[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

the value of existing savings. Mafia-like activity made it increasingly
difficult for ordinary individuals to conduct business. Overall, according
to a World Bank study, corruption in the region was second only to that
in Africa.
• Privatization of Russia’s major revenue sources at bargain-basement
prices not only lent a sense of unfairness to the whole process but also,
since an effective tax collection system had not been put into place, left
the government continually facing a revenue shortage.
The Future of Transition The debate about the transition continues to rage.
Those who led the reform in Russia and its Asian republics claim that things would
have been even worse had there not been shock therapy. They are hopeful that success
is “just around the corner.” The critics of shock therapy say that China, Slovenia,
Poland, and Hungary show that alternative approaches were possible, and that
Russia would have fared better if their advice had been heeded. They worry about
a backlash resulting from the failures—a return not to communism but to authoritarianism
or nationalism—and periodic attacks on parts of the media have been
unsettling. They contend that Russia’s huge inequality, together with the devastation
of the middle class, does not bode well for Russia’s future. Only time will tell.
In many respects, China has been the most successful transition economy. It has
an increasing and thriving private sector, which includes high levels of innovation in
the new economy, but it faces many challenges. It has moved gradually, in part to
preserve the authoritarian political control exercised by the Communist Party, and
the process of democratization is just beginning. The process of restructuring the
large state-owned enterprises lies largely ahead. While all parts of China have seen
growth, the disparity between the richest parts, largely along the coast, and the
poorer parts, in the western regions, is increasing.
Meanwhile, many of the countries of eastern Europe that were part of the Soviet
Union have become part of the European Union. They are adapting their legal
systems and beginning to integrate their economies with Europe’s. While their
transition may not be easy, for them there is a bright light at the end of the tunnel.
Wrap-Up
TRANSITION STRATEGIES
The two basic strategies the former communist countries have followed are called
gradualism and shock therapy.
The more gradual reform strategy stresses the creation of competition and the
development of the institutional infrastructure necessary for markets to function
adequately. Countries following this strategy have fared better over the past decade
than those adopting shock therapy.
ECONOMIES IN TRANSITION ∂ 813