Malaysia – A Crisis of Norms and Institutions (2)

Institutional Change: Natura Non Facit Saltum?

Point to ponder today – from Dani’s latest blog entry:

Oligarchic capitalism in one country

Something funny happened to Russia on its way from socialism to capitalism. A bunch of politically-connected "oligarchs" managed to subvert the process while making themselves hyper-rich. In a fascinating paper, Serguey Braguinsky asks “whether oligarchic capitalism represents a transition stage that will eventually lead to a true market economy and political democracy, or whether it is a blind alley that can only lead to another inefficient socioeconomic system." He is not optimistic. A major contribution of the paper is its database of almost 300 oligarchs covering a period of ten years. Among its conclusions: the newer generation of oligarchs, who had little connections to the old nomenklatura system and who could have produced a true entrepreneurial class, ended up engaging in rent-seeking and asset-stripping instead, becoming virtually indistinguishable from the old kind.

And from the paper itself:

At least since Alfred Marshall put the famous epigraph Natura non facit saltum on the title page of his Principles of Economics… economists have realised that institutional change is a continuous and incremental process…

…

The study of the actual process of transition from communism to “oligarchic capitalism” is important because it contains valuable lessons about the interaction between economic reform and institutional environment that need to be better incorporated into economic analysis. The communist ideology and the planned economy were widely viewed as the greatest obstacles to normal economic development based on private property and market prices. Once those obstacles had been removed, economists saw good reason to predict a smooth transition to a market economy, followed by sustained economic growth.

…

The “big” question… is whether oligarchic capitalism represents a transition stage that will eventually lead to a true market economy and political democracy, or whether it is a blind alley that can only lead to another inefficient socioeconomic system. Our own conclusion is that at this moment, there are more reasons to be pessimistic than optimistic…

…

The process of institutional transformation has demonstrated once again that it is impervious to rapid changes.

Elanor

(Emphases added)