The following is excerpted from The Quest for Prosperity: How Developing Countries Can Take Off by Justin Yifu Lin. Lin, was until quite recently, the chief economist of the World Bank (2008-2012) -- and probably the first western-trained economist to serve a leadership role in the People’s Republic of China. Oh, did I neglect to mention his dramatic past?
Lin was born in Taiwan and while serving in the Republic of China’s army as a captain in 1979, defected to mainland China just as Deng Xiaoping was opening the country to capitalism. Received warmly, he rose quickly in academic ranks. He later studied in the United States (University of Chicago, Yale) where he was rejoined by his wife and children whom he’d left behind in Taiwan. Lin is the founding director of the China Centre for Economic Research and Beijing University.
The new book is especially interesting because it outlines a hybrid “structuralist” approach to the transition from planning to free markets. Perhaps not surprisingly, Lin contrasts the structuralism with both the “shock therapy” approach (that largely worked in Poland, but failed miserably in Yeltin’s Russia) and the neo-liberal Washington Consensus (stabilize prices, get market incentives right, privatize) that has a mixed record in developing countries.
You can read Lin’s book as a fine economist’s analysis of the growing pains of developing countries. Or you can read it as the product of China’s own pragmatic turn to capitalism. Actually, I’d suggest both. -- Peter Passell
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Big Bang or Gradualism?
A crucial issue in economic transition has been the choice of strategies for sequencing reforms. Two broad options -- each with some nuances -- have been implemented by Eastern European and Asian countries in the move from plan to market: the Big Bang, or “shock therapy,” and the gradualist approach.
Proponents of the Big Bang wanted to eliminate government distortions in socialist and developing countries, setting up well-functioning market systems in their place as soon as possible. They expected that market competition and quick privatization of state-owned enterprises would increase efficiency.
Post-communist leaders in Poland were among the most vocal proponents of that approach. When Jeffrey Sachs (then an economics professor at Harvard) was invited to advise the reformist movement Solidarity in 1989, he was told: Give us the outline that you see fit, but make it a program of rapid and comprehensive change. And please, start the outline with the words: "With this program, Poland will jump to the market economy."