Sunday, February 5, 2012

OK N Korea

You have to read this OK, so this is credible sources of information  how to change and what happens when change start as: ANDREI SHLEIFER: SEVEN LESSONS LEARNED FROM WATCHING THE TRANSITION FROM COMMUNISM TO CAPITALISM - from Brad De Long  : 

Seven things I learned about the transition from communism: First, in all countries in Eastern Europe and the former Soviet Union, economic activity shrunk at the beginning of transition, in some very sharply.  In many countries, economic decline started earlier, but still continued. In Russia, the steepness and the length of the decline (almost a decade) was a big surprise. Countries with the biggest trade shocks (such as Poland and Czechoslovakia) experienced the mildest declines. To be sure, the true declines were considerably milder than what was officially recorded… but this does not take away from the basic fact that declines occurred and were surprising. These declines contradicted at least the simple economic theory that a move to free prices should immediately improve resource allocation. The main lesson of this experience is for reformers not to count on an immediate return to growth. Economic transformation takes time.
Second, the decline was not permanent. Following these declines, recovery and rapid growth occurred nearly everywhere. Over 20 years, living standards in most transition countries have increased substantially for most people…. [C]apitalism worked and living standards improved enormously…. [But] for a time things looked glum. So lesson learned: have faith – capitalism really does work.
Third, the declines in output nowhere led to populist revolts – as many economists had feared…. Instead of populism, politics in many countries came to be dominated by new economic elites, the so-called oligarchs, who combined wealth with substantial political influence. From the perspective of 1992, this came as a huge surprise…. [T]the lesson is clear: a reformer should fear… capture of politics by the new elites.
Fourth, economists and reformers overstated both their ability to sequence reforms, and the importance of particular tactical choices…. Politics and competence frequently intervened and dictated to a large extent most of the tactical choices. Still, most countries, despite different choices, ended up with largely similar outcomes (notable and sad exceptions are Belarus, Uzbekistan, and Turkmenistan)… privatisation and macroeconomic stabilisation as well as legal and institutional reform…. Lesson learned: do not over-plan the move to markets, but, more importantly, do not delay in the hope of having a tidier reform later.
Fifth, economists have greatly exaggerated the benefits of incentives by themselves, without changes in people…. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives….
Sixth, it is important not to overestimate the long-run consequences of macroeconomic crises…. Debt restructurings do not necessarily make permanent scars. This experience bears a profound lesson for reformers, who are always intimidated by the international financial community: do not panic about crises; they blow over fast.
Seventh, it is much easier to forecast economic than political evolution. Although nearly all transition countries have eventually converged to some form of capitalism, there has been a broader range of political experiences, from full democracies, to primitive dictatorships, to just about everything in between… middle-income countries eventually slouch toward democracy, but not nearly in as direct or consistent a way as they move toward capitalism.