From plan to market: On the nature of the transformation crisis

Abstract

From Plan to Market: On the Nature of the Transformation Crisis. — Traditional neoclassical theory is ill-suited to explain why the transition from a grossly distorted to a far more rational economic system is going along with a fall in value added in Europe’s emerging market economies. Whereas Keynesian-type arguments, including the credit-crunch hypothesis, may account for some features of the exact time profile of the slump, the transformation crisis itself cannot be explained by these considerations. The paper argues that an institutional near-vacuum is a major cause of the crisis. While the old institutions for coordinating a complex pattern of economic activities are defunct, the new and ultimately far superior arrangements are not yet firmly established. The resulting institutional deficiencies, together with some inconsistencies in the time profile of the transformation process, impair an effective and reliable coordination of an extended division of labour in space and time.