Transformation of Economy as a Real Process

With a view from the inside, Daniel Daianu, presently Minister of Finance in Romania, provides an assessment of transformation pains and challenges for both the economies and the policy-making of transition. While macroeconomic stabilization is often seen as the engine of transformation, Daianu focuses on the interrelation between stabilization and structural policies and on the difficulty for policy makers - who are part of the structural environment - of gearing the institutions to adjust to the requirements of transition to market. What matters is not only institutional change per se, but its timing, quality, and sustainability which are confronted by social strains and in some countries, highly unfavourable legacies such as institutional backwardness. Countries unable to manage a comprehensive and balanced programme of transition to market, may find themselves caught up on an unfavourable and hard-to-break-away-from path of dependency. Backlashes are possible. There is a need for a vision among policy leaders and for powerful policy anchors, for example those provided by prospects of integration to more advanced institutional association such as the European Union and NATO.

First published in 1998, this volume is a contribution to the economic analysis of post-communist transformation in an evolutionary-institutionalist approach. First published in 1998, this volume is a contribution to the economic analysis of post-communist transformation in an evolutionary-institutionalist approach. The author shows convincingly the role of path dependency, of the ways history matters for the success of otherwise sound policies, and highlights structural hindrances to fast and successful transformation. Thence emerges the key concept of strain. The book addresses the question of how to create conditions for sustainable development in societies where these are lacking, and stresses the importance of institutional change. It also emphasises the role of sound banking institutions and proper regulations, the crucial issue of financial vulnerability and fragility, the role of reputation, means to fight non-payments, limit to optimal policies, etc. The author covers a broad international literature and relates it to his insights as a local observer, which delivers an interesting reading.