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Two Competing Concepts of Transition

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Abstract

Chapter 2 presents two different intellectual concepts of transition. On the surface, these concepts were initially identified with the debate about ‘shock-therapy versus gradualism’. However, the differences were deeper and rooted in different schools of economic thought. Behind the shock approach we find the so-called ‘Washington Consensus’, which dominated economic policy in transition countries for many years. This approach is based on liberalization, privatization and stabilization as cornerstones of the transition to a market economy. The contributors to this approach shared a deep belief in flexible prices, market transactions, and a minimalist state. The approach is contrasted with the ‘evolutionary-institutionalist’ concept, which emphasizes the role of informal institutions such as behavior and mindsets as well as formal institutions such as the rule of law. This approach takes into account that institution building is a time-consuming process, in particular when some institutions such as those of the financial sector within the transition countries have to be created from scratch.

Keywords

  • Corporate Governance
  • Central Bank
  • Money Supply
  • Economic Transition
  • Excess Demand

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© 2006 Hubert Gabrisch and Jens Hölscher

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Gabrisch, H., Hölscher, J. (2006). Two Competing Concepts of Transition. In: The Successes and Failures of Economic Transition. Palgrave Macmillan, London. https://doi.org/10.1057/9780230626584_3

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