Putting the Cart Before the Horse

One of the common explanations for failures of market reforms in Latin America to deliver in many cases has been the argument that first generation reforms weren’t followed up by the second generation ones.  The idea is that the Washington Consensus was not inherently wrong – afterall, who can argue that privatization, for example, is an important part of building a private sector-based market economy.  But privatization is much more that simply transferring ownership shares from public into private hands – there are many more issues involved in terms of rules, regulations, stock markets, financial reform, property rights, judicial systems, price controls, etc.  I addressed this issue in more detail earlier.

The situation is somewhat reversed in Russia, according to a paper by Rudiger Ahrend and William Tompson of the OECD.  In Fifteen Years of Economic Reform in Russia Ahrend and Tompson argue that while Russian authorities have been quite successful in implementing some complex second generation reforms, much more remains to be done in terms of first generation reforms. 

The first concerns the need to continue working to establish sound, basic institutions and framework conditions for the market economy. Neither the revision of formal laws and regulations nor the pursuit of technically complex reforms of key sectors like rail transport, power or pensions can do much to foster economic growth and development in the absence of a major improvement in the way the Russian state itself functions. Considerable priority must still be attached to such basic issues as strengthening the rule of law and the security of property rights, increasing the transparency and accountability of state institutions, and combating corruption. There is still more to be done to curtail the state’s propensity to rely on direct intervention and control over assets and markets rather than on impartial regulation, and to create a state administration that is able – and willing – to perform the role required of it in a well functioning market economy.