Gérard Roland, Transition and Economics: Politics, Markets, and Firms

Gérard Roland, Transition and Economics: Politics, Markets, and Firms

Journal of Comparative Economics 29, 566–568 (2001) doi:10.1006/jcec.2001.1723, available online at http://www.idealibrary.com on BOOK REVIEWS G´erar...

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Journal of Comparative Economics 29, 566–568 (2001) doi:10.1006/jcec.2001.1723, available online at http://www.idealibrary.com on

BOOK REVIEWS G´erard Roland, Transition and Economics: Politics, Markets, and Firms. Cambridge, MA: MIT Press, 2000. xxix + 400 pp., index, $45.00. Is gradualism or shock therapy the superior approach toward tackling the many problems on the route to a successful transition process? This question has occupied economists and policymakers of and in formerly communist countries for the past decades. G´erard Roland has certainly taken sides in this debate, arguing that gradual reforms deserve merit for taking inter alia the political constraints to a successful reform process into account. Hence, the reader might expect that his book Transition and Economics is mainly a defense of his position in the oftentimes heated debate on the issue. Yet, the book is certainly much more. It provides a detailed account of the political economy of the transition process, addressing the complex and oftentimes opaque interplay among governments, markets, and firms. It is a book rich in formal models that help to explain these linkages and thus carries potentially important implications for nontransition economies as well. As Roland points out, “transition is history in the making and . . . can be seen as a subfield of economic development with specific initial conditions” (p. xxvi). Divided into 13 chapters and three parts, the book argues that political constraints must be taken into account when defining a reform strategy (Part 1), identifies the allocative changes that reforms bring about, focusing in particular on the mechanisms of dual-track price liberalization (Part 2), and develops the changes in governance that are necessary to render the transition process successful. Governance is understood in a comprehensive way to capture not only the corporate governance issues at the firm level but also those that arise within government bureaucracies. In each chapter and in the first chapter for the book as a whole, Roland provides a brief overview of the stylized facts on reform measures and the sequencing of reforms in different countries. In addition, he makes reference to empirical evidence on the issues at the end of some chapters. However, the book has a clear theoretical focus. Regarding the general outline of the book, it is clearly structured and well written and contains a host of interesting information. Roland provides an almost comprehensive overview of models that describe the transition process from a political economy and industrial economics perspective, citing both his own work 0147-5967/01 $35.00 C 2001 by Academic Press Copyright ° All rights of reproduction in any form reserved.

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and research by others. Each model is outlined in a detailed way so that the reader can grasp its message without referring back to the original reference. In some instances, however, it would have been desirable to have more background information about the links between the various models and, in particular, about the potentially testable implications that could then be used to discriminate between the predictions of these models. However, a number of the issues that Roland addresses, such as the incentive systems in governments, do not lend themselves easily to empirical research. Furthermore, in the special cases of the transition economies, statistical systems have been overhauled and it is sometimes difficult to obtain data on the standard economic time series. Having been relatively cautious with regard to drawing concrete policy conclusions throughout the book, Roland takes a chapter at the end of the book to contrast the Washington Consensus with the evolutionary–institutionalist perspective. Broadly speaking, the first view emphasizes pushing through entire reform packages early on in order to generate reform momentum and reduce the possibility of a reversion of reforms. The second perspective takes a more optimistic view toward gradual, sequenced reforms. At the risk of oversimplifying, the two approaches could be labeled shock therapy and gradualism. According to the author, the Washington Consensus shaped reforms in the transition economies of Central and Eastern Europe and Russia, while the more gradualistic approach has been followed in China (p. 335). Roland’s main point is that the “evolutionary–institutionalist perspective is more complete and adequate than the Washington consensus” (p. 343) and that there is a growing convergence toward the former. Whether one would label this process as a convergence toward the gradualistic approach or rather a blending of the two might be only a matter of taste. A lot of time has been spent in defining and redefining different reform strategies and facts have often been created in the meantime. Yet, in the context of this debate, two issues seem to be worth mentioning. First, some of the perceived simplicity of the Washington Consensus might be due to the fact that, at the start of the transition, pressure for reform was building in some countries, time was running short, and priorities had to be set. Many of the sequencing issues that should have been observed have become known only with hindsight, as Roland himself notes several times throughout his book. Second, comparing the cases of Russia and China and attributing each to one of the different camps might seem reasonable but it misses the point that these two countries differ vastly in terms of their cultural background, their history, and their geopolitical situation. While Russia had to suffer a loss in geopolitical power throughout the transition, as Roland notes on p. 338 as a main distinguishing factor in comparison to Central Europe, no such loss of face occurred in China. This is not to say that this fact actually explains the differences in performance. Rather, it shows the difficulties of evaluating different reform approaches on the basis of the experiences of two rather unique countries. As is often the case, one of the strengths of this book, namely its rigor in presenting the theoretical models and its strictly analytical approach toward the issues, is

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also one of its main shortcomings. The book is certainly not a reference source for readers interested in an overview of the institutional changes that have taken place in the transition economies or for the growing empirical literature on the reform process. In this sense, the title of the volume, Transition and Economics: Politics, Markets, and Firms, might be a bit misleading since it creates the expectation of a broader, less focused approach. Considering the length of the volume and the material that it contains already, it would not have been possible to go into much more detail concerning the empirical work. However, it should at least be noted that implementing the sequencing approach that is being advocated may require relatively precise knowledge about the state of an economy. Ultimately, it is only empirical work that can provide such information. The book certainly delivers an excellent tool kit for understanding the many issues that are at stake during the transition process and the political constraints that must be taken into account in order to define reforms comprehensively and to tailor them to the specific needs of various countries. Claudia M. Buch Kiel Institute of World Economics 24105 Kiel, Germany Published online August 6, 2001