As the West’s long battle with Soviet Communism draws to a close, practical men in America and elsewhere ponder a novel question: how to bring forth a lawful, prosperous, and secure order from the rubble of the former Soviet Union. For many statesmen, diplomats, and captains of industry, the answer is already clear: we should rely upon foreign-aid policies, skillfully designed and massively financed. Through existing agencies or new ones, it is argued, such transfers will speed the transition from Communism to market democracies for hundreds of millions of people.
Yet the ongoing dramas in Moscow, and the attention these have commanded, have obscured the fact that America and other Western states are already experimenting with a series of aid programs for ex-Communist countries. The recipients in question are the societies of Central and Eastern Europe. The population of those five former members of the Warsaw pact—Hungary, Czechoslovakia, Poland, Romania, Bulgaria—totals nearly 100 million (and will be larger still if Yugoslavia and Albania are added to their ranks), and while the sums involved are not historic, neither are they trifling. The United States, for example, has already authorized over $1.5 billion in grants for Eastern Europe and has guaranteed several times that amount in subsidized loans through the International Monetary Fund (IMF) and the new European Bank.
There is every indication that the new U.S. programs for the ex-Communist countries will build upon the tradition and experience of American aid programs in other parts of the world. Thus, in Poland the U.S. Agency for International Development (USAID) is helping with “two model cooperative [housing] developments of 100 units total”; Bulgaria is receiving 300,000 metric tons of surplus feed grain for its livestock; and previously pro-natalist Romania is now the beneficiary of a “priority program” in the field of family planning. In light of these continuities, it may be appropriate not only to consider the prospects for aid for these post-Communist societies, but to reflect more generally on the performance of American “development assistance” to date.
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I
We can begin with a simple thought experiment. What would we have expected the economies, societies, and polities of Eastern Europe to look like in 1990 if those five countries had been recipients of American development assistance over the previous two decades?
Like all such experiments, this one is necessarily speculative. But we can pursue it by comparing various characteristics of the countries of Eastern Europe immediately after their revolutions of 1989 with those of the dozens of African, Asian, and Latin American countries that did in fact enjoy steady flows of bilateral American development assistance during the 1970’s and 1980’s.
One strikingly unhealthy characteristic of the East European states is the inability to manage external debt. Over the course of the 1980’s, the governments of Poland and Romania (and also Yugoslavia) not only failed to repay their international creditors on the schedules to which they were contractually committed, but sought and obtained debt-relief agreements from them. At the time of its liquidation, the international finances of Hungary’s Communist government had also become precarious. After the collapse of Communism in the German Democratic Republic, previously secret documents showed that the state’s external hard-currency debts were nearly twice as great as officially acknowledged. And a few months after the demise of the Zhivkov regime, Bulgaria suspended its repayments of both interest and principal to its hard-currency creditors.
During the 1980’s, such debt crises were also characteristic of the states that had been long-term recipients of bilateral American development assistance. During that decade alone, by the World Bank’s count, 45 of the 74 countries in Africa, Asia, Latin America, and the Caribbean which were receiving direct economic assistance from USAID sought and obtained debt-relief agreements.
Compounding the financial difficulties of Eastern Europe’s Communist states was their determination to maintain nonconvertible currencies which would restrict the role of international trade in the local economy. This meant that before 1989, for all practical purposes, the currencies of Eastern Europe were nearly worthless in the open market.
Such nonconvertibility, or limited convertibility, is also characteristic of the currencies minted by the states that have been receiving economic assistance from the United States over the past two decades. According to the IMF, only ten of the more than 70 countries today receiving bilateral economic assistance from the United States are deemed to have “independently floating” (that is, spontaneously convertible) currencies—and there are reasons to believe this may be a generous estimate.
In the late 1980’s, the countries of Central and Eastern Europe bore the disfiguring scars of decades of socialist planning. The structures of their economies had been severely deformed. Their central governments, which had arrogated utterly dominant roles for themselves within the local economy, had amassed vast networks of state-owned enterprises. Without regard to consumers, these governments had directed forced-pace transitions out of agriculture and into state-owned heavy industries. They depressed private consumption and diverted funds into state investment, not on the basis of economic calculation but as a matter of political principle.
Parallel distortions are just as evident in the economies of long-term recipients of American aid. For example, the ratio of central-government spending to national output in Egypt—the principal U.S. aid recipient in Africa—was about the same as in Poland or Romania during the 1980’s. The Comoro Islands, Jamaica, Jordan, Tunisia, Zambia, and Zimbabwe are some other long-term recipients whose ratios of central spending to output seem roughly to match Poland’s and Romania’s. By the same token, the war against agriculture, and against the consumer, looks to have been taken as far in some recipient countries as in Soviet-occupied Europe, or even farther. By the World Bank’s reckoning, the share of agriculture in the economies of Zimbabwe, Jamaica, Peru, and Jordan was lower in the 1980’s than in Hungary. And such long-term recipients as the People’s Democratic Republic of the Congo and the Ivory Coast have evidently managed to achieve ratios of private consumption to national product nearly as low as in Jaruzelski’s Poland.
For obvious reasons, the Communist governments of Central and Eastern Europe did not attract significant quantities of foreign capital for direct private investment during the 1980’s. Such inflows were also negligible for long-term recipients of American development assistance during those years. This systemic inability to attract voluntary investment from abroad speaks to the business climate of the countries in question. The factors affecting business climate, difficult to quantify, include such things as the state of civil order, the extent to which law presides, and the degree of hostility toward the rights of the individual (including the right to property)—in short, the quality of the civil and political liberties that the local population may be said to enjoy. In many recipient states, as in the Communist countries of Central and Eastern Europe, that quality was, to say the least, low.
One can, of course, identify a number of characteristic differences between the policies and practices of today’s East European states and the group of states involved in long-term participation in U.S. development programs. But in many important areas, what seems most striking is precisely the lack of distinct differences.
Our thought experiment thus points to a fundamental question. If the conditions of the present states of Eastern Europe cannot be distinguished by such meaningful economic and political criteria from those of governments that have been obtaining American funds and development advice these last few decades, why should U.S. aid be expected to help Eastern Europe evolve away from its current characteristics—much less in the direction of self-sustaining economic growth or open, liberal polities?
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II
The fact is that American development-assistance policies, for many years, have been more likely to lead a prospective beneficiary toward an Eastern Europe-style economic morass than to help it escape from one toward economic health and self-sufficiency. To understand why this should be so, we need a quick glance at the past.
In its early years, American development aid (or “technical assistance,” as it was called at the time) was extended to governments in the free world to help them participate more fully in the liberal international economic order that had been created after World War II. To American policy-makers, the primacy of private and commercial effort was self-evident. So too, in their minds, was the link between government policies and local prospects for material advance.
American development-assistance programs were tested by many minor challenges in the 1950’s and 1960’s, but they were shaken to their foundations by the Vietnam war. A confusion between the political and economic objectives of foreign aid, already evident in the discussions that surrounded USAID’s founding in 1961, was permanently impressed upon the agency by the Johnson administration’s decision to harness it to the war-winning effort. The programs that emerged in the field in response to these pressures—refugee relief, relocation projects, “pacification” programs, and the like—were not, in fact, meant to be judged by economic criteria. Severing the link between the living standards of local populations and the productive capacities of their economies had previously been regarded as a matter of enormous practical and moral hazard; during the Vietnam war, U.S. aid programs embraced the principle of such a separation, and sought to enforce it widely in practice.
Ironically, the new approach was soon globalized by American critics of the war. By the early 1970’s, the U.S. foreign-aid budget was the battlefield for a sort of guerrilla action against the President by a Congress discontented with the course and conduct of his Southeast Asian policy. After repeated failures to obtain its requested appropriations, the Nixon administration agreed to a congressional rewriting of the aid mandate in 1973. This was the so-called “New Directions” legislation, which remains in force today.
The “New Directions” language instructed USAID to focus its attention directly on the poorest of the poor: not only to reach them, but to “satisfy their basic needs and [enable them to] lead lives of decency, dignity, and hope.” This “Basic Human Needs Mandate,” as it came to be known, not only authorized but seemingly required development policy to involve itself in the uplifting of local living standards through direct provision of goods and services—much as had been done in Vietnam. Though theoretical arguments were advanced to explain the contributions such activities would make toward the goal of self-sustaining development, the practical result was to mandate not development but long-term relief programs. Significantly, the “New Directions” legislation did not require, or even urge, American agencies to monitor the impact of recipient governments’ policies and practices on the economies they supervised.
With the “lessons of Vietnam” thus perversely codified into its new operating procedures, American development-aid programs, originally based on the premise of strict conditionality, became a vehicle for unconditional resource transfers. With the decline in conditionality, “graduations” out of the U.S. aid program also came to a virtual end—despite the fact that graduation, by its very nature, is one of the criteria by which the success of policies designed to promote self-sustaining economic development can be measured. In 1989, an unusually frank report by USAID acknowledged this and other problems:
Somewhere between 1949 and the present, the original concept of development assistance as a transitional means of helping developing countries “meet their own needs” has been lost. . . . All too often, dependency seems to have won out over development. . . . Only a handful of countries that started receiving U.S. assistance in the 1950’s and 1960’s has ever graduated from dependent status. . . . Where development has worked, and is working, the key has been economic growth. And this is largely the result of individual nations making the right policy choices. . . .
What about the role of American aid in fostering political liberalization in recipient countries? Long-term receipt of American development assistance has certainly not prevented a transition toward a more open and participatory political order, as happened in much of Latin America and the Caribbean in the 1980’s. Yet similar transitions took place in Latin countries that did not enjoy bilateral American economic-aid programs at the time. Moreover, many long-term recipients in other regions during the same decade did not undergo liberalization. So the record in this regard is equivocal at best.
In sum, an East European government seeking assistance from America’s existing aid apparatus would be engaged in a singular act of faith, for there is little in the record to suggest that these programs contribute to economic liberalization or development, while there is considerable evidence to the contrary.
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III
Is, then, the story of America’s postwar international economic policy one of unremitting failure? Quite the contrary: the framework for trade and finance that the United States helped to fashion in the 1940’s is surely one of the more extraordinary successes in the history of international relations; indeed, it is one of the few whose accomplishments may have exceeded the hopes of its creators.
Moreover, specific American interventions are widely thought to have succeeded as well. For example, American assistance is commonly considered instrumental to the postwar recoveries and expansions of Western Europe and Japan, and later to the dynamic growth of such newly industrializing economies as Taiwan and South Korea. Advocates of aid initiatives for Eastern Europe, indeed, sometimes make their case by broad analogy with these earlier experiences. Are they right to do so?
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Western Europe
Like the words “democracy” and “freedom,” “Marshall Plan” is a phrase that evokes a warm and favorable response. But while the Plan is often invoked, its actual objectives, applications, and results suffer from a strange neglect.
As its official name—the European Recovery Program (ERP)—reminds us, the Marshall Plan’s aim was to restore devastated economies. That is, the stated objective was to help its West European recipients reattain their prewar levels of output. Although two decades of brisk and virtually uninterrupted economic expansion came on the heels of the Plan, the ERP itself was not designed to foment self-sustained growth. Quite simply, it was not a program for development.
Specific aspects of the Marshall Plan, moreover, raise questions about its actual contribution to the recovery.
Under Nazi occupation, the vanquished economies of Europe had been brought under a comprehensive system of controls, through which they were to be harnessed to the German war effort. After World War II, some of these controls stayed in place over most of the liberated economies. Moreover, the ERP actually required recipient states to engage in economic planning in order to obtain aid. Needless to say, this approach encouraged statist impulses on the part of beneficiary governments. In more than one country Marshall aid was used to postpone rather than hasten economic adjustments or “privatizations”; occasionally, as in Italy, there actually emerged the spectacle of a government struggling—against the wishes of its ERP financiers—to pursue a liberal economic program.
There was another problem. In its first two years, the Marshall Plan established a complex system of bilateral drawing rights among European recipients of aid. The result of this “Little Marshall Plan” was to subsidize governments with overvalued currencies and large trade deficits and to penalize governments that attempted to maintain discipline in their accounts. Ludwig Erhard, West Germany’s Minister for Economic Affairs from 1949 to 1963, once estimated that Belgium lost four-fifths of its dollar aid in the first years of the Marshall Plan due to these perverse incentives.
In recent years scholars approaching the Marshall Plan from widely divergent perspectives have drawn a similar conclusion: the ERP’s contributions to European recovery may have been more complex and less dramatic than is commonly assumed. This is not to say that American aid was inconsequential to Western Europe’s economic recovery and subsequent boom. In fact the United States played an important and even decisive role; but precisely how it did so is not always appreciated.
Two interventions require special mention. The first was the American security guarantee that was provided to Western Europe initially through the informal Pax Americana of 1945 to 1949, and thereafter through the formal obligations of the North Atlantic Treaty Organization (NATO). America’s political and military commitment to the continental regimes imparted to these regimes a quality they would otherwise have manifestly lacked: credibility. That credibility conduced to stability, and it promoted business confidence in these localities, not only in the eyes of the domestic populace, but in the eyes of foreign investors as well.
Second, the Marshall Plan gave a belated push to European integration—that is, to economic liberalization. Alongside the founding of NATO came the organization of the European Payments Union (EPU). The EPU laid the basis for currency convertibility among its members (although full convertibility was only to come later). In so doing, it also generated competitive pressures for the reduction of trade barriers and tariffs. In retrospect, the EPU can be seen as having paved the way for the specialization that helped to propel Western Europe’s postwar economic advance. But even at the time, contemporary observers counted the EPU as one of the Marshall Plan’s most important accomplishments—no less important, perhaps, in that it helped to undo some of the work that the Plan itself had originally financed.
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Japan
The U.S. occupation of Japan—“Japan’s American interlude,” as one scholar has described it—lasted from 1945 until April 1952. Accustomed as we have become to Japanese prosperity, it may be difficult to remember just how hard-pressed the country was during those years. At the end of the occupation, economic conditions seemed favorable only in comparison to the catastrophic year following the unconditional surrender. In 1951, industrial output was still significantly below its 1937 levels. Foreign trade did not reattain its prewar volume until the mid-1950’s—well after the occupation was concluded. By almost any economic measure, Japan’s postwar recovery was slower than Western Europe’s.
Between mid-1945 and mid-1950, the United States extended considerable financial assistance to Japan. Under the program of Government and Relief in Occupied Areas (GARIOA), total transfers during that period exceeded $1.8 billion (roughly $7-8 billion at today’s prices). None of this aid, however, was earmarked for development, and only a portion of it was allocated to the tasks of reconstruction. As the “R” in GARIOA indicates, much of the money went to relief, through direct handouts or by provision of supplies to make-work industries. On this regimen of relief, recuperation was halting: as late as 1949, the official index of manufacturing activity was at barely half its 1937 level.
Relief-oriented aid was only part of the economy’s problem. Allied officials were, for several years, ambivalent about the prospect of a Japanese economic recovery. They concentrated instead on imposing a radical political and social transformation upon the archipelago. It required a number of regional events, including the collapse of the Nationalist government in China and the Communist surprise attack in Korea, to impress policy-makers in Washington with the importance of Japanese recovery.
In itself, the determination that the occupiers would not postively obstruct economic restoration was of course significant. As for interventions encouraging economic growth, the inadvertent played a role alongside the deliberate. The Korean war, for example, was a great windfall for the Japanese economy, resulting in a regional trade boom and occasioning major U.S. infusions into the domestic economy. America’s subsequent designation of Japan as the principal forward base in its Asian security system not only sparked business confidence in the country, but brought very tangible economic benefits as well. In the five years after the outbreak of the Korean war, U.S. “special-procurement” expenditures in Japan totaled $4 billion. Other U.S. military activities had a further impact on the domestic economy.
America’s less accidental contribution came through what the scholar Jerome B. Cohen once called our “sponsorship” of Japan. In his recounting:
After the signing of the peace treaty [between Japan and its erstwhile enemies] in 1952, the United States government sponsored Japan’s reentry into world trade relationships, concluding reciprocal trade agreements with Japan, securing admission to the General Agreement on Tariffs and Trade, and using its own tariff concessions to other nations to secure favorable treatment for Japan. United States firms concluded a large number of technical-assistance contracts with Japanese companies which enabled them to obtain the latest know-how, patents, copyrights, and machinery and equipment, as well as training for their technicians. The U.S. International Cooperation Agency [the precursor to AID] established a Productivity Center in Japan to help Japanese industries become more efficient and competitive. . . .
In short, the United States made it easier for Japan to undertake the outward-looking economic policy that its leaders already clearly wished to pursue.
Any account of the “American interlude” in Japan that neglects the political and social revolutions wrought by the occupiers would be critically incomplete. Indeed, many people in both Japan and the United States would argue that the occupation’s principal accomplishment was to prepare the country for liberal democracy.
The American-written constitution that was presented to a defeated Japanese nation is still in force today. Its very authorship speaks broadly to the exceptional circumstances under which Japan’s political and social transition from dictatorship was executed. If, today, there is a debate among Western students of Japan about the degree to which the country qualifies as an open society or a liberal order, that debate only serves to remind us of the limits to be expected of policies aimed at promoting democratization—even under the most favorable auspices imaginable.
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Korea and Taiwan
Unlike Japan and Western Europe, Taiwan and Korea received significant amounts of American assistance expressly for the purposes of development. Between 1949 and 1961 alone, AID’s predecessor organizations transferred over $1.2 billion to Taiwan and over $2 billion to Korea (sums whose totals would be much higher if adjusted to their purchasing power in today’s dollars). Thereafter, a remarkable economic boom ensued—and continued—in both countries. Between the early 1960’s and the late 1980’s, according to official statistics, real per-capita output increased by a factor of over six in South Korea, and by still more in Taiwan. In their broad outlines, the experiences of these two countries would seem to present the strongest case for the positive potential of development assistance.
The case looks somewhat different, however, when it is examined more closely. During the period of maximum inflows, for example, South Korea’s economic growth was unexceptional. In 1953-55 and 1960-62, by one estimate, the South Korean GNP rose by 4 percent a year; per-capita growth would have been less than 1.5 percent a year by that reckoning.
The phenomenon of indifferent growth in the face of massive inflows of aid was, inescapably, related to official policies. The Rhee government may have had its virtues, but it created a distorted and politicized economic environment that discouraged savings, investment, and trade, among other things. Students of the Korean economy have even described the Rhee policies as “aid-maximizing,” in the sense that the South Korean government seemed willing to imperil its own economy to prove the need for the foreign bequests it wished to obtain.
Rapid economic growth commenced in South Korea only in the 1960’s, after the Park regime embraced an export-oriented policy. The factors influencing that decision were diverse, but U.S. aid also figured in the shift, albeit in a negative way: in late 1962, American officials discreetly informed their Korean counterparts that U.S. economic aid—which then accounted for as much as half of the South Korean government’s official revenues—would be cut back sharply in the coming years, and eventually curtailed. This prospect could not but have concentrated the mind wonderfully.
In Taiwan, circumstances were not as extreme, but the patterns were similar. Per-capita economic growth there was probably more rapid than in Korea between 1953 and 1962, and accelerated sharply after 1962. Just as in Korea, if at a somewhat earlier date, the Taiwanese government had been informed that American economic aid would be shut off; just as in Korea, the government subsequently embraced an outward-looking economic policy.
One should not conclude that American aid per se was extraneous to the progress of these two highly successful economies. Both countries faced very real military threats from Communist rivals; the survival of neither Taiwan nor South Korea was a foregone conclusion. The American security commitment to both countries figured incalculably in their development, and American military aid also played a major role in their domestic economies. For both Korea and Taiwan, this political and military support had the effect of preserving the possibility of rapid economic growth, even as that growth itself seems to have been brought about in some measure by the systematic reduction of development-assistance funding.
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IV
Reviewed as a group, then, the success stories of U.S. economic assistance do not seem to offer any immediate or obvious encouragement to the new initiatives now being contemplated for Eastern Europe. Few of the components that figured importantly in these earlier successes are likely to be replicable today. Other components are no longer necessary to replicate, since they already exist.
For example, although the several states of Eastern Europe may or may not ultimately choose to join the NATO alliance, they are unlikely to require the sorts of security guarantees and military aid that Western Europe, Japan, Taiwan, and South Korea variously enjoyed. It is also hard to imagine that these countries, long subjugated to a Soviet-style dictatorship, would now voluntarily invite the United States or other governments to exercise even temporary mastery over their arrangements to fashion new constitutional or civil orders. Finally, the international trade and finance markets so vitally important to the earlier success stories are already in place for East European countries to avail themselves of.
What about conditions in Eastern Europe itself? First and foremost, it may be misleading to think of the region as a region. “Eastern Europe” was defined, indeed created, by Soviet occupation. With the passing of that occupation, many of the differences that have historically characterized the area are again more easily perceived. The populations differ by language, religion, cultural heritage—even by alphabet. They also differ in their political and legal traditions. There is no reason to expect that those differences, which were not erased under the common experience of occupation, will disappear in the near future.
Second, political developments vary signficantly from one state to the next. In Prague, the current Minister of Finance is an avowed disciple of Milton Friedman; in Romania, by contrast, both polity and personnel mark a continuity between the old regime and the new. As one observer has commented, “the age of uniformity is over.” This is true of prospects for political liberalization as well as of prospects for economic development.
Third, conditions are still evolving, and retain at least a degree of fluidity. The volatility of the landscape at the moment not only makes it less useful to focus on current events (such as proposed or pending measures for policy reform), but also limits the ability to generalize about problems and opportunities.
Yet the diversity and fluidity of conditions in Eastern Europe today are in a sense also a boon to analysis, for they serve to emphasize two problems that are central to these societies’ prospects. Both derive from the region’s Soviet “interlude.”
The first and arguably most important obstacle to economic and political development is the pervasive institutional maladaptation wrought by Soviet rule. Such maladjustment, unfortunately, goes beyond even the irrational process of central economic planning and the cumbersome, expensive system of socialist management. For in the exercise of Communist power, the socialist rulers of Eastern Europe spent more than four decades destroying the institutional framework of a civil order in these countries. It was not only the framework of property rights, and individual rights, that came under assault, but the very rule of law itself.
The political implications of this are clear enough. Scarcely less important, though, are its economic implications. Economic historians are in general agreement that the rise of the Western world was directly and inextricably linked to the new institutional arrangements it developed, and perhaps none of those arrangements was more important than the framework of legal protections for individuals that included the right of enforceable private contracts. The populations of Eastern Europe have been separated from that framework for more than four decades. The majority have no memory of firsthand exposure to it, to say nothing of personal familiarity.
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This suggests that the institutional obstacles to Eastern Europe’s development are much greater than would seem to be implied by today’s intense discussions about, and proposals for, privatization of state-owned enterprises. To be sure, disendowing the states of the assets they have taken for themselves will be an immense task. Over the course of Margaret Thatcher’s eleven-year tenure as Prime Minister, the British government succeeded in transferring something less than 5 percent of the country’s output from government ownership back to private hands; in Eastern Europe, the privatizations now contemplated are greater by far. These are ambitious undertakings. But how much more ambitious by comparison will be the task of establishing a permanent, legitimate arrangement for the protection of individual rights and the enforcement of private contracts.
Institutional maladjustment is not the only enormous obstacle to development in Eastern Europe. Poland, Romania, Czechoslovakia, Hungary, Bulgaria, and East Germany are also beset by what might be described as a crisis of human capital. Perhaps the most telling evidence of that crisis has been the long-term deterioration of health conditions in both the USSR and its former satellites. The deterioration is represented very clearly in the local patterns of mortality. Between the mid-1960’s and the mid-1980’s, age-standardized death rates in the USSR and Soviet-occupied Europe actually rose. No other region of the world reported such a trend, and, in fact, no other industrial country has ever experienced such a general and long-term peacetime decline in public health. By the late 1980’s, Eastern Europe’s lowest death rates (East Germany) were substantially higher than Western Europe’s highest ones (Ireland), and also higher than those reported for such Latin American societies as Argentina, Chile, and even Mexico.
One need not posit a tight, mechanistic relationship between levels of health and levels of output to appreciate the significance of these facts. By its very nature, rising mortality imposes constraints upon the productive capacities of the societies affected. Moreover, because rising mortality trends are so anomalous in the modern era, they suggest the possibility that other, more poorly measured aspects of human capital may also have been affected.
Can American development assistance specifically assist in relieving these obstacles to development in Eastern Europe? It is very difficult to imagine how. AID has no comparative advantage in helping to build the foundations of a civil order. Nor was it designed for helping to arrest mortality increases in industrial societies, or even for contributing to the preservation and augmentation of human capital in such places.
What is true of AID’s limitations applies more generally to the entire field of development policy. A conventionally trained development economist may offer advice to a policy-maker on how to get prices right, or achieve balances in the macroeconomy, or devise realistic measures for stabilization. There is merit in such activities, but for societies that were forced to march down the perverted path of Soviet-style socialism, they are hardly central to the problems at hand.
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Overcoming the legacy of the immediate past is likely to require bold and fundamental departures from existing practices and arrangements in each of the countries of Eastern Europe. Respected local voices—Vaclav Klaus in Czechoslovakia, Janos Kornai in Hungary, Jan Winiecki in Poland, Ognian Pishev in Bulgaria, and many others—recognize as much, and urge immediate and decisive action. Such voices, indeed, offer the one cheering note in an otherwise thoroughly discouraging picture, for a number of the officials who will be receiving our development assistance may turn out to be wiser and braver than those dispensing it. Thus, in an address to a September 1990 meeting of the World Bank and the International Monetary Fund, Vaclav Klaus announced, “We know that there have been cases where major financial assistance caused the deceleration, not the acceleration, of the necessary systematic changes that we consider of the utmost importance.” Though these were simple words, they were telling—for the highest officials at the World Bank and the International Monetary Fund have been unable to utter them publicly.
To the contrary, after tens of billions of dollars wasted in loans for “policy reform” over the past decade, Western development-assistance policy-makers are once again in the midst of a debate about the proper “sequencing” of the “reforms” they envision. In its recent (1990) recommendations to Poland, the World Bank urged the Polish government against undue speed in privatization:
In recognition . . . of the fact that immediate privatization may not be advisable and/or feasible, the government needs to explore alternative forms of manager/ownership whose key objective would be to introduce greater competition and efficiency in resource use.
It spoke in favor of a similar caution toward capital markets:
It would be important to lay the groundwork for a future capital market . . . so that . . . [it] could start functioning when price and other adjustments allow for an improved valuation of capital stock.
It advised against a “ ‘one-shot’ approach [in which] all major adjustment measures would be implemented rapidly,” warning that “the costs of the approach need to be carefully considered.” Instead, it advocated as “most promising” a “third, intermediate approach” consisting of a “vigorous stabilization program complemented by an adjustment program phased over two to three years,” and presumably by privatizations at some later date. The report did, however, conclude that its proposed “measures need to be supported by substantial foreign assistance”; indeed, it implies that Poland should be a recipient of various forms of Western financial aid on into the 21st century.
In the face of such rarefied and even surreal deliberations, it is a relief to turn to the wisdom which seems so obvious to East European exponents of fast, radical transformation; namely, that the longer the transition to an independent, liberal order is delayed, the lower the ultimate chances of its success.
