Journal of Comparative Economics29, 566–568 (2001)doi:10.1006/jcec.2001.1723, available online at http://www.idealibrary.com on

BOOK REVIEWS

Gerard Roland,Transition and Economics: Politics, Markets, and Firms.Cam-bridge, MA: MIT Press, 2000. xxix+ 400 pp., index, $45.00.

Is gradualism or shock therapy the superior approach toward tackling the manyproblems on the route to a successful transition process? This question has occupiedeconomists and policymakers of and in formerly communist countries for thepast decades. G´erard Roland has certainly taken sides in this debate, arguing thatgradual reforms deserve merit for taking inter alia the political constraints to asuccessful reform process into account. Hence, the reader might expect that hisbookTransition and Economicsis mainly a defense of his position in the oftentimesheated debate on the issue. Yet, the book is certainly much more. It provides adetailed account of the political economy of the transition process, addressingthe complex and oftentimes opaque interplay among governments, markets, andfirms. It is a book rich in formal models that help to explain these linkages and thuscarries potentially important implications for nontransition economies as well. AsRoland points out, “transition is history in the making and. . . can be seen as asubfield of economic development with specific initial conditions” (p. xxvi).

Divided into 13 chapters and three parts, the book argues that political constraintsmust be taken into account when defining a reform strategy (Part 1), identifies theallocative changes that reforms bring about, focusing in particular on the mecha-nisms of dual-track price liberalization (Part 2), and develops the changes in gover-nance that are necessary to render the transition process successful. Governance isunderstood in a comprehensive way to capture not only the corporate governanceissues at the firm level but also those that arise within government bureaucracies.In each chapter and in the first chapter for the book as a whole, Roland providesa brief overview of the stylized facts on reform measures and the sequencing ofreforms in different countries. In addition, he makes reference to empirical evi-dence on the issues at the end of some chapters. However, the book has a cleartheoretical focus.

Regarding the general outline of the book, it is clearly structured and wellwritten and contains a host of interesting information. Roland provides an almostcomprehensive overview of models that describe the transition process from apolitical economy and industrial economics perspective, citing both his own work

5660147-5967/01 $35.00Copyright C© 2001 by Academic PressAll rights of reproduction in any form reserved.

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and research by others. Each model is outlined in a detailed way so that thereader can grasp its message without referring back to the original reference. Insome instances, however, it would have been desirable to have more backgroundinformation about the links between the various models and, in particular, about thepotentially testable implications that could then be used to discriminate betweenthe predictions of these models. However, a number of the issues that Rolandaddresses, such as the incentive systems in governments, do not lend themselveseasily to empirical research. Furthermore, in the special cases of the transitioneconomies, statistical systems have been overhauled and it is sometimes difficultto obtain data on the standard economic time series.

Having been relatively cautious with regard to drawing concrete policy con-clusions throughout the book, Roland takes a chapter at the end of the book tocontrast the Washington Consensus with the evolutionary–institutionalist perspec-tive. Broadly speaking, the first view emphasizes pushing through entire reformpackages early on in order to generate reform momentum and reduce the possibi-lity of a reversion of reforms. The second perspective takes a more optimistic viewtoward gradual, sequenced reforms. At the risk of oversimplifying, the two ap-proaches could be labeled shock therapy and gradualism. According to the author,the Washington Consensus shaped reforms in the transition economies of Centraland Eastern Europe and Russia, while the more gradualistic approach has beenfollowed in China (p. 335).

Roland’s main point is that the “evolutionary–institutionalist perspective is morecomplete and adequate than the Washington consensus” (p. 343) and that there is agrowing convergence toward the former. Whether one would label this process as aconvergence toward the gradualistic approach or rather a blending of the two mightbe only a matter of taste. A lot of time has been spent in defining and redefiningdifferent reform strategies and facts have often been created in the meantime. Yet,in the context of this debate, two issues seem to be worth mentioning. First, some ofthe perceived simplicity of the Washington Consensus might be due to the fact that,at the start of the transition, pressure for reform was building in some countries,time was running short, and priorities had to be set. Many of the sequencing issuesthat should have been observed have become known only with hindsight, as Rolandhimself notes several times throughout his book. Second, comparing the cases ofRussia and China and attributing each to one of the different camps might seem rea-sonable but it misses the point that these two countries differ vastly in terms of theircultural background, their history, and their geopolitical situation. While Russiahad to suffer a loss in geopolitical power throughout the transition, as Roland noteson p. 338 as a main distinguishing factor in comparison to Central Europe, no suchloss of face occurred in China. This is not to say that this fact actually explains thedifferences in performance. Rather, it shows the difficulties of evaluating differentreform approaches on the basis of the experiences of two rather unique countries.

As is often the case, one of the strengths of this book, namely its rigor in present-ing the theoretical models and its strictly analytical approach toward the issues, is

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also one of its main shortcomings. The book is certainly not a reference source forreaders interested in an overview of the institutional changes that have taken placein the transition economies or for the growing empirical literature on the reformprocess. In this sense, the title of the volume,Transition and Economics: Politics,Markets, and Firms, might be a bit misleading since it creates the expectation ofa broader, less focused approach. Considering the length of the volume and thematerial that it contains already, it would not have been possible to go into muchmore detail concerning the empirical work. However, it should at least be notedthat implementing the sequencing approach that is being advocated may requirerelatively precise knowledge about the state of an economy. Ultimately, it is onlyempirical work that can provide such information. The book certainly delivers anexcellent tool kit for understanding the many issues that are at stake during thetransition process and the political constraints that must be taken into account inorder to define reforms comprehensively and to tailor them to the specific needsof various countries.

Claudia M. BuchKiel Institute of World Economics24105 Kiel, Germany

Published online August 6, 2001