Coordinating Reforms in Transition Economies

The comparison between reforms in China and Eastern Europe is often done in terms of the gradualist and experimental approach versus the big bang and comprehensive approach. China’s reforms first started with experiments in agriculture followed by experiments in special economic zones in cities.1 However, one often forgets that some experimental reforms were introduced in Eastern Europe and the Soviet Union in the 1980s, but they failed. Those failures led to the discrediting of the experimental approach to reform, and to the adoption of a comprehensive approach. Ironically, to a large extent, China followed many of the Eastern European gradual reforms in the earlier stages of its reforms. In fact, the gradualist Hungarian reform started in 1968 with some initial success, but then ran into difficulties in the 1980s. Gradual reforms in the 1980s were associated with economic stagnation. According to official statistics, the average growth rate of GDP in Hungary was 1.8 percent between 1981 and 1985 and almost zero in 1988 and 1989. In Poland, the average GDP growth rate was less than 2 percent between 1981 and 1989.2 The question is thus raised of why the experimental approach was very successful in China but not in Eastern Europe.