Seminar by Dr Dalibor Roháč: “What have we learned from post-communist transitions?”

Dr Dalibor Roháč, Deputy Director of Economics at the Legatum Institute and Department of Political Economy at King’s College in London gave a paper on 1 February to the Department of Economics and International Studies.

He began by explaining his interest in the political economy of transition.  Coming from Czechoslovakia, he had a personal interest in the recent emergence from communism of his country of birth.  But the issue is also of immediate political interest because the Arab world is now faced with somewhat similar problems as those faced by central and eastern European countries twenty years ago.

The ‘Washington Consensus’ had advocated a ‘big bang’ approach.  Free markets and private property were created rapidly, inevitably creating severe transition problems.  Some have suggested that this was ‘too much too far’ and claimed that it created the corruption and chaos seen in the Russian Republic and some other parts of eastern  Europe.  Better, such critics suggest, to have introduced reforms slowly, as in Communist China, which has demonstrated conspicuous economic success since the partial freeing of the market after 1989.

Dr Roháč defended this Washington approach as the only realistic method of replacing communism.  Communist planning had proved a failure because the planners, as Hayek had always pointed out, could not obtain sufficient information to run these economies effectively, a point often neglected by modern western economists.  By 1990 the evidence of failure was everywhere.   The birth rate was declining and life expectancy falling, particularly amongst men.  Much of the economic output that was produced was really of little value, though the planners were loath to admit this.  But this meant that Communist GDP levels had been exaggerated, so that comparisons of GDP pre- and post-transition are distorted.

It would not have been possible to have had a slow transition towards market freedom in the central and eastern European context.  Communism’s failure was recognised and the only possibility was to press on with market arrangements as soon as possible.  Indeed in many of these countries, like for example the Baltic states, and much of central Europe, the transition has actually been a considerable success, and privatisation resulted in improved economic performance.