On the Role of Government in Transition: The Experiences of China and Russia Compared

Abstract

The different economic performance of transitioning Asia versus Central and Eastern Europe and the FSU (CEEFSU) has been arguably the most salient fact of transition. Particularly remarkable has been the contrast between China and Russia. This paper argues that the contrasting experiences of China and Russia can in part be explained by the different roles that governments have played in the transition process of these countries. China gave priority to administrative reform, aligned bureaucratic incentives at all levels with growth and development objectives, and enhanced enterprise and local autonomy while preserving the capacity of the centre to exercise control. This approach transformed government bodies into real owners of the reform process and led to privatisation over time that was largely welfare enhancing. Russia, on the contrary gave priority to economic over state restructuring. Major reforms including mass privatisation were implemented in an environment of a weak state, which did not have the capacity to protect its ownership rights and coordinate reforms. As a result, privatisation was a wasteful process associated with asset stripping and consequently with lack of legitimacy of newly established property rights. These contrasting experiences carry broader lessons for the role of the government in large-scale complex reforms.