Introductory Chapter

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Introductory Chapter

• Text Book
• Growing Out of the Plan
• Introduction and Summary

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This Book is about the main events of the reform
process.

• Transition from the Soviet Model
• History Yugoslavs reforms in 1960
• Poland in 1980
• Both one sided only political not economic
• China Economic reforms with a relaxation of
  political freedom, but not democratization
• Soviet Union both economic and political
• Eastern Europe -- lagged 10 years in their
  economic reforms

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Chinas reforms gradual and evolutionary

• Evolution change output structure of the economy
  from agriculture to industry
• Need for investment part of macro policy
• Institutions
• What is strategy? conscious design of the
  sequences of reforms
• Chinas reform strategy is a strategy of not
  having a strategy.

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There Are Nine FeaturesFirst

• The dual-track system
• A two-tier pricing system
• Plan market
• Exemples HRS (grain quota surplus grain )
• SOE vs. market firms

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2. Growing out of the plan

• 1984 The plan size was fixed, anything above
  the Plan was in the market sector. That is to
  freeze the size of the traditional plan. With an
  economy growing, it can grow out of the plan!
• Governments commitment on Growing Out of the
  Plan -- critical for the reform dynamics and
  for the market prices to work on the margin.
• Decision must be based on market prices
• Allow profit maximization

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3. Entry

• 1980s lowering entry barriers
• Rural industries
• Firms were collectively owned.
• Competition

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4. Prices

• Gradual decontrol of consumer prices
• Grain rationing in effect until 1993

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5. Incremental managerial reforms in the state
sector

• Competitive pressure to the SOEs
• Need incentives and monitoring

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6. Disarticulation

• Special economic zones
• Some regions were allowed to detach themselves
  from the planned economy so long as state can
  have sufficient grain.

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Three other Features

• 7. Initial macroeconomic objectives
• 8. Macroeconomic cycles
• 9. Higher saving and investment

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Three Reform ModelsA. European Rationalizing
Reform 1960s

• Not to develop a market system
• To incorporate market economy elements into the
  planned monopoly system.
• To increase the efficiency of the state sector
• Best exampleHungary
• Prices remain controlled by the central planner
• Failed badly

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B. Big Band Reform (Poland and Russia)

• Removal of price controls
• Domestic prices international prices
• Resulted in high inflation and shortages
• Uncertainty on price movement
• Privatization most significant structural
  adjustment
• Controversial debates on its pros and cons

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C. China and Eastern Europe

• Really more like Big Bang than Rationalizing
  reform

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Road Map of the Book

• First period of reforms 1979-1983
• Chapters 2-4
• Why reform? There was a crisis
• Initial liberalization entry of non-state
  producers in rural areas
• Second period 1984-1988
• Chapter 5
• Debates on reforms in mid-1980s
• Crucially productive phase of reforms
• Growing out of the plan emerged fully during
  this period.
• 1989 Tiananmen Square incidence in June
• Third period after 1989
• Chapter 8
• Transition to a market economy aim of the
  reforms

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Questions and Answers!!