[MUSIC] Now we are moving outside Central Eastern Europe and former Soviet Union and we'll analyze reform, economic reform processes in, on other continents. And if we start from Chinese economic tran, transition. But before we discuss details and stages of Chinese transition we like to put attention to what were differences between Chinese and post-Soviet centralist Europe economies. It is important, because in the literature is a lot of wrong comparison. And wrong conclusion regarding potential similarity, similarities and lessons which could be learned in Russia, in other CIS and Central and East European economies from Chinese experience. Actually there were quite different experience and different condition of transition, what we'll now speak about. In the early 1990s especially there were numerous suggestions that countries of the former Soviet Bloc, in Central Eastern Europe and former Soviet Union could follow Chinese experience, to avoid transition-related output decline, which they experience. And this was part of the transition controversy debate about optimal strategy and about speed of transition. What we discuss in one of the previous parts about controversy, so-called shock therapy versus gradualism. Chinese transition was considered as gradual one and superior to central east Europe and post-Soviet transition from this point of view. But such this was represented by some well known economists point of view for example, Rawski or Joe Stiglitz. But apart from wrong interpretation of facts actually Chi, Chinese transition was not so gradual. We'll speak later about it. It was quite radical. Especially in first stage which involved decollectivization of agriculture. Also this comparison interpretation disregarded differences in starting condition of China and countries of Central Eastern Europe and former Soviet Union. And there were three such differences in starting conditions. The first one concerned level of economic development and industrialization. Second concerned social policy and social services, the degree of government involvement, public involvement is first. And third, political environment, authorization. And let's, me discuss now all three. Regarding level of economic development, at the starting point of market transition, meaning 1989-1991 in Central Eastern Europe, former Soviet Union. GDP per capita level was 20 to 50 times higher than in China in 1980 when transition started. So there was huge difference. Let's look for this table. This is this type illustrates the level of gross national income per capita and purchasing power parity time in current international dollars. In China in 1980 it was only $250. And for example, in Czech Republic in 1992 where it was more than $10,000 of US. Or Hungary, which was above $7,000, and Poland where it was $5,000. Romania, a bit more at that time. In Russia it was more than $9,000 US at the beginning of in 1989, Ukraine, $6,000 of US. So, so this was huge difference. Even 1990, already after ten years of Chinese transition, China still represent 800. So actually some of I will eight to, seven to ten times less than most actual most of Central Europe and post-Soviet countries at the time. Then structural characteristics, which was also an important part of this story. State-owned industry was not competitive in China, Soviet Union, and Central Eastern Europe. But what was important difference that China was underindustrialized. And on the opposite to this Central Eastern Europe and former Soviet Union over industrialized, with high share of military industry. Let's see how it looked in terms of military expenditure. In Russia in 1989 military expenditure were assessed on the level 17.5% of GDP, huge number. In Romania another quite militarized country of the former Soviet Bloc, almost 5%. In Hungary and Poland less, but in China only 2.7 in spite of the large Chinese army and its military confrontation with Taiwan, Japan, United States, but still level of expenditures was rather low. But this was not only military expenditures, this was also a problem of level developing heavy industry among the share of industrial, GDP. In the beginning of the transition, China was still predominantly a rural, agrarian economy. And this was, most of GDP came from agriculture. Then there was question of labor. In China, was huge labor surplus in agriculture in countryside, which could be moved easily to cities, to industry, or supply industry in the countryside. Central Eastern Europe, former Soviet Union, before transition started, experienced labor shortage. And then, after. And transition rated out for decline after restructuring. Most of countries central eastern Europe started experience unemployment. But at the, at the starting point it was quite opposite. Then agriculture was also very big difference. In most of central east European countries and former Soviet Union, other country was collective or state owned and industrialized heavily, but in very ineffective way and actually it was very loss making and not competitive. Some countries, like Poland or Yugoslavia or Hungary, they, they were some exemption. Poland and Yugoslavia had private agriculture, but with many limitations regarding size and prices which farmers sold. In Hungary, it was mostly collective agriculture, but it was more market-base. But in former Soviet Union, and in Romania and Bulgaria, it was heavily distorted. China also experienced this kind of period, but much before, where it was communes. But then, is the first step in reform 1980 communes were dissolved and in 1980s agriculture, Chinese agriculture was already private and this was main vehicle of economic growth. Agriculture grows and also movement of labor from agriculture to other sectors. And also in terms of energy intensity, especially economical former Soviet Union was enormous energy intensive. Unlike China, where energy industry was much lower. Now about huge differences in social policy in provisional social services. For example in China, only employees of the public sector were entitled to, to a publicly financed pension system and other social policy instruments. But this was only, not more than, than 20% of population. All other in agriculture services, private or semi-private industry, small and medium size actually were excluded from social wealth and they were forced to save on their own to, to finance their retirement and also health services. And this is, by the way, one of the in factors which can detrimize very high level of gross national saving in China. At both 50%. Lack of social safety net for most of population. In countries of central Eastern Europe and former Soviet Union there were excessive burden of social programs in the late Communist regime and early transition period, serving as instrument of legitimization of late Communist regime. And in terms of share of social spending and GDP those countries were close to Western Europe and remain to be close. So again, completely different situation, much lower burden of social expenditure, of social social regulation in China. And that also provision of social services such as health, education, et cetera in, in Central Eastern Europe and Former Soviet Union was much higher comparing to China. And finally, on differences of political front. At the late stage of communism communist governments in Central Eastern Europe and former Soviet Union were unable to use coercive power on massive scale. And this determines the inability to continue selectively elements of command systems, opposite to situation in China. Where communist party retain monopoly for power and could continue some elements of command system and then gradually abandons it. It was not possible to be centralist in Europe. And finally, the system of centrally planned economy collapsed spontaneously at the end of 1980s beginning of 1990s in Central Eastern Europe and former Soviet Union, and didn't collapse in China. It was step-by-step dismantled, some elements. And also the demand for democratization. It was much higher in Central Eastern Europe and part of former Soviet Union at the beginning of transition compare, as compared to China. Actually in China there was also huge demand for demo, democratization. As demonstrated by Tiananmen Square events in 1989. But it was suppressed by military force by a Communist party. So this kind of pressure was eliminated. It's hard to say that it was good for Chinese transition. But this is a matter of fact. This is determine, completely different political environment of transition. And what were consequences for transition strategies. First Central Eastern Europe and former Soviet Union had to to de-industrialize in order to create room for market oriented structure to free resources which were ineffectively employed. China had still a lot of free resources. Labor and agriculture at huge savings and to gradually develop the new sectors more competitive on the in the international mark. Here we can use analog to, with the New Economic Policy, NEP, in former Soviet Union in 1920s. It was natural of new economic policy in 1920s, the Soviet Union were, was quite similar to to this stage of Chinese transition. It was not possible in modern, former Soviet Union, Central Eastern Europe in 1990s. Also it was quite easy way of privatizing agriculture in China and 1980s just dissolving communes and starting new private, quasi-private sector outside agriculture. Mostly building new start ups in Central Eastern Europe, Former Soviet Union, neither decollectivization nor privatization of state owned enterprises or sees it required a lot of political effort and involved a huge economic cost. And countries of Central Eastern Europe and Former Soviet Union face necessity to reduce social spendings in order to reduce to secure macroeconomic stability. China didn't have to do so. Then building market economy under a totalitarian regime was not the option for Central or Eastern Europe and former Soviet Union late 1980 early 1990s. While it was still the option for China after Tiananmen Square events. And summing up, we may say that gradualism of China was less promising in Central Eastern Europe, former Soviet Union because of government inability of fine tuning, sometimes even problems with providing basic basic public goods. Because of spontaneous collapse of the old political regime and central planning system. In addition there were a lot of disappointing experiences with market socialism before, which also pushed new generation of reformers, those who decided to build market economy towards more comprehensive and radical reform programs. In the next part we'll turn to history of Chinese centrally planned economy and market reforms. And then to other Asian socialist countries. [SOUND]
