Wednesday, November 5, 2014

Four tricks used by Shleifer and Treisman to convince you that the transition was a success

Andrei Shleifer and Daniel Treisman have published a follow-up to their 10-year old article arguing that transition was really a success because, yes, some of these countries either have lower income levels than 25 years ago, and yes, some barely grew, but they are all “normal” in the sense that their pathologies (crime, lack of democracy, inequality, oligarchs etc.) are generally found at their (low) income level. So, there is nothing to complain. 

It is a deeply misleading article and since I do not have the time to go into all the issues, I decided to highlight only the four  most  obvious misrepresentations, actually tricks, they use.

1. Deny that actual levels of income at the end of Communism were true. They were according to them much lower. Of course,  that lowers the bar for the past. All evidence, including household survey data, Maddison data, World Bank (which funded a whole multi-year project on the issue), UN,  OECD, IMF etc. show that Sh-T are wrong. Levels were actually underestimated on account of exclusion of non-material services, a problem that was corrected later when "transition countries" adopted United Nations' NAS and redid historical statistics. The issue was laid to rest 15 years ago because nobody any longer defended such an absurd position. But they come back to it. 

2. Ignore GDP declines in the 1990s combined with all other calamities (increase in morbidity, decline in life expectancy, huge poverty, unemployment, gender discrimination, inequality, private militias, corruption and kleptocracy) by saying that all these calamities are “normal” phenomena for the now much poorer countries.  Sure, Chad and Mali are also “normal”  countries for their income level. Should we celebrate that? There is nothing inherently good in being “normal” for your income level, especially if that level is now lower than before.

3. Go back to the Soviet trick statistics by comparing data from today with those from 25 years ago. The Soviet statistics routinely compared income in (say) 1950 with 1917 (which was the time of revolution and War). Why  not use the same argument and tell Americans, French etc. they have nothing to complain because they are all much better-off today than in 1989?

4. Ignore conflicts and wars and at least ¼ of million people who, yes, died! 

My requirements  to be successful (see my blog just below) were very clear and modest.

1. Catching-up with OECD countries, that is having an average rate of growth over 25 years which is at least marginally higher than the mean rate of growth of rich OECD countries. It is a standard requirement in the literature to judge a country's success. Are you converging toward the rich or not?

2. A moderate increase in inequality, so that the Gini is in line with OECD average.

3. A strong democracy so that your score is a full +10, or just slightly below it.

Only Albania, Estonia, and Poland fulfill these modest requirements. They account for 10% of “transition countries” population.

You be the judge if these are, or not, reasonable requirements. 

PS. I forgot to add an important point. When in the early 1970s, my friends or myself, living in East European Communist countries, assessed success or failure of  socialism  we did not think it legitimate to just compare the indicators of the 1970s with those of 25 years before, around 1945-47, when Communists came to power. (Obviously, all economic indicators, and in all dimensions and in all countries, were better in the 1970s than in 1945.) We looked at whether socialism delivered what it promised and, especially, whether it made countries  catch-up with the rich capitalist world. In the event, it did not and this largely explains its failure. But I do not see any reason to change the criterion now when we assess the success of capitalism in Eastern Europe in the past 25 years.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.