dollars) in 1950 and 2003

North Korea vs. South Korea Cuba vs. Chile

15732 16000 12000 10950

12000 8000

8000 3670 4000 2569 4000 2046 854 854 1127 0 0 1950 2003 1950 2003 Cuba Chile North Korea South Korea

Per-capita GDP (in 1990 international dollars) in China (Western Europe=100)

25%25%

20%20%

15%15%

10%10%

5%5%

0%0%

1950 19531953 1956 1959 1962 1965 1968 19711971 19741974 19771977 19801980 1983 19861986 1989 19921992 1995 19981998 20012001 Source: Maddison Database

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4. THE INSTITUTIONAL TRAJECTORIES AFTER SOCIALISM Political freedom (Polity IV indicator) Political freedom (Polity IV indicator 10 CEE

5< fully institutionalized democracies 5 -5< mixed, or incoherent, authority regimes <5

CIS 0

-5< mixed, or incoherent, authority regimes <5 -5 China and Vietnam -5> fully institutionalized autocracies

*CIS includes Georgia (former member), Ukraine (officialy Source: Polity IV Project participating), and Turkmenistan (unofficial associate) -10

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

PoliticalPoliticalfreedom freedom 20112011 (Polity (Polity IV)IV) 10

5< fully institutionalized democracies 5 -5< mixed, or incoherent, authority regimes <5

0

-5< mixed, or incoherent, authority regimes <5 -5 -5> fully institutionalized autocracies

Source: Polity IV Project

-10

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Table 1. Economic and Political Rights, 1996-2005 Country Economic Rights(1) Political Rights(2) The Leaders Denmark Finland 90-95 1 New Zealand Switzerland The Transition Countries Bulgaria 50 → 30 2 → 1 Czech Republic 70 1 Estonia 70 → 90 1 Hungary 70 1 Latvia 50 1→ 2 Lithuania 50 2 → 1 Poland 70 → 50 1 Romania 30 2 Slovakia 50 2 → 1 Slovenia 50 → 60 1 Belarus 50 → 20 6 → 7 Russia 50 → 25 4 → 6 Ukraine 30 4 → 3 China 30 → 20 7 Other OECD Comparators Greece 70 → 50 1 Italy 70 → 50 1 Portugal 70 1 Spain 70 1 (1)(1) Heritage Heritage Foundation, Foundation, “Index “Indexof Economic of Freedom”,Economic 2009 Freedom”, 2009 (2) (2) FreedomFreedom House, House, “Freedom “Freedom in the World” in the , 2009 World” , 2009 Source: Leszek Balcerowicz Institutional Change after Socialism and the Rule of Law, Hague Journal on the Rule of Law, 1: 215–240, 2009

90 Private sector share in GDP (%) 1994 80 2010 70

60

50

40

30

20

10

0

Source: EBRD - Structural and institutional change indicators

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Trade openness (Merchandise Trade as % Of Gdp)

180 % of 160 GDP 1994 140 2011

120

100 out of 80 scale

60

40 2010 Sing: 317% 20 H-K: 376% 0

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) Source: World Bank, World Development Indicators

General government expenditure in 2011 (as % of GDP) 60 % of GDP 50

40

30

20

10

0

Source: IMF, World Economic Outlook, April 2013

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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 quasi- capitalist systems elsewhere.

5. THE ECONOMIC OUTCOMES AFTER SOCIALISM

GDP growth (1989 = 100%) GDP growth (189 = 100%) 180% 177% GDP 2008 161% 159% 160% 154%154% Lowest GDP level between 143% 140% 1989 and 2008 (year of the 138% bottom) 130% 120%121% 120% 114%115% 107% 101% 100% 92% 84% 80% 71% 72% (1992) (1991) (1993) (1992)(1993) (1993) 60% (1997) (1997) (1994) (1992) 40% (1994)(1993) (1993) (1998) (1993) 20% (1998)(1993) (1994) 0%

Source: EBRD Transition Report 2008; EU Commision

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GPD per capita growth (1989 = 100%) (GDP per capita growth in 2008 in relation to 1989 level

Source: EBRD Transition Report 2008; WB WDI, IMF WEO

Transition economies GDP per capita against Germany’s GDP (Germany= 100%, GK$ 1990, PPP) 55%

50% Poland

45% EU NMS CIS

40%

35%

30%

GDP per capita, ppp, GK$ 1990, Germany=100% GK$ 1990, ppp, per GDP capita, 25%

20% 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

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 2009

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GDP per capita (constant US$) change between 2007 and 2009 (in %)

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25% Source: World Bank, World Development Indicators

FDI stock (% of GDP)

120 % of GDP 100 1993 80 2011 out of scale 60

40 2010 Sing: 20 204% H-K: 467% 0

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

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6. AGRICULTURAL SECTOR AFTER SOCIALISM

Agriculture, value added (% of GDP)

60,00

50,00 1990 1992 2010 40,00

30,00

20,00

10,00

0,00

Source: World Bank, World Development Indicators

Agriculture value added per worker (constant 2005 US$)

16000

14000

12000 1992 2010

10000

8000

6000

4000

2000

0

Source: World Bank, World Development Indicators

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Export of agricultural products (2005=100 current US$)

500 1992 1993 2000 2009 2011 450

400

350

300

250

200

150

100

50

0 Georgia Russian Czech Slovak Poland Hungary Slovenia Lithuania Bulgaria Romania Federation Republic Republic

Source: WTO

7. THE NON-ECONOMIC OUTCOMES AFTER SOCIALISM

Life expectancy at birth, total (years) 85 83 82 82 82 1990 80 81 81 81 80 80 2011 79 78 77 77 77 77 77 77 76 76 76 75 75 74 75 75 74 74 74 74 74 74 73 73 73 72 71 71 71 71 71 71 71 71 71 70 70 70 70 69 70 69 69 69 69 69 68 68 68 68 67 68 67 66 65 65 65 63 63 63

60

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. Source: World Bank, World Development Indicators

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Mortality rate, under-5 (per 1,000 live births 116 120 Under-five mortality rate is the probability per 1,000 that a newborn baby will die before reaching age five, 98 if subject to current age-specific mortality rates. (WDI) 100 93 1990 2011 80 80 77 72 63 57 59 60 53 55 49 49 45 47 40 37 37 31 28 27 22 21 21 21 19 21 19 20 18 16 18 17 17 17 16 16 15 13 12 12 14 13 15 10 10 9 11 9 10 8 8 6 6 6 6 8 8 4 4 3 5 4 4 4 4 3 3 0

Source: World Bank, World Development Indicators

CO2 emissions (metric tones per capita) 18 Carbon dioxide emissions are those stemming 16 from the burning of fossil fuels and the 1992 manufacture of cement. They include carbon 14 2009 dioxide produced during consumption of solid, liquid, and gas fuels and gas flaring.(WDI) 12

10

8

6

4

2

0

Source: World Bank, World Development Indicators

EXPLAINING THE DIFFERENCES IN ECONOMIC OUTCOMES 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.

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