Teaching Economic Transitions

|Peter Boettke|

For the first decade of my career, all of my applied work related to the Soviet economy, and in particular the problems of transitional political economy.  At the most basic level, my perspective was influenced greatly by Murray Rothbard's discussion in America's Great Depression about how to recover from the "bust" without generating a new cycle of "boom/bust".  That Rothbardian recommendation was then augmented in my work with a discussion of institutional design and evolution in a post-communist world.  Cannot have free pricing without private property rights, and cannot have private property rights without the broader institutional ecology (formal and informal) that supports the clarification and enforcement of those property rights, etc., etc.  How exactly do we engage in institutional design in a world defined by its history and culture?  How can we establish credible institutions in a world where the past 70 years was defined by dysfunction and distrust?

Over that first decade of my career (lets say 1990-2000), I wrote 3 books: The Political Economy of Soviet Socialism (1990); Why Perestroika Failed (1993); and Calculation and Coordination (2000).  I also edited The Collapse of Development Planning (1994) and Socialism and the Market (2000).  But as the 90s turned to the 2000s, covering post-Soviet affairs seemed more like journalism than academic research, so my attention drifted elsewhere --- to development economics, to disaster economics, and to crisis economics.  But if you look beneath the specific country context, the questions are still the same --- how can you engage in institutional design in a world where the previous institutional environment while dysfunctional and distrusted neverheless has an impact.  As James Buchanan always stressed to us in his classes --- we must begin with the here and now, and not an imaginary start state that would make our task simplier.  How do you negotiate away from the here and now to establish a new institutional regime?  How do you examine in (to borrow a title from my brilliant colleague Richard Wagner) "the romance and realism in the politics of economic reform"?

As I get ready to teach economic transitions to undergraduates starting next week, I am reminded of the PBS series 'The Commanding Heights'.  There are tons of hidden treasures at the website that are not highlighted in the actually show.  I was actually interviewed for over 5 hours during the filming of the show (at the Masonic Temple in Alexandria, VA), but I ended up on the editing room floor (I was given a free copy of the DVD set for my troubles).  But I would like to point to an interview from the show with Anatoly Chubais.  In the late 1980s, while I was teaching at Oakland University in Michigan and was using a version of e-mail for the first time, Chubais is actually someone I corresponded with about the Soviet economy -- its history and the treadmill of reforms.  Chubais went on to hold a signficant positions of power during the transition period after the collapse of the Soviet system in the early 1990s.  Anyway, during this interview he mentions Vitaly Naishul.  Naishul was one of the Russian economists who I learned a great deal from, and his work on spontaneous privatization was very important.

Bottom line: I will encourage my students this summer to dig around The Commanding Heights website and read the interviews rather than just watch the main story-line.  

What lessons have we learned in the 25+ years since the collapse of communism?  

Comments

[Erik Lidström]

In the West that the same crappy socialist ideas about "social justice" can be promoted as soon as the chattering classes have managed to forget about the Soviet Union and the fall of the Wall.

In the East that culture is a long lived thing. François Furet (in The Passing of an Illusion - The Communist Idea in the 20th Century) that there was nothing left, but Bourgeois culture (in Eastern Europe) when Soviet communism died.

But Russia didn't even return to Bourgeois culture. Unfortunately Russia was blessed with oil and natural gas. Otherwise it would have needed to face up to reality.

On the other hand, Argentina did not have oil and abandoned laissez-faire in 1929 and has made idiotic economic decisions ever since. So maybe, because Russia did not have a tradition of private property rights (see Richard Pipes), it was screwed in the short term anyway.

[Roger McKinney]

I don't think it's possible to design institutions. De Soto shows that most Latin American nations adopted constitutions similar to that of the US, and created the right institutions, only everyone ignored them and continued with their traditional ways.

The US has ignored its Constitution for at least the last century.

"Culture Matters: How Values Shape Human Progress" by Lawrence E. Harrison and Samuel P. Huntington concluded that religion creates culture and culture creates institutions. To change institutions, one has to change culture which means changing religions.

Hayek touched on that in "Fatal Conceit" when he wrote about the role of religion in persuading people to follow rules that have no obvious immediate benefit but whose benefits are long term

[Rafe Champion]

We can see what happens when both the rule of law and the traditional moral framework are effectively absent for two or more generations, compared with the diminished damage in Eastern Europe where they were only missing for a generation or so.

Attention has returned to the moral framework with the work of Deirdre McCloskey. It was flagged in a passing moment by Popper in a 1954 paper at the Mont Pelerin Society. http://www.the-rathouse.com/CRPublicOpinion17.html

Something else that we have discovered especially from Hayek is the importance of traditions, rules and institutions that were notoriously overlooked in the kind of economics that has flourished under the triumph of positivism/empiricism and the cargo cult of inductive science, as described by Boettke and O'Donnell, Critical Review, last year.

[Barkley Rosser]

Regarding the role of religion, the concept of "the new traditional economy" is one way to approach this in the comparative systems context.

In any case, have fun with it, Pete, :-).