The transition to market-oriented economies in the former Soviet bloc has not been as successful as many had hoped. Can an economic theory of institutions shed any light on the problem?
This publication comprises eight papers on institutional change with particular reference to Eastern Europe and the former Soviet Union. It sets out the issues facing reformers and suggests strategies for managing institutional change. The debate over ‘shock therapy’ versus ‘gradual’ reform is misleading: the most sustainable reform route combines rapid action and gradual consolidation. The main reason for difficulties in transitions lies in inadequate attention to institutional transformation. Institutions are the formal and informal rules that govern individual behaviour, not the organisations that administer them. Organisations can be changed overnight but behaviour will not change unless the rules are altered. So, the two are interrelated and lasting institutional improvements require concomitant organisational changes. Inefficient institutions are manifested in high transaction costs (TCs). Institutional development can therefore be measured as a gradual reduction in TCs, which is key to reviving transition economies. TCs can be reduced by improving information flows, clarifying property rights and other key rules.
International assistance to economic transition is essential, but it must recognise that institutional innovations need to be adapted to local contexts. The burden of mistaken policies rests on the people of transition economies not the external decision- makers. So, technical assistance should never get ahead of local capacity. It should at least contain a training element and the optimal use of local expertise.
The eight papers comprise:
- Institutional Change and the Public Sector: Towards a Strategic Framework.
- The Economics of Institutions in Transition Economies.
- Organisational Dimensions of Public Finance in Transition Economies: An assessment of the recent literature.
- Local Government Finance in Transition Economies: Policy and Institutional Issues.
- Some Governance dimensions of Institutional Reform.
- Conflict and Transition in Russia: Some General Observations.
- Technical Assistance for Institutional Development
- International cooperation for Institutional Development in the Public Sector.
