The Speed of Large-Scale Transformation of Political and Economic Institutions

Abstract

This article compares the applicability of both the gradual and the shock therapy approach to reform implementation in large-scale change. Using quantitative data, it aims to provide more evidence for the lessons learned from post-socialist transformation. Hence it adds a theoretical and an empirical contribution to the body of literature on great transformations, focusing on their speed and the acceptability of related policy solutions. Despite the predominant inclination towards the gradualist approach to reforms in the initial transition years, economic indicators suggest that the big bang reformers have demonstrated a superior performance over the last (few) decade(s). Still, the approach to (post-)transition processes should be multidimensional and include more than the speed of transformation and key economic indicators. Therefore, a quantitative analysis covers several aspects of socioeconomic change. The analysis of the quality of democracy, market economy, and management performance in post-socialist EU member states indicates that over the last decade the countries that applied the shock therapy approach have performed significantly better in all these areas. This suggests that slow reformers are lagging behind in the development of democratic institutions and a modern market economy, and presumably have insufficient capacities to rapidly catch up with fast reformers. Further research on this topic should tackle the deep roots of socioeconomic development and path-dependent choices (reform speed included), proximity to Western countries, the possible effects of other specific circumstances (such as war), the importance of selected institutions on the performance of post-socialist non-EU member states, and other limitations.

Systems of innovation: Path of economic transition and differences in institutions in central and Eastern Europe?

“…Although having high potential with regards to human capital and technological capabilities, the majority of the CEE countries still lag behind Western European countries with regards to the economic performance levels. The reasons, explaining the gap, may lie in the drawbacks of the innovation system (e.g., Kravtsova and Radošević, 2012; Stojčić, 2021) or institutions, which are still affected by the transformation process (Šimić Banović et al., 2018). The comprehensive understanding of the factors, impacting the development of CEE countries, however, is still missing.…”

“…The first strategy was chosen, for example, by Baltic countries, like Poland, Czechia, and Slovakia, whereas gradualism was applied by, for example, Georgia, Romania, and Ukraine. Additionally, such countries as Bulgaria, Albania, and Russia initially started with rapid reforms, which were then slowed down; and such countries as Belarus introduced only a limited number of reforms (Havrylyshyn, 2007; Šimić Banović et al., 2018).…”

“…Reforms impacted the economic and innovation performance of CEE countries significantly, however, heterogeneities in this regard can be observed among countries (Soulsby et al., 2021). Though initially overwhelmed by the speed of the reforms, the countries which applied shock therapy appeared to have higher economic and social indicators in the long term (Šimić Banović et al., 2018). The relative success of some countries, however, was impacted by many factors apart from the speed of the transition, including militarization or overindustrialization of the economy (Popov, 2007).…”

“…Thus, Pece et al (2015) analyzes the factors impacting economic development of such countries like Czechia, Hungary, and Poland. Šimić Banović et al, 2018 investigated the performance of the countries based on the reforms introduced in the beginning of the transition period. Kravtsova and Radosevic (2012), Radosevic (2017) examined the innovation systems of CEE countries by pointing out their challenges and opportunities.…”

Governance Trends among New EU Member States: Is There Institutional Convergence?

“…Yet, in a group covering transitional countries, Próchniak and Witkowski [28] demonstrate the existence of GDP β-convergence at a rate of 1.5-2% per year. Recent research also shows that fast reforming transition countries (i.e., countries that applied a 'shock therapy' approach) have outperformed the gradual reformers [47].…”