A fashionable theory of transition has recently appeared, describing the three stages of the reforms as follows:
Stage 1 – liberalisation, opening up and privatisation
Stage 2 – institutional reforms
Stage 3 – improvements in corporate governance
This way of structuring the reforms is highly dubious for it not only suggests that this is how things actually happened, but also that it is how they were supposed to happen. However, the dividing of reform into these phases is, first and foremost, intellectually questionable, but, no less importantly, it is also not supported by the empirical evidence or by the way the reforms were explicitly packaged by governments.
In reality, all the reforms were essentially launched at roughly the same time, as soon as they were technically ready and feasible and, of course, when they were politically acceptable, and all of them were completed in a unprecedentedly short period of time, within 15 to 20 years of the launch date.
Furthermore, if we try to encompass the reality of how the reforms developed over the past two decades, it hardly makes sense to discuss which of the “shock” approaches or gradualist approaches to reform were (or would have been) more appropriate in each and every specific case.
With this in mind, I would at least like to stress, given the short time available, the following few, randomly selected ingredients of the indisputable success of the Czech reforms.
- The importance of maintaining a stable macroeconomic environment (not easy to achieve in first phase of reforms) as a road to ensuring the credibility of economic policy
- The importance of having a decisive reform package (liberalise, open up, privatise) implemented soon in the early stages of reform
- The importance of adhering to a pure model – creative, innovative solutions acceptable as a means of supporting mainstream reforms, but only if they are justified by broader (social and political) concerns, knowing that they do not come without a cost and therefore should not be overemphasised (privatisation vouchers)
- The importance of trusting, supporting and making use of people’s entrepreneurial talents
- The imperative of using decisively THE window of opportunity, which is quite narrow, for reform fatigue can affect politicians as much as the population
- The special importance of supportive, but at the same time sound financial and banking intermediaries
- The importance of ensuring the proper extent and calibration of the social safety net, carefully striking a balance between expectations and motivational concerns on the one hand, and current and future fiscal sustainability on the other
- The need to address regional imbalances
4. External aspects
- Ensure early membership in international structures in order to:
- boost market confidence in your reforms and economic policy
- use the motivating and accelerating effect of future membership requirements (the OECD membership talks were, for instance, instrumental with regard to the lifting of restrictions on capital movements …
- solve the dilemma of peer review, policy dialogue and policy advice …
- EU membership support is crucial but does not come without costs …
- Prepare for a moving target …
- Beware of complacency, make a realistic assessment of initial conditions and later of the progress of the reforms
- Beware of the natural expansionary tendencies of state interventionism
20 Years After: reflections on the economic transformation of the Czech Republic, Hungary, Poland and the Slovak Republic