Latvia’s Transformation Strategy

Abstract

Within a general framework of systemic economic changes, three types of changes can be discerned:

• 1. Sectoral economic reforms. Sectoral economic reforms affect specific branches of economic activity or particular domains of economic policy. These reforms are usually named after the sector to which they are related (e.g. monetary, financial, fiscal). Sectoral reforms ensure a gradual, smooth adjustment to technological and other environmental changes as well as the assimilation of experience from foreign countries.

• 2. Comprehensive economic reforms. When a country fails to undertake timely necessary sectoral reforms, when it neglects its external or internal imbalances or when non-economic considerations extend so far that the economy cannot be put in order by usual means, a comprehensive economic reform must be undertaken. Although it contains changes in a number of domains, it alters neither the foundations nor the general logic of the given economic system. By redistributing the economic power, it usually reduces the impact of non-economic forces and opens greater room for the operation of market forces.

• 3. Alterations of economic systems. Both of the above-mentioned changes in economic systems are evolutionary changes, whereas a replacement of an economic system is a revolutionary process. When a number of changes as well as their character are so drastic that the very foundations and the general logic of an economic system are reversed, an alternation of that system is taking place. In this last case, one can speak of a transition from one system to another. A replacement can bear different meanings in disparate historical situations. As in the case of postcommunist transitions, an economic system may become outdated in the face of technological and social developments and appear inefficient in terms of performance criteria. As a consequence, it is superseded by another system which is assumed to be superior to it.¹