A Reaction Paper Based on Chapter 10 in the Book Transition Economies: Political Economy in Russia Eastern Europe and Central Asia

A Reaction Paper Based on Chapter 10 in the Book Transition Economies: Political economy in Russia Eastern Europe and Central Asia

This chapter is called welfare states and regimes, and it discusses more thoroughly the different policies and ways the transition countries used in order to implement welfare regimes. During the communist rule the welfare system consisted of services that were connected to the workplace, and since there was full employment during the communist rule that means everyone had access to the social welfare. So it is not very surprising that when the countries tried to reform their economy the result was increasing unemployment, poverty and inequality. Few countries adjusted their welfare systems in order to adapt to the new economic system. As in the previous chapters there are large differences between the CEEC and the CIS. In the CIS the countries used real –wage reductions and wage arrears in order to adjust to the new economic situation, something that led to less unemployment than in the CEEC. The CEEC on the other hand tried to adjust to the new economic system through employment shedding. They tried to build welfare institutions similar to those in Western Europe. In the table 10.1 you see the poverty rates of all the transition countries, here we see a trend that has so far been consistent throughout the book, the CIS are doing worse than the CEEC.

The reasons for that are many, in the previous chapters the CEEC have been more willing to reform than the CIS. We saw it for instance in the changes of leadership, the CEEC changed leaders or ideology completely while the CIS continued with the old system and the old elites. A more clear example that help explain many of the other differences between the country groups is the different economic policies the groups used in order to try and implement market economy. The CEEC used shock therapy and tried to reform more quickly, while the CIS used more gradual reform and transformed a lot slower. The same trend is to be seen in this chapter, the CEEC form a new system and the CIS stick with their old one. I believe the trend is the way it is because when you have chosen one way to reform that is how everything will be reformed. If you chose to reform more gradual everything will be reformed gradually. Especially because the economic system is the most important thing to reform, in my opinion everything else depends on that. If the reformation goes badly as it did in the CIS the economic depression will be worse, meaning that you will have less money and resources to spend on welfare.

Chapter 9 discusses public spending and how the different countries preformed in that aspect. The results are the same in this chapter all countries seemed to have been confused as to which system they should try and implement and none of the countries did very well compared to the Western European countries. I am surprised that the authors have two chapters explaining something that to me seems to be the same thing. If the countries cannot find a way to use public spending effectively how should it be able to finance a welfare system? The only countries that managed to get their GDP higher in 2000 compared to 1989 where five of the CEEC countries , I think this proves how hard it must have been to create a functioning welfare system when you are struggling not to get too poor.

A part of the welfare system that this chapter discusses a bit more thoroughly is the pension system. 15 countries implemented a partially privatized pensions system, influences by the three pillar system. The three pillar system is means three different parts, first state provided benefits such as a house, second mandatory pension savings in private individual accounts and third voluntary funded individual or occupational pension. This system is strongly criticized by the authors as it is very expensive to implement this system, the change is system and the administrative costs are high, if leaders are corrupted they may try and control the pension system even if it is private and individuals will be too dependent on the stock market. I understand the criticism the authors address to the three pillar system, but I find it hard to believe that there can be no positive outcomes of this system. Surly having some sort of pensions system must be better than not having one at all. The previous system meant that the government had to pay the pension and giving the deep depression that many of the countries suffered from I would find it highly unlikely that they could afford to finance a pension system. In the previous chapters it is discussed how little public spending the transition countries did, something I believe is mostly due to lack of financial resources. I understand the criticism that it would be expensive to go from one system from another but if you do not have a system and the government cannot afford to spend money on pension I do not see why it would be wrong to try and trust the market to finance the system. If I interpret the authors correctly they seem to be in favour of a state financed pension system, however as I mentioned earlier how could a state that has no organised public spending on human capital perhaps the most important thing in a welfare system be able to finance a pension system. As investment in education leads to higher productivity and effectively and thus a higher educated population would then lead to a higher GDP level. Further proof of the failed public spending is that all countries struggled with falling GDP levels something that would imply that the states would simply not be able to finance a welfare system. I find it strange how you can criticise a system without taking in all the aspects of why the particular system was used and without mentioning what other optins that would have been better.

Regardless of which system that the transition countries used, no country with the exception of Slovenia came close to the standards of Western Europe. It seems as if all the countries tried different policies and different ways to try and implement welfare regimes. Some tried to reform completely and some tried to make the old system work, I believe the different strategies that the different countries used depend a lot on which resources the different countries had. For instance as I have already argued the CEEC did not go into an equally deep depression as the CIS did, meaning that they had more money to use on welfare systems. Another important aspect is the closeness to Western Europe, most of the CEE countries are neighbouring a country from Western Europe which in my opinion makes it easier to get help and advice on how to improve the welfare system. As I mentioned earlier only five of the former countries in the Soviet Union managed to get a higher GDP in 2000, these five countries you can say are the ones that have performed best throughout the entire transition period and they are all part of the European Union which means they have an advantage compared to the other countries.
In this chapter the authors try to explain the welfare systems in the transition countries. Although I find the topic interesting I cannot say I find the chapter very interesting. There are a lot of facts on different systems the countries pursued and could have pursued, however I find it hard to distinguish which country that did what and if it worked. I find the text ill structured. I would have preferred the authors to first state the policies the countries pursued and how successful they were, before discussing potential policies they could have implemented. I would also have liked it if the authors offered a solution or a system that they think the transition countries should have tried to implement. As it is now they only criticise the way all the countries failed without offering any real explanations as to why they failed and what they should have done instead.