Endogenous gradualism and the Slovenian puzzle

We use EBRD transition index to classify transition countries into gradualist and orthodox reformers. When comparing this classification with records of economic and political reforms before the breakdown of socialism, an apparent historical regularity emerges. Countries where transition was to an extent »endogenous« were more likely to choose a gradualist strategy, whereas countries where a strict socialist regime was upheld until its breakdown, were more likely to decide for an orthodox »big-bang« approach to transition. Some political economy explanations for this regularity are suggested. The second part of the paper explores Slovenia's experience in some detail. We present the discussion on the benefits and pitfalls of its gradual approach to reforms, showing that gradualism may slow down important structural reforms in the second phase of transition and thus negatively affect competitiveness and the long-run growth performance of a country. Moreover, since the gradualist approach to transition has increased institutional rigidity and created a kind of political economic equilibrium, an »endogenous« changeover to a more dynamic reform agenda is unlikely. We report on the recent more ambitious structural reforms agenda introduced in the country and conclude that it amounts to merely a »gradual move away from gradualism«. We conclude by offering some tentative political economy interpretations of these developments.