Catching-up process

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Grzegorz W. Kolodko Transformation,
Integration and Globalization Economic Research
Kozminski University, Warsaw www.tiger.edu.pl
                   
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• Economics and Politics
• of Postsocialist Transformation
• in Poland and Eastern Europe
• Lessons for Arab Countries
• and Emerging Markets

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The Polands Round Table6th FEBRUARY 5th APRIL
1989
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• 38,4 mln
• PPP PKB
• 770 bilion
• (0.97 GWP)
• per capita
• 20,100
• World 11.800
• US 48.100
• EU 34.000

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Transition x 4

1. To market economy
2. To political democracy
3. To civic society
4. To new market culture and mentality

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Post-socialist (or post-communist?) transition
(or transformation?)

• Historical gradual process
• of a comprehensive systemic shift
• FROM SOCIALIST ECONOMY gt
• -- centrally planned
• -- relatively closed
• -- based on dominance of state property
• -- bureaucratically controlled
• gt TO CAPITALIST ECONOMY
• -- free enterprise
• -- open
• -- based on dominance of private sector
• -- deregulated

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The components of transition

• 1. Liberalization-cum-stabilization
• 2. Privatization
• 3. Institutional building
• 4. Microeconomic restructuring

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Economic growth (GDP) in transition economies,
1989-2011
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From Shock without Therapy to Therapy without
ShocksGDP growth (left scale) and unemployment
rate (right scale) in Poland, 1989-2008
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Strategy for Poland

• Comprehensive, unorthodox policy of long-term
  socio-economic development trough structural
  reforms, institutional building and equitable
  growth
• Aimed at social progress and sustainable
  development
• Based on four pillars
• -- fast growth
• -- fair income distribution
• -- opening up and partnership integration
• -- efficient state

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• 24 6 x 4

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5 x ca. 4 The Polish Transition and Growth
since the 1989 Round Table

• Pre-transition reforms of the 1970s 1980s
• Shock without therapy (1989/90-93)
• Strategy for Poland (1994-97)
• Overcooling 1998-2001
• Public Finance Reform (2002-04)
• EU early membership 2004/05-2008
• 2009 crisis and its aftermath

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Seven

• Polish
• Lessons

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1

• The early market-oriented reforms, introduced
  under socialism yet incomprehensive and not
  going far enough
• have helped later, during the transition to a
  full-fledged market economy. The more an economy
  had been reformed before the transition took of,
  the better for the successful transformation to a
  market economy, democracy and civil society.

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2

• Only a proper mix of two policies
• a system change policy and a development
  policy, oriented to the accumulation and
  efficient allocation of capital offers a chance
  of rapid economic growth. Neglect of either of
  these components precludes good results. This is
  amply demonstrated in a negative sense by the
  Russian case and in a positive sense by China.

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3

• Confusing means and ends in economic policy
  backfires, increasing the social costs of
  development and decreasing its attainable scale.
  As the means become glorified, they sometimes
  come to be perceived as ultimate goals. That
  effect had occurred despite the progress in
  institution building, privatization efforts and
  the ongoing process of opening up the economy.

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4

• Yet the improving institutions do not by
  themselves entail an ever improving policy, the
  institution building is of fundamental
  importance. However, the soundness of policy also
  depends on other factors, such as the economic
  doctrine, the dominant political set-up and the
  skills of those who run the economic policy.
  Hence,
• the institutions matter, but so does policy

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5

• The main source of development financing in
  emerging markets including the postsocialist
  ones is the domestic capital accumulation. Its
  formation should be given the priority in
  macroeconomic policy and in the system of
  microeconomic incentives. The foreign capital can
  play only a supportive role and cannot substitute
  for the national savings.

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6

• Globalization creates additional development
  opportunities and threats at the same time. The
  art of economic policy-making consists in the apt
  handling of the dilemmas that crop up under the
  new circumstances. Hence, the mini-max rule
  should be followed
• minimize threats, maximize opportunities.

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7

• Economic policy is at the same time a
  technocratic and social endeavor. The neglect of
  either of these aspects does decrease the
  effectiveness of the policy. The best results in
  economic policy are provided by an appropriate
  mix of financial and social engineering,
  technocratic macroeconomic governance and genuine
  social dialog, professionalpragmatism and social
  sensitivity.

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• The things
• the financial, economic, social, and political
  events and processes
• go the way they do because many things happen at
  the same time.

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Development Triangle

• Values
• Institutions
• Policies

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Values

• The values are the human individual, family,
  group, social, national, civilization desires,
  which through motivation are setting the acting
  in motion.
• On economic ground these activities imply the
  making of commodities and providing services,
  trade and speculation, accumulation and
  investment, and consumption of goods.

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Institutions

• procedures and rules of conduct sanctioned by
  the law or by custom
• applicable laws and regulations, promulgated in
  order to protect the interests of market entities
• organizations and administrative/political
  structures that serve the needs of various market
  entities

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Policies

1. Formulation of development targets and designing
   the paths of its implementation
2. Building the political consensus (articulation of
   the contradictory interests and attempt for a
   compromise)
3. Attracting the public understanding and social
   support for the implementation for undertaken
   targets
4. The means and instruments for targets
   implementation
5. Allocation of resources (indirectly through
   influencing the market performance directly
   through budgetary redistribution)
6. Implementation gt monitoring auditing gt
   evaluation

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• New
• Pragmatism

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• www.volatileworld.net
• www.facebook.com/kolodko

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Thank You!