Encouraging developing nations to embrace free market strategies of development was a principal theme--perhaps the single most coherent one--in the foreign economic policy of the Reagan era*; similar strategy characterized President Bush's foreign policy. In bilateral assistance programs and before multilateral lending agencies, the United States has trumpeted the economic advantages of free market liberalization. The evidence of free market capitalism's greater success in delivering the economic benefits of growth, enhanced trade competitiveness and flows of much-needed foreign capital is indeed overwhelming, especially when contrasted with the blatant failures of socialist collectivism. Perhaps the greatest testimony to the victory of the capitalist road to development is the increasing number of formerly statist regimes which have begun experimenting with the market, however cautiously and often against serious internal opposition. Simply put, most of the poor people on the planet, who have suffered enormously under misconceived programs of socialist, communist or fascist centralization, are today experiencing varying degrees of exposure to the competitive rigors of the marketplace.
It is true that there are precious few examples of countries successfully shifting away from dirigiste "command" economies toward de-centralized, market-oriented economic practices. Two of the outstanding postwar examples--West Germany and Japan--achieved their liberalization under American occupation and with the considerable support of the Marshall Plan and its East Asian counterpart. Today's market-oriented reformist nations therefore lack a blueprint to guide their efforts. Nevertheless, some "experiments" are today rather advanced (Chile since 1973; the People's Republic of China since 1978; Sri Lanka since 1978; Hungary and Mexico) while others remain hesitant and tentative (India since 1985; Egypt under Mubarak; post-Nyerere Tanzania; Algeria; Barbados; Indonesia; Vietnam; Ghana; Turkey).
Undoubtedly, a number of external factors have encouraged this trend toward "marketization" in the developing world. The example of the capitalist "Four Tigers" (Taiwan, South Korea, Hong Kong, and Singapore) has clearly inspired others to imitate their phenomenal success. Overt pressures exerted by the World Bank and the International Monetary Fund to tie new capital infusions to the adoption of acceptable measures of free market liberalization have been critical (though, some efforts at "reform" amount to window-dressing to earn a favorable nod from the multilateral lending agencies). The foreign aid programs of major developed nations similarly have tied new assistance to satisfactory progress in economic liberalization.
Despite this near unanimity with which the policies of marketization have been urged on the developing nations, and despite the abundant evidence now available from a widely diverse range of experiments with such liberalization, remarkably little attention has been paid to the actual historical record of such reforms. What has been the actual experience of such free market penetration in formerly closed societies? What have been the economic results of the reforms? What have been the unforeseen problems which these economies experienced? Perhaps most interesting, what have been the varieties of political experience which accompany marketization? What forms of political resistance to change have arisen, and how have political institutions been subject to change as a result of free market capitalism? How have political coalitions been constructed to initiate and to sustain the momentum of the market reform process? Finally, what have been the broader social and cultural consequences of reforms, and how have socio-cultural factors conditioned and affected the progress of market reform efforts?
This essay will attempt briefly to delineate answers to these empirical questions. It aspires to be suggestive, not exhaustive. It will suggest major syndromes of problems and potentially troublesome consequences which, the record suggests, attend any serious effort at liberalizing formerly statist economies. It will suggest as well what types of political strategies seem to work best in encouraging liberalization in the face of often tenacious sources of resistance. The point is not to argue against the feasibility or desirability of such efforts, but rather to illuminate the potential problems likely to arise, and hence to encourage more informed policy-making in both the developed and underdeveloped nations.
MARKETIZATION: FOUR DIMENSIONS
OF POLITICO-ECONOMIC CHANGE
Marketization of formerly closed or chaotic economies entails fundamental reforms in at least four principal areas:
1) Reform of the Price System. Allowing market forces to establish prices for capital and consumer goods and services is a key first step. Deregulation must extend not only to commodities, but also to credit markets affecting interest rates and other financial prices.
2) Enterprise-Level Reforms. Structural microeconomic reforms must allow managers sufficient autonomy to respond rationally to the fluctuations of prices in decisions affecting purchases of inputs, pricing of outputs, marketing and profit retention. Privatization and elimination of foreign subsidies is an important element of such reform efforts. The creation of genuine markets for capital, labor and other inputs is also important.
3) Fiscal and Monetary Reforms. Such reforms must encourage macroeconomic conditions favorable to the microeconomic reforms. This includes responsible budgetary policies including austerity measures and measures to reduce bureaucratic interference with the private sector and monetary policies which are noninflationary.
4) Reform of the Foreign Economic Regime. Dismantling tariff and nontariff barriers to trade permits international market competition to enhance the competitiveness of domestic industries. Liberalization of the treatment of foreign investors, establishment of realistic exchange rates and broad acceptance of GATT rules governing the trading system are included in these efforts.
Within each of these four arenas, an essential requirement will be legal reforms. In the absence of appropriate guarantees governing such issues as contracts, regulatory issues, treatment of foreign investors, and dispute settlement and adjudication little progress can be expected.
It is also important to appreciate that these four elements impact upon each other. Each element can affect the other in either positive or negative ways, as will be discussed below.
PRICE REFORMS, POLITICAL, SOCIAL AND ECONOMIC
CONSIDERATIONS
Artificial controls on the prices of goods or services, whether final consumption goods or capital inputs, are fundamentally incompatible with the free market system. In such a system, prices are the essential signals which indicate how resources are to be allocated in order to respond to the forces of market demand and supply. Since price controls invariably prevent that signalling from occurring, production decisions cannot be geared to real conditions, but instead will reflect the arbitrary wishes of those political agents who control the prices. Misallocation of resources, gluts, shortages, consumer disaffection and producer inefficiency are the result. It is not surprising then to find that price reform is a first priority for nations pursuing a marketization development strategy.
Planning, Price and Enterprise Reform: The Sequencing Issue
The removal of centralized planning in favor of price reform and enterprise autonomy poses a host of difficult political, social and economic issues. A central issue is that of determining the proper sequence of reforms. Too rapid elimination of price controls is inherently inflationary unless accompanied, or even preceded by, measures to increase factor-mobility and enterprise reforms to encourage autonomous responses to market price "signals." Were prices to be decontrolled which managers were operating under the old "rules of the game" of meeting fixed quotas for a guaranteed fee there would be no incentive to respond efficiently to economize on inputs or improve marketing of outputs: they would simply continue to mark-up prices to cover costs. Similarly, if industrial prices are decontrolled but agricultural prices remain fixed, farmers' incentives to grow food declines and shortages result. Maintenance of "dual markets" within a given commodity category (e.g., meat) wherein a fixed proportion of output is sold to the state while the remainder may be sold, at higher prices, on the free market, is a prescription for speculative corruption and black marketeering. Maintenance of "dual markets" between different commodities (e.g., grain vs. other cash crops), wherein one commodity's price is fixed while others fluctuate, results in a transfer of resources out of the controlled category (grain) and into more lucrative production of marketable cash crops. In addition, the sequencing of decontrol of internal vs. external markets has proven to be a thorny issue: if external controls on capital flows are relaxed before reform of internal financial markets, capital flight may result as investors seek to escape artificially-low, controlled interest rates in favor of realistic (i.e., higher) rates abroad.
Finally, substantial evidence exists to support the desirability of liberalizing trade and encouraging exports prior to liberalization of capital markets. Otherwise, inflows of foreign capital (whether portfolio investment in search of higher real interest rates or direct investment attracted by the reform efforts themselves) result in an appreciation of the exchange rate which stifles exports. Similarly, reduction of protective tariffs should precede liberalization of capital markets. If not, capital flows into the secure protected industries and the new export industries will suffer.
Price Reforms, Inflation and Recessionary Cycles
The mix of measures implied in "Price Reform" includes several changes with serious inflationary implications. Inflationary pressures in turn may create the need for counter-inflationary measures which threaten recession. The mix of inflation and recession is one which could portend serious political instabilities.
One of the most common features of recent marketization reforms has been an upsurge of inflation which has proven quite difficult to dampen. Collectivized economies generally are characterized by an enormous pent-up demand for a vast array of durable and non-durable goods as well as services. Relaxation of price controls often releases these demand pressures and results in a classic demand-pull inflation, exacerbated by supply-side bottlenecks. Overheating economies which have also liberalized the foreign trade and payments sectors (by relaxing controls on imports and exports) may see substantial spillover of domestic demand into demand for imports, contributing to a rapid run-up of balance of trade deficits. Devaluation, in turn, can increase the prices of imports, thus worsening the inflationary problem.
The political and economic costs of such inflation are potentially enormous. Inflation often outstrips the ability of wage earners to keep up. Lagging real wages have translated into serious labor unrest in China and Chile. Perhaps even more importantly, inflation can impede efforts to reform enterprise management.
Reforms have ended the typical statist arrangements under which factory managers automatically received allocations of labor, capital and raw materials and were responsible only for meeting annual quotas of production, regardless of costs, quality or profits. But the new system required that prices be unfrozen as managers competed in the market for inputs of labor, capital and materials. Price deregulation became difficult as prices soared. Notably, in the case of the PRC, this raised fears of the sort of runaway spiral which helped bring down the Nationalist regime. It is plausible too that such concerns contributed to the hesitation in the reforms in state-owned enterprises in China.
Efforts to curb such inflation clearly pose the additional danger of economic recession. Tightening the money supply, raising interest rates, and resisting downward pressure on the currency, combined with the contraction in real wages, may arrest the inflationary spiral at the cost of creating a recession and labor unrest. Bankruptcies, unemployment and the sort of mounting governmental deficits associated with a recessionary period could pose a different but profoundly dangerous set of political problems for the reforms. Such was the case in Chile and China in the 1980s, where social tension and political disappointment nearly ended the reform efforts.
The possibilities of recession may also be expected to vary according to
the severity and speed with which the other macroeconomic goals of deficit
reduction and budgetary austerity are implemented. A country which
traditionally has relied upon a large public sector as a source of spending and
investment may probably not expect the heretofore small and neglected private
sector to move quickly to replace public funds as providers of such
investment. Again, too drastic or rapid a drawdown of public expenditures
would worsen the likelihood of a recession attending the market reform
process. Clearly such fears have in many other instances led to a watering-down of the reforms.
ENTERPRISE LEVEL REFORM
Management and labor alike may resist those market reforms at the factory level which threaten the possibility of bankruptcy and unemployment. The trade-off between job security vs. the possibility of greater prosperity earned in a competitive market environment dampens enthusiasm for marketization at the factory level in numerous developing nations. Privatization efforts pose a number of delicate economic and political problems.
a) The success of any privatization scheme obviously depends critically upon the competitive abilities of the private sector. Throughout much of the developing world it simply cannot be assumed that the private sector is necessarily more efficient or more attuned to the pressures of the marketplace than state-owned enterprises (SOEs). On the contrary, the private sector in developing nations has often been highly protected, nurtured by direct subsidies and insulated behind high and effective tariff barriers. A long history of easy profits, official subsidies and protected markets has stunted their entrepreneurial spirit, while encouraging the forms of corruption and graft typical of such close government-business interconnections. In many countries the traditional private sector is a major roadblock to the development of market competitiveness, while the "informal" sector of the economy harbors the true entrepreneurial spirit.
In such a situation, privatizing former state-owned enterprises, especially monopolies, merely perpetuates inefficiency and encourages resistance to genuine marketization.
b) The overall context of such privatization efforts is important. While selling off money-losing SOEs appears an easy way to eliminate at least part of official deficits, it may require a host of other market reforms to ensure that mounting private sector losses do not simply take the place of earlier public sector deficits. If formerly public firms confront a "soft" budget constraint (i.e., are still allowed to function as monopolies, or continue to receive state subsidies, or are encouraged to expect official bailouts should performance not meet market requirements) the result could actually retard progress.(1)
c) Privatization poses direct threats to entrenched bureaucratic elites formerly charged with running state-owned enterprises. Political resistance is potentially widespread and formidable. Such has been the experience in the PRC, India, Sri Lanka and many other reform efforts.
Labor market reforms are another essential dimension of marketization. Typically in a pre-reform, statist economy the wages and movement of workers were administratively controlled and fixed. Workers were generally prohibited from changing jobs in pursuit of better wages, conditions or other incentives. Often migration to urban areas was forbidden. State-owned firms dominate the distribution of such services as housing, education, medical and health care, and even recreation. The net result was an immobile and stultified work force incapable of responding to new opportunities and tied inextricably in a web of state-dominated dependency. Market reforms must break these bonds in order for wages to reflect true costs of production and in order to free up the labor force to respond rationally to the appropriate signals of changing relative prices on goods and services and in changing salary and wage differentials. Such labor market reforms in turn must be sequenced with other enterprise reforms: if wages are allowed to rise, but firms still face a "soft" budgetary constraint with weak (or nonexistent) profit incentives the result will more likely be a wage-push inflationary spiral with no improvement in overall efficiency or productivity.
In a marketized economy, inputs and outputs are available for purchase on the market. Although some products judged critical may continue to be allocated by central authorities, decisions by managers should entail more or less purchases in the market rather than reliance on central allocation.(2) Management decisions should be motivated primarily by the pursuit of profit. In a marketized economy management is more or less free to ignore bureaucratic intrusions, as the bureaucracy is no longer responsible for appointments and promotions, no longer in control of input-allocation, and no longer in control of the entry or exit of firms in industry. In short, in a marketized economy autonomous managers confront a "hard" budget constraint. Finally, it is essential that there be substantial competition in the marketplace. In the absence of competition, measures to decontrol prices may simply reward monopolists with higher rents while contributing nothing to improving long-run economic efficiency and competitiveness.
Resistance to efforts at privatization arise from two key sources: Bureaucrats resist exchanging their powerful and lucrative positions as service-providers for less prestigious and less remunerative roles as contract administrators or regulators. Established franchised monopolists likely will similarly resist any introduction of genuine competition. In addition, a variety of less spurious arguments may be raised in opposition to privatization. The most common claims asserted by opponents of privatization include the contention that state-run services are natural monopolies and that there would be too few viable competitors able to provide such services in the absence of the state. Thus, the argument has gone, privatization would transfer power to private monopolists less likely to be responsive to social concerns (e.g. provision of access to services by the poor). Any coherent and extensive privatization strategy will succeed only if such arguments of the resistance can be effectively refuted. Any strategy to develop working coalitions which can sustain privatization will require an intellectual effort to address the "natural monopoly" argument.
Finally, even in the absence of willful resistance by turf-conscious bureaucrats, implementation of market reforms face many hurdles. Both the efforts by the former Soviet Republic and the Central and Eastern European nations have shown that even well-intentioned reformers confront enormous problems in coordinating their liberalizing efforts. Marketization requires that diverse agencies collaborate in effecting macro-and micro-economic changes. Such cooperation is often quite difficult to achieve.
An even greater source of resistance derives from the simple fact that the objectives of foreign investors may differ from those of local officials. In the past, for instance, the objectives of foreign investors--to produce and sell products to nearly 280 million Soviet consumers--often clashed dramatically with the Soviet desire that joint ventures produce primarily for the export market in order to earn vitally needed hard currency.
Finally, the success of enterprise level reforms may in turn depend importantly on the ability of reformers to alter existing educational policies. Third World education has been notoriously biased against the study of business and management and in favor of the study of law and liberal arts. One key example is China where, by 1979, a serious educational bottleneck existed and now many are opting for direct economic engagement rather than any higher education. In addition, many systems were biased in favor of universal elementary education. In China Deng reversed Mao's egalitarian goal of mass education; whereas Mao's system educated impressively large numbers of high school students, the quality of instruction was generally low. Between 1979 and 1985 the number of high school graduates declined from 7.2 million to 1.96 million and the number of high schools declined from 192,152 to 93,221.
MACROECONOMIC REFORMS
Macroeconomic reforms are crucial to any marketization effort, especially in the initial stages. Market incentives and price deregulation cannot operate in a climate of runaway inflation. Monetary and fiscal controls are essential to break the economic and psychological inflationary spiral and to make price reform possible. To free prices without establishing fiscal responsibility and controlling the money supply is a prescription for disastrous inflation. Failure to control the creation of credit in the banking and financial sectors has lead to inflationary crises in a number of cases (Chile in the early 1980s; China in the late 1980s). Failure to allow interest rates to rise to realistic levels has also complicated reform efforts: artificially low interest rates have prompted capital flight as investors--legally or illegally--pursue higher returns on investable funds. Artificially low interest rates in combination with inflationary pressures can lead to panic buying, hoarding, shortages, and still greater inflationary pressures (China in 1988-1989). Tax policies must also be adapted to the exigencies of a market society. Tax breaks and subsidies for state-owned enterprises (the "soft" budget constraint) postpone the day of reckoning for these inefficient and uncompetitive enterprises, often at the expense of more competitive private firms.
In short, macroeconomic policies can encourage reform by allowing price deregulation in a non-inflationary environment. Macroeconomic stabilization is a sine qua non for the establishment of an economic and psychological environment where market signals and incentives guide economic activity.
Marketization thus entails a substantial reduction of the role of the state in the fiscal, monetary, and credit systems. In statist economies the central government budget represented a larger proportion of GDP than in market-oriented economies. The expenses of a huge bureaucracy, massive subsidization of inefficient state-owned enterprises and state control of capital and investment allocations contributed to the problem. Because a large fraction of net income was controlled by the central government, there was precious little role for banks, financial intermediaries, firms and households to engage in the allocation of funds. The result was a stifling of capital markets and the "crowding out" of market-responsive actors pursuing profitable discretionary investment prospects. Marketization will necessitate reversing the trend toward fiscal centralization and encouraging the growth of competitive financial intermediaries, new sources of credit, and monetary instruments to serve a developing capital market. Appropriate legal reforms to increase the transparency, predictability and security of the new instruments will also be critical to these decentralization efforts.
INTERNATIONAL ECONOMIC REFORMS
Balancing Tariff Reduction and Exchange Rate Reforms
The implementation of reforms in the foreign trade and exchange rate sectors poses a particularly difficult set of problems. The proper pacing and sequencing of tariff reductions and the establishment of realistic, market-determined exchange rates is problematic. If tariffs are eliminated too drastically, once-protected firms may succumb quickly to a flood of foreign imports, resulting in heavy losses, possible bankruptcy and politically volatile unemployment problems. A combination of drastic tariff reductions plus the maintenance of overvalued foreign exchange rates represents a particularly difficult "double challenge." In Chile, domestic firms experienced import surges at the same time that Chilean exports were priced out of foreign markets, doubly encouraged by lower tariffs plus the effect of lower import prices and higher costs of Chilean exports expressed in terms of the overvalued national currency. Between 1977-1981, tariff rates fell to a low of 10 percent while the peso was fixed at the vastly overvalued level of 39 pesos to the dollar. The results were spiralling trade deficits, unrestrained imprudent borrowing by domestic empresarios, and a spending binge by Chilean consumers financed by an avalanche of debt, rising to $5.5 billion in 1981 alone. Subsequently, a modest increase in tariffs to 20 percent across-the-board plus the establishment of a crawling-peg system of regular adjustments (i.e. devaluations) of the peso restored Chile's export competitiveness: exports rose 13 percent per year from 1982-1986, and nearly 20 percent in 1987. In this case, the need to temper Chicago School free market orthodoxy with strong doses of political and economic pragmatism averted an economic crisis which might well have undermined support for the continuation of the market reform efforts.
Changes in the foreign trade and currency regimes also raise potentially divisive questions concerning equity. There are clearly relative winners and losers in such economic reform. Losers include formerly protected industrial (and sometimes agricultural) interests who profited from previous state subsidies and import-substitution protective polices. Winners include export-oriented sectors and often non-traditional economic producers who benefit from currency depreciation, deregulation, and (perhaps) lower tax rates occasioned by the reduction or elimination of subsidies. Losers may also include those left unemployed or under-employed as a result of their firm's inability to withstand foreign competition, as well as workers whose real wages decline as a result of price deregulation, inflation and the need to restrain unit costs of production in order to remain internationally competitive.
The impact of liberalization of foreign trade upon traditionally protected sectors will likely prove disruptive. The degree to which this is true, and hence the appropriate pace at which liberalization should proceed, will vary depending upon the relative importance of external versus internal demand for a nation's output. To the extent that external demand is relatively low, a rapid liberalization can be expected to imply losses in the protected industries which will not be counter-balanced by gains in the exporting sectors.(3) The possibilities of a recession are therefore very real (especially if austerity measures necessitated to combat inflation are simultaneously implemented). The recessionary scenario may be further exacerbated by the time-lags involved in transferring resources from the import-substitution sector to the export sector. Such a process implies infrastructural investments which will likely occur only after a lag, whereas the losses experienced by the import-substituting sectors will be immediate, especially when accompanied by monetary and fiscal contraction. Thus, it is clear that the timing and sequencing of economic reforms in the foreign trade sector and in monetary and fiscal policies very probably will be a critical element in any successful marketization program.
Adoption of reforms in the trade and currency regimes will therefore clearly raise political dilemmas proportionate to the ability of winners and losers to organize politically. Any coherent political strategy of marketization must anticipate the distribution of likely gains and losses and provide a mix of incentives and disincentives to contain potential resistance from the once-advantaged losers. Such measures might include relatively unsavory measures such as curtailment of labor unions' right to strike (Mexico, Chile); provision of a temporary transition period of gradual phasing out of subsidies and reduction of protection as in Chile since 1982; adoption of employee stock ownership plans to help win labor support (Chile; China recently; Sri Lanka; India); and provision of adjustment assistance to industries judged to be legitimately damaged by import surges or by the financial effects of currency devaluations (e.g., industries dependent upon foreign imports of critical intermediate inputs).
Foreign Direct and Portfolio Investment
Liberalization of the regime governing foreign direct and portfolio investment similarly may raise a host of economic and political problems for reformers. Ideological resistance rooted in suspicion and fear of foreign imperialist penetration may be quite strong (as in the PRC among the "conservatives" or among leftist groups in Chile and Mexico, especially during the early phase of the reform efforts). Perhaps politically more significant is the likely opposition to foreign investment rooted in practical economic self-interest. The firms likely to feel most threatened by foreign competitors would include those formerly protected industries likely to be least prepared to meet the new competition; labor organizations seeking to guarantee certain levels of employment and the training of blue and white collar workers; assurances of certain levels of export performance where feasible; traditional landed elites ("latifundistas" in Latin America, landlords in India) likely to feel threatened by the shifts toward export-oriented cash crop production; and, of course, bureaucratic officials who see the relaxation of investment controls as a direct assault on their presumably once lucrative regulatory and licensing powers.
Just as the politicization of an economy elevates the stakes and the corruption associated with playing the political-economic game, so too any depoliticization will threaten directly once-powerful political-bureaucratic interests (a process clearly evident in the PRC, India, the Soviet Union and a host of smaller developing nations). Again, the maintenance of momentum behind the market reform efforts will likely involve a mix of carrots and sticks to buy off or intimidate the disaffected; "performance requirements" to satisfy the concerns of business and labor groups relating to investor performance and employment, training and indigenization of management; and enhanced opportunities for formerly protected sectors to participate in the newly-formed enterprises (e.g., joint ventures, provisions for reversion to native ownership after a set term, etc.). Such arrangement, condemned by free market purists have proliferated among the pragmatic reformists who appreciate the political necessity of such compromises.
CONCLUSIONS
When the decade of the 80s closed, Third World elites confronted formidable crises, including onerous levels of debt-service, declining earnings on traditional exports, and bloated, inefficient, money-losing public sector enterprises. In an effort to cope with these challenges, many developing nations have turned with unprecedented zeal toward economic liberalization, privatization and other market-oriented economic restructuring. Instead of opting for the more familiar strategies of squeezing more savings and investment from overburdened middle classes and oppressed peasants, ruling elites are opting instead to increase the efficiency of existing investments and of new undertakings through greater reliance on market forces. This phenomenon of "marketization" is not difficult to understand. Indeed, given the collapse of statist, collectivist and communist arrangements, the embrace of marketization strategies was rational, even predictable.
What is not at all so understandable or predictable is precisely what will be the effects of Third World marketization efforts. Markets are not apolitical abstractions. The classical economists, beginning with Adam Smith, appreciated quite clearly that markets are political constructs dependent for their smooth functioning upon social, cultural and political arrangements which may facilitate or impede market-oriented activities. In turn, the conduct of economic activity through the operation of the marketplace shape the political, social and cultural life of a nation. A market is an arena of competition. Competition may be inherently conflictual and such conflicts will occur within a context of existing political relationships which they probably alter in ways difficult to predict.
A number of urgent issues will dominate the agendas of future market reformists in the developing world. Perhaps most critical is the need to fabricate and sustain a supportive coalition to maintain the momentum of the reforms through the difficult times which seem inevitably to accompany such ambitious marketization efforts. The record suggests that markets are less spontaneous, harmonic and mutually beneficial, and more precarious, potentially conflictual and potentially disruptive than the conventional pro-market advocates have appreciated. A functioning market system in a developing nation context is likely to be a fragile political construct. Whether some variation of "neo-authoritarianism" is essential to the success of such marketizing reforms is a debate which this paper cannot hope to detail, much less to resolve. But the evidence is at least persuasive that an adroit balancing of diverse interests and an intelligent plan for the implementation of an appropriate sequence of reforms requires something more like political will than an apolitical spontaneous harmony of interests.
In short, marketization does not equal depoliticization; it is a political strategy. One should never presuppose that some natural coalition in favor of the market exists; but neither should one presuppose that resistance in any particular form will be inevitable.
How conscious human agents will respond to the mix of costs and benefits associated with marketization is an empirical question. Similarly, the nature of the coalition that will most successfully carry out such a program should not be presumed in advance. Prominent recent Marxists have reminded us that often people who share similar class interests will entertain quite different ideas and act according to quite different perceptions of their priorities.(4) Political, cultural and ideological factors in addition to material class interests undoubtedly will affect the ultimate shape of the forces arranged for and against marketization. The analysis of these "non-material" forces will, it is hoped, play an important role in future studies of the developmental process.
The Catholic University of America
Washington, D.C. 20064
*The author wishes to acknowledge the support of The Institute for the Study of Economic Culture at Boston University (Peter L. Berger, Director). This paper is part of a larger project on marketization funded by the Institute.
1. 1. The "soft" budget constraint is a concept elaborated by Janos Kornai. See The Road to a Free Economy (New York: Norton, 1990), especially pp. 39-57.
2. 2. See the discussion of Dwight H. Perkins, "Reforming China's Economic System." Journal of Economic Literature, XXVI (1988), pp. 603-605.
3. 3. Such was the case in Brazil, 1964-1967. Even though exports grew rapidly, their small share of the GNP failed to compensate for broader output declines in the formerly protected sectors.
4. 4. Prominent among these political/cultural Marxists are E.P. Thompson, Ian Roxborough, and Roger Garaudy. On the applicability of such approaches to the Chilean case discussed below, see Michael Fleet, The Rise and Fall of Chilean Christian Democracy (Princeton: Princeton University Press, 1985), pp. 14-20.