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From socialism to an institutional void: Notes on the nature of the transformation crisis

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  • Schmieding, Holger

Abstract

This paper discusses the possible nature of a transformation crisis. The major point is that the institutional void which the collapse of socialism has left behind is a major cause of the slump. The wealth of developed economies, be they socialist or capitalist, springs from a complicated pattern of an extended division of labour. Any beneficial specialisation in production in turn depends on an appropriate institutional framework for the reliable coordination of the various activities. The essence of systemic transformation is an institutional revolution: the old high-cost institutional setting (socialism) is abolished to make way for an ultimately far superior low-cost one (capitalism). However, the emergence, establishment and consolidation of the new institutional arrangements takes time. Furthermore, the new social devices lack two essential features; they have no well-established reputation (credibility) and economic agents are not yet familiar with them (information costs). The present institutional deficiencies include the lack of a reliable means of deferred payments, i.e. a sound money. Before these institutional aspects are elaborated, this paper addresses some other possible causes of the transformation crisis, notably the issue of inherited inefficiencies, the role of an insufficient responsiveness of supply and the consequences of real factor price rigidity.

Suggested Citation

  • Schmieding, Holger, 1991. "From socialism to an institutional void: Notes on the nature of the transformation crisis," Kiel Working Papers 480, Kiel Institute for the World Economy (IfW Kiel).
  • Handle: RePEc:zbw:ifwkwp:480
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    1. Richard A. Brecher, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 98-116.
    2. Hare, Paul G & Hughes, Gordon, 1991. "Competitiveness and Industrial Restructuring in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 543, C.E.P.R. Discussion Papers.
    3. Kronman, Anthony T, 1985. "Contract Law and the State of Nature," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 5-32, Spring.
    4. David Lipton & Jeffrey D. Sachs, 1990. "Creating a Market Economy in Eastern Europe: The Case of Poland," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 75-148.
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    Cited by:

    1. Siegmund, Uwe, 1997. "Wie privatisieren und wer privatisiert? Zur Erklärung der Wahl der Privatisierungsmethode und -organisation," Kiel Working Papers 812, Kiel Institute for the World Economy (IfW Kiel).
    2. Martin Raiser, 1993. "Old habits die hard," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 28(4), pages 170-177, July.
    3. Schrammel, Tine, 2013. "Bridging the Institutional Void: An Analytical Concept to Develop Valuable Cluster Services," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 24(2), pages 114-132.
    4. Holger Schmieding, 1993. "From plan to market: On the nature of the transformation crisis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 129(2), pages 216-253, June.
    5. Raiser, Martin, 1992. "Soft budget constraints: An institutional interpretation of stylised facts in economic transformation in Central Eastern Europe," Kiel Working Papers 549, Kiel Institute for the World Economy (IfW Kiel).

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