The Great Rebirth: Lessons from the Victory of Capitalism over Communism
Includes the Czech voucher scheme written up by people who designed and criticised it.
Summary
Aslund and Djankov edited a collection of essays by economists and by former policymakers who conducted the post-communist transitions, published on the twenty-fifth anniversary of 1989. Contributors include Leszek Balcerowicz, Vaclav Klaus, Mart Laar, Anatoly Chubais and others who ran reform programmes, alongside academic economists.
The collection's argument is that rapid and comprehensive reform outperformed gradualism, and it presents both the comparative data and the participants' own accounts of why they chose the sequence they did. The recurring conclusions are: liberalise prices immediately because partial liberalisation creates arbitrage rents; stabilise the currency decisively because inflation destroys the constituency for reform; impose hard budget constraints on state enterprises early; privatise quickly even imperfectly, because delayed privatisation permits asset stripping by managers who have control without ownership; and build the institutions of a market economy simultaneously rather than sequentially.
The country coverage includes Poland, the Czech Republic, Estonia, Russia, Ukraine, Georgia and others, and the comparison between those that reformed rapidly and those that did not is the empirical core.
The collection is written by the reformers and their intellectual allies, so it is a defence of their record rather than an assessment of it. The social costs, the mortality crisis in Russia, the inequality outcomes and the political consequences including the emergence of authoritarian government receive less attention than critics believe they warrant. Read it as the reformers' case, with the critical literature sought elsewhere.
Key takeaways 7
- Rapid comprehensive reform outperformed gradual reform across the post-communist transitions, and the comparative record is consistent.
- Partial price liberalisation creates arbitrage rents that generate a constituency against completing the reform.
- Delayed privatisation permits asset stripping by managers who hold control without ownership, which makes slow privatisation worse than imperfect fast privatisation.
- Decisive currency stabilisation must come early, because sustained inflation destroys public support for the whole reform programme.
- Hard budget constraints on state enterprises are the decisive political battle, since soft constraints preserve the old economy indefinitely.
- Institution building must happen simultaneously with liberalisation rather than sequentially, because markets without contract enforcement produce predation.
- The countries that reformed fastest reached higher income levels within a decade, and the initial output fall was largely the disappearance of production with no value at world prices.
Who should read it
Readers interested in transition economics who want the reformers' own account and comparative data, balanced with critical sources.
Where it sits in the reference 4
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