The Political Economy of Simultaneous Transitions: An Empirical Test of Two Models

Branislav L. Slantchev

Abstract

Traditional political economy emphasizes the difficulty of conducting simultaneous transitions toward market economy and democratic government. There are two major theories that seek to explain why some reform programs are never fully implemented or are reversed shortly after their inception. The J-Curve model (Przeworski 1993) implicates the short-term losers from reform as the major opposition, and the Partial Reform Equilibrium model (Hellman 1998) implicates the winners. Because the two models generate diametrically opposed policy prescriptions, we need an assessment of each theory's explanatory power.

This paper subjects the models to empirical analysis with data from 25 post-communist countries. Contrary to traditional thinking, new democracies are better equipped to carry out significant economic reforms, even if these are politically costly and socially painful. High unemployment rates do not threaten the survival of reform programs, and government instability does not necessarily translate into bad economic policies. These results suggest that the common concern that socially costly economic reforms endanger the consolidation of democratic norms may be misplaced. Moreover, policy prescriptions derived from this concern may result in abortive reform efforts in addition to seriously damaging the democratic regimes in transition.

Keywords:

post-communist transitions, government stability, democracy, market reforms, economic policy