Economics of Transition

obligatory courses

Master's level course.

The aim of the course is to familiarize students with economic problems of transformation of formerly communist economies. Transformation is analyzed in a broader context of the ongoing process of globalization, and in the context of politics and of intellectual trends. Another aim is to show that what we learn from the post-communism transition has a broader relevance, as both in the past and the present we do observe shifts of economic systems back and forth between more market and more state. The course combines comparative, historical and interdisciplinary theoretical perspectives. This is a seminar course, and students are expected to participate actively through presentations, questions and comments. The course is open for the students of the Faculty of Economic Sciences as well as the Erasmus Program students, For credit, students must actively participate in class, write reading reports and prepare a term paper of 3,000 words.

The collapse of state socialism was one of the major events of the late 20th century. Not surprisingly, the ensuing transition from planned to market economy has been an enormously complex process. While the change of economic policies and institutions plays a key role, transformation involves politics and, moreover, is paralleled by specific social and cultural processes. A profound economic reconstruction requires - and produces - changes in value systems and mindsets of individuals, and also leads to the changes in the structure of society.

The aim of the course is to familiarize students with economic problems of transformation of formerly communist economies. Transformation is analyzed in a broader context of the ongoing process of globalization, and in the context of politics and of intellectual trends. Another aim is to show that what we learn from the post-communism transition has a broader relevance, as both in the past and the present we do observe shifts of economic systems back and forth between more market and more state. The course combines comparative, historical and interdisciplinary theoretical perspectives.

This is a seminar course, and students are expected to participate actively through presentations, questions and comments. Thus, they are expected to familiarize themselves with at least one of the readings assigned for a day before coming to the class and to be able to analyze the reading in a critical way and to contribute to the general discussion. Apart of these, they would develop their academic skills through researching and writing a term paper of approximately 3,000 words.

CLASS TOPICS

1. CONCEPTS AND PERSPECTIVES. Concepts of transition and transformation.

Key controversies. Transformation and globalization. Transformation in perspective of different social sciences: economics, political science, sociology, anthropology. The role of institutional change. Readings: Kochanowicz 2007b, Stiglitz 2002 ch. 1.

2. STATE SOCIALISM 1: ORIGINS, AIMS, RULES OF OPERATION. Origins of the Soviet state and its economic system. State socialism in the classical (Stalinist) phase. Politics and economics. Economic goals of communism. Institutions. Allocation rules. Readings: Carson 1997 ch. 2, Kornai 1992 ch. 15.

3. STATE SOCIALISM 2: EVOLUTION AND REFORMS. From high growth to stagnation. Internal contradictions of the Soviet type economies. Unintended consequences. Crises and their resolutions. Informal economy. Economic reforms. Readings: Carson ch. 6, Kornai 1992 ch. 24.

4. STATE SOCIALISM 3: COLLAPSE AND LEGACIES. Long-term reasons for state socialism collapse - lack of innovative capacity, perils of extensive growth, crisis of legitimacy. State socialism and the second industrial divide. Contingent nature of the collapse. Legacy of state socialism. Readings: Kochanowicz 2005, Chirot 1991, p. 3-32, Castells 1998, p. 5-67.

5. TRANSITION TO WHAT? VARIETIES OF CAPITALISM. The West as a reference society. Varieties of capitalism: the Welfare State model, the Anglo-Saxon model, the Developmental State. The Third Way. Why the Anglo-Saxon model became a norm, the neo-liberal revolution. Readings: Kochanowicz 2000, Lemke 2001.

6. THINKING ABOUT TRANSITION WHEN IT BEGUN. Experience with market reforms before the state socialism collapse: Latin America. The Washington Consensus. Designing transition: international financial institutions, western consultants, local leaders and local economists. Readings: Gore 2000, Greskovits 1999 ch. 2, Stiglitz 2006b.

7. EARLY REFORMS: POLICIES AND INSTITUTIONS. Policy agenda and choices. Liberalization and stabilization. Shock therapy vs. gradual transition. Transformational recession. Building institutions' property rights and market regulations. Readings: Blanchard 1997 ch. 4 (for those interested in more advanced economic reasoning), Greskovits 1999 ch. 3 and 4, Kochanowicz, Kozarzewski and Woodward 2005 ch. 4; Mukand and Rodrik 2002.

8. PRIVATIZATION: AIMS AND POLICIES. Theory of property rights. Models and types of privatization. The scarcity of capital. Political constraints of privatization. The problem of the institutional infrastructure for private business. Readings: Frydman and Rapaczynski 1994 ch. 1 and 3, Kochanowicz, Kozarzewski and Woodward 2005 ch. 5, Stark and Bruszt 1998, p 51-105, World Bank 2002 ch. 7.

9. SOCIAL EFFECTS OF THE TRANSFORMATION: WINNERS AND LOSERS. Positive and negative social effects of transformation. Capitalism without capitalists? A rise of the middle class? Income inequalities. Unemployment. Poverty. Social exclusion. Readings: Eyal et al. 1998. ch. 4, Milanovic 1999, World Bank 2005, particularly the Overview (p. 1-46).

10. CHALLENGES TO THE STATE: COLLAPSE, CORRUPTION, AND REBUILDING Transformation and democracy. Early neglect of the state. Why is rebuilding the state so difficult? State capture, corruption. Readings: Fidrmuc 2003, Kochanowicz 1999, Kochanowicz, Kozarzewski and Woodward 2005 ch. 3.

11. REFORMING THE SOCIAL SECTOR INSTITUTIONS: HEALTH, EDUCATION, AND HUMAN CAPITAL. Are there good models for reform? Political economy of reforms: the clients, the providers, the financial constraints. Readings: Nelson 1999; Kochanowicz 1997.

12. REFORMING SOCIAL TRANSFERS: PENSIONS AND SOCIAL SAFETY NET

Aging and the crisis of PAYGO. Multi-pillar models for pensions. The case of the Polish reform. Unemployment benefits and the problem of the labor market. Social assistance - how much targeting? Kochanowicz, Kozarzewski and Woodward 2005 ch. 6, World Bank 1994, particularly p. 1-23, 233-54.

13. COMPARATIVE TRANSFORMATION: THE CASE OF RUSSIA. Why Russia fails, despite following the prescriptions? Readings: Black, Reiner Kraakman and Tarassova 2000, Stiglitz 2002, 133-165.

14. COMPARATIVE TRANSFORMATION: THE CASE OF CHINA.

Attention: Aslund (2002) gives a general overview of the problems discussed in this course, it is suggested that all the students would familiarize themselves with this book. Roland (2000) in contrast, offers an advanced theoretical approach to various issues of transition, and the book is recommended for those who are interested. Other readings are assigned to particular topics, as marked in the course outline.

Åslund, Anders. 2002. Building Capitalism: The Transformation of the Former Soviet Block. Cambridge: Cambridge University Press.

Balcerowicz, Leszek. 1995. Socialism, Capitalism, Transformation. Budapest, CEU Press.

Black, Bernard, Reiner Kraakman and Anna Tarassova. 2000. Russian Privatization and

Corporate Governance: What Went Wrong? Stanford Law Review, vol. 53.

Blanchard, Oliver. 1997. The Economics of Post-Communist Transition. Oxford: Clarendon Press.

Carson, Richard. L. 1997. Comparative Economic Systems. Vol. 1: Market and State in Economic Systems. Armonk: M. E. Sharpe.

Castells, Manuel. 1998. End of Millenium. Oxford: Blackwell.

Chirot, Daniel. 1991. What Happened in Eastern Europe in 1989? In: The Crisis of Leninism and the Decline of the Left: The Revolutions of 1989, ed. by Daniel Chirot. Seattle: University of Washington Press, 1991, p. 5-32.

Eyal, Gil, Iván Szelényi and Eleanor Townsley. 1998. Making Capitalism without Capitalists: The New Ruling Elites in Eastern Europe. London: Verso.

Fidrmuc, Jan. 2003. Economic Reform, Democracy and Growth during Post-communist Transition. European Journal of Political Economy. vol. 19, p. 583-604.

Frydman Roman and Andrzej Rapczynski.1994. Privatisation in Eastern Europe: is the state withering away? Budapest: CEU Press, Budapest.

Frydman, Roman; Cheryl Gray; Marek Hessel, and Andrzej Rapaczynski. 1997. Private Ownership and Corporate Performance: Evidence from Transition Economies. Working Paper 26. European Bank for Reconstruction and Development. December.

Gaddy, Clifford G. and Barry W. Ickes. 1998. Beyond a Bailout: Time to Face Reality. About Russia’s „Virtual Economy.” Mimeo.

Galbraith, James K. and Jiaqing Lu. 2000. Sustainable Development and the Open Door Policy in China. UTIP Working Paper, mimeo.

Gore, Charles. 2000. The Rise and Fall of the Washington Consensus as a Paradigm for Developing Countries. World Development, vol. 28, no. 5, p. 789-204.

Greskovits, Béla. 1998. The Political Economy of Protest and Patience: East European and Latin American Transformations Compared. Budapest: CEU Press.

Gros, Daniel and Alfred Steinherr. 2004. Economic Transition in Central and Eastern Europe: planting the seeds. Cambridge: Cambridge University Press.

Kochanowicz, Jacek, Piotr Kozarzewski and Richard Woodward. 2005. Understanding Reform: The Case of Poland. Warsaw: CASE, 2005.

Kochanowicz, Jacek. 1997. Incomplete Demise: Reflections on the Welfare State in Poland after Communism, Social Research, vol. 64, no. 4 (Winter 1997), p. 1477-1501.

Kochanowicz, Jacek. 1999. The Disappearing State: Poland's Three Years of Transition, Social Research, vol. 60, no. 4 (Winter) p. 819-833.

Kochanowicz, Jacek. 2000. Leviathan Exhausted: Ideas on the State of the Post-communist Transformation, EastCentral? Europe/L’Europe du Centre-Est. Ein wissenschaftlichen Zeitschfift, vol. 27, part 1p. 1-19.

Kochanowicz, Jacek. 2005. Why did State Socialism Collapse? Historical Sociology and Contingency Interpretations, in: Legacies of State Socialism: Transformation of East-Central Europe, ed. Singo Minamizuka, Tokyo: Sairyusha, p. 25-46.

Kochanowicz, Jacek. 2007a. Economic reforms under state socialism in Poland, in: Sozialistische Reformen im Vergleich, ed. Christoph Boyer, Max-Planck-Institut für Europäische Rechtsgeschichte—Vittorio Klostermann publishers.

Kochanowicz, Jacek. 2007b. Globalizationi in Disguise: The Post-Communist Transformation in Central Europe, in: What is Globalisation? Critical Regional Perspectives, ed. by Paul Bowles and Henry Veltmayer.

Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton: Princeton University Press.

Lemke, Thomas. 2001. ‘The Birth of Bio-politics’: Michel Foucault’s Lecture at the Collége de France on Neo-liberal Governmentalit, Economy and Society, volume 30, May, p. 190-207.

Milanovic, Banko. 1999. Explaining the Increase of Inequality during Transition, Economics of Transition, vol. 7 (2), p. 299-341.

Mukand, Sharun and Dani Roderik. 2002. In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance. Mimeo. (

Nelson, Joan. 1999. Reforming Health and Education: The World Bank, the IDB, and Complex Institutional Change. Washington, DC: ODC.

Perkins, Dwight. 1994. Completing China’s Move to the Market. The Journal of Economic Perspectives, vol. 8, issue 2 (Spring), p. 23-46.

Roland, Gérard. 2000. Transition and Economics. Cambridge, Mass.: MIT Press.

Sachs, Jeffrey. 2005. The End of Poverty. London: Penguin Books.

Stark, David and László Bruszt. 1998. Postsocialist Pathways: Transforming Politics and Property in East Central Europe. Cambridge: Cambridge University Press.

Stiglitz, Joseph. 2001a. Redefining the Role of the State—What should it do? How should it do it? And how should these decisions be made? In: Joseph Stiglitz and the World Bank: The Rebel Within, ed. by Ha-Joon Chang, Anthem Press, p. 94-126.

Stiglitz, Joseph. 2001b. Whither Reform? Ten Years of Transition. In: Joseph Stiglitz and the World Bank: The Rebel Within, ed. by Ha-Joon Chang, Anthem Press, p. 127-171.

Stiglitz, Joseph. 2002. Globalization and its Discontents. Penguin Books.

World Bank. 1994. Averting the Old Age Crisis. Oxford: Oxford University Press.

World Bank. 1996. From Plan to Market. Oxford: Oxford University Press.

World Bank. 2002. Transition: The First Ten Years. Washington, D.C.: The World Bank.

World Bank. 2005. Growth, Poverty, and Inequality: Eastern Europe and the Former Soviet Union. Washington: The World Bank

KNOWLEDGE. A student acquires knowledge on an intermediate level on the transformation from command to market economy. The student recognizes the mechanics of the transition process as well as its relations to historical, cultural, and political context of a given society. In a more dialed way, he/she understands the working of state socialist economies and the reasons of their collapse, the character of early and later reforms, the dilemmas states introducing these reforms were facing, and the economic outcomes and social consequences of transformation in various types of post-communist societies. S2A_W01; S2A_W03; S2A_04; S2A_W07; S2A_W09; S2A_W11.

SKILLS. A student acquires academic skills – critical reading, debate, research, and writing. In particular, he/she is able to apply these skills to the analysis of various aspects of the transformation process. S2A_U01; S2A_U02; S2A_U03; S2A_U05; S2A_U08; S2A_U09; S2A_U10; S2A_U11.

SOCIAL SKILLS. A student practices constant learning, critical analysis of knowledge, self-assessment, time management, planning and coordination, verbal and written communication. S2A_K01; S2A_K02; S2A_K03; S2A_K06.

A student’s progress is assessed on the basis of his/her active participation in the course, in particular on the basis of written and oral contributions in which he/she is expected to practice the ability for critical analysis of information as well as the argumentative skills. For credit, apart of attending classes and taking part in discussion, the student has to write five reading reports of approximately one to two pages, each one to be submitted before the class a given topic is discussed. Also, he/she has to prepare a final research paper of 3,000 words, the topic to be discussed with the instructor. Volunteering for oral class presentation is recommended, but not mandatory. There is no final exam.