Development and Underdevelopment in the History of Economic Thought

The road to institutionalism in development economics in the aftermath of the postsocialist transition : shift in the paradigm or new compromise ?

ERIC MAGNIN, Paris University

In the beginning of the nineties, most Central and Eastern European countries implemented transition programs in order to shift from the former socialist model to market economies. These programs were inspired by the Washington Consensus, a list of reforms proposed by John Williamson in 1990 and initially conceived to help Latin America solving its economic problems. With the support of the IMF and the World Bank, this set of measures, generally summarized by the triptych « stabilization-liberalization-privatization », became the main source of inspiration for development policies and was implemented in various countries, in Latin America, Sub-Saharian Africa and Central and Eastern Europe. Shock therapy programs exemplified the Washington Consensus adaptation to transition economies. In the years 1990 and 2000, negative effects, unintended and disappointing consequences of transition programs raised several questions related to the program’s rationale, especially to the underestimation of the role of institutions in economic dynamics and transformation. This gradual process of reconsideration of development and transition policies has led to a highlight with the publication of a World Bank report in 2005 entitled Economic growth in the 1990s : Learning from a Decade of Reform, which presented a critical assessment of the reforms inspired by the Washington Consensus and pointed out their institutional weakness. Hence it has contributed to a broader recognition of institutions and institutional change in economics. No doubt, "institutions matter" is a major lesson of the postsocialist transition experience. Is this new institutionalist consensus a good news ? Long-established institutionalist economist can only rejoice at this recognition of their approach. Still, it raises new questions : is this a real institutionalist renewal or a new compromise from the neoclassical paradigm ?


Keywords: Postsocialist transition - Development policies - Washington Consensus - Institutional economics