Tuesday, February 7, 2012

Andrei Shleifer on Transitions From Communism

Professor Greg Mankiw's blog referred to an article by his Harvard economics colleague, Professor Andrei Shleifer, a Russian born, American trained economist.  Shleifer writes about things he learned about economies transitioning from Communism, with the benefit of twenty years of history, which is still a relatively short time period. 

A few of his point struck me as interesting and different from the mainstream American press narrative.  He writes,

"...economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. I realised this and wrote about it in the mid-1990s, but the lesson both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives."

He concludes optimistically, "...middle-income countries (like Russia and Ukraine) eventually slouch towards democracy, but not nearly in as direct or consistent a way as they move toward capitalism."

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