The Study Of Post-Keynesian Transitional Theory And Its Development

Transitional economy is the transformation of the traditional planned economy to the market economy happened in. the late20th century in some countries in the world. Basing on the neo-classical economic theory, the western mainstream economists put forward their proposition on how to implement such a system change that it is the complete replacement of the traditional planned ecomomy with the free market economy that makes the transition be successful. Therefore, the transitional countries should establish a new set of rules of the game rapidly and comprehensively, that is, to achieve rapid privatization, marketization, and liberalization, which is the so-called "Washington Consensus", The main contents of the Consensus include ten reforms, which are fiscal discipline, reordering public expenditure priorities, tax reform, liberalizing interest rates, a competitive exchange rate, trade liberalization, liberalization of inward foreign direct investment, privatization, abolition of regulations, and securing property rights. The reform mode is also known as the "shock therapy" when these ten reforms are put into practice. And later "Post-Washington Consensus" is proposed according to the new situation in reform by some other scholars. Though it stresses the importance of the establishment of key organizations and institutions and the enhancement of the quality of institutions in the whole process of institutional change, it is still not divorced from the basic principles and policy trends of the neo-classical economics.In the early1990s, developing countries in Latin America, Central and Eastern Europe (CEE) and the former Soviet Union (CIS) followed the "shock therapy" implemented in Bolivia by Jeffrey Sachs. According to Washington Consensus, they carried out a wide range of economic reforms and transition practices including financial and trade liberalization, as well as large-scale privatization of state-owned enterprises, but did not succeed. Most of Russia, Eastern Europe and other countries fell into severe recession, a sharp decline in output, a substantial increase in the unemployment rate, the rapid increase in the rate of inflation, significant currency depreciation, the huge current account deficit, and even corruption, mafia economy. The performance of radical reform made people disappointed, which also caused a rethink of transitional economy by other non-mainstream economists. New Keynesian school, evolutionary economics, new institutionism generally criticized neoclassical or neo-liberal "Washington Consensus", and discussed the process of institutional change, studied the reform strategies and policies to deal with the contradictions and problems that may arise in the process of transition.As an important non-mainstream school, Post-Keynesian economists sticking to the classical economics tradition, opposing the neo-classical equilibrium analysis, have made theoretical achievements on a series of micro and macroeconomic theory different from the mainstream, and thus had a significant impact in Western Economics. In recent years, they also carried out scientific research on transitional theories. Sticking to their acadimic position of anti-marginal, anti-equilibirium, and anti-liberal, they criticized the popular neo-classical transitional theory and policy basing on their economic concepts and methodology, and at the same time they analyzed transitional theories and policies to their own characteristics according to the practice of the transition economy countries. Post-Keynesian transitional theory emphasized the dynamics of transition process, the limits of the market mechanism, the necessity of government’s intervention, the importance of a sound legal system, as well as the influence of historical and cultural environment on system change, and so on, and explored the solutions to keep sustainable economic development, to reduce the cost of economic transition, to alleviate the institutional friction, and to benefit the public from reform. Therefore, Post-Keynesian transition theory and policy has made methodological innovation, which is beyond the framework of mainstream transition theory and enrich the system of the Transition Economics. It helps us to deepen our understanding on the institutional change and thus to develop our transition economics, and also it promotes the development of the whole economics to the direction of non-equalization and dynamic beyong the neoclassical paradigm.The study of Post-Keynesian transition theory and policy also has important practical significance and application value. Since the reform and opening up, China has been in the process of institutional transition and change. Although significant progress has been made, realistically speaking, our task of institutional transition is not completed, especially with the deepening of structural reform, the various inherent unstable factors such as contradictions and conflicts being increasingly demonstrated, for example, the disorder and confusions in society due to the absence of the "rules of the game" in market operation, the loss of public assets caused by the shortage of norms in the process of property right change, the coexistance of government’s "negative act" and "abuse of power" resulted from the incompleteness of the legal system and the supervision, and so on. The fundamental reason for these contradictions and problems is the "system vacancy" in the process of institutional transition. On the one hand, the original plan mechanism and constraint is liberalized, on the other hand, the perfect alternative mechanism is not really set up, so the allocation of the social and economic resources is largely determined by the traditional planning system residual factors with the blind market system factors without rules. So the "system vacancy" obviously lies in that our understanding of the theory of institutional change is not deep enough, and that the policy design is not scient enough. The experience of "feeling the stones" is not a substitute for a systematic, comprehensive reform policy, and cannot be a long-term strategy to be followed. We should intensively study transition theory and policy by other non-mainstream economics, especially the post-Keynesianism basing on a broad view, learning how they develop and implement scient policies of institutional change, how they effectively control over the process of institutional change, how they reduce the uncertainty of the transition process, and how they achieve the objectives of the reform with the lowest costs. And then these policies can be applied to adjust and improve our transition policies and measures and enrich us in the analysis of a variety of complex issues in China’s transition.The purposes of this dissertation is to relect the Post Keynesian transition economic thought by reading extensive literature about transition theory and policy, and try to refine a transition theoretical framework with logic and historical consistency according to Post-Keynesian traditions, and analyze the fundamental differences between this framework and that of neoclassical mainsteam framework, eventually clarify the relevance and meaning for reference. Basing on this idea, this dissertation is divided into seven chapters, and the structure is as follows:Chapter One is introduction, presenting the research issue and significance, showing the main contents and framework.Chapter Two briefly introduces the basic knowledge on transition economy, including the definition of the meanings and scopes of transition and transition economy, the summary of initial state of transition economy through a comparative analysis of different transition countries, the introduction of the transition objectives in common and different transtion modes taken by different countries, and the preliminary results as well, all of which establish the cognitive basis for later theoretical analysis.Chapter Three reviews the evolution of transition economy. Basing on reading the classical books and literature fully, it analyzes the transition theories of the dominant neoclassical mainstream and non-mainstream economics with their key points, which consolidates the theoretical background and broadens research view for analyzing the transition theory of Post Keynesian Economics.Chapter Four focuses on discussing and refining the transition economics of Post Keynesianism. Post Keynesian economists develop their research on transition theory through their debates with mainstream economists, and the debates are mainly reflected in the criticism of the popular neo-classical transition mode "Washington consensus". Post Keynesian economists deny the propositions and recommendations of neo-classical transition mode in the aspects of theoretical basis and policy implementation, and question the rationality the "Washington consensus" according to transition practice in different countries through empirical analysis. In the process of analyzing and criticizing the neo-classical transition theory and policy, Post Keynesian transition theory clearly reflects the important characteristics different from the neo-classical theory. As to methodology, it adheres to the usual dynamic and the uncertainty principle; as to value, it seeks freedom and democracy, with the proposition of the transition objective to build a civilized democratic capitalist system. For the theoretical basis and policy implications, Post Keynesians also try to make a clean break with neo-classical.Post Keynesian economists are committed to the construction of a new transition theory system. Combined with the specific factors of transition, they establish a framework by using normative analysis, which is in order to achieve a successful transition, we should first define transition objective, especially stressing the importance of political structure, ideology and initial conditions, then compare the existed reality with the objective to find the gap between them, and then design a blueprint for change with the specific policies to complete the transition process. To transition program, they advocate gradual transition and the appropriate sequence of the various reform measures, stressing the match of legal, social, political and economic institutional arrangements. While to the process of transition, they emphasize the importance of institution building.Chapter Five deals with the Keynesians institutional transition process with concrete operational thought. They advocate gradual price liberalization, and the government should build buffer stocks of essential commodities to prevent inflation; they advocate gradual and orderly privatization, and the government should strengthen the regulation of privatization; also they emphasize the coordination of political and economic reform, and the transformation of government functions with strengthening economic macro-control functions; they claim that full employment is their important objective to achieve, and income equality as well; they also show that the trade should be appropriately protected, in order to promote the foreign trade to develop scientifically and rationally; besides, they also concern about the development of banks, and suggest that to increase the public’s trust can help the establishment of market-oriented commercial banking system; and so on. They also reinterpret the emergence of the unofficial economy in transition countries, with particular emphasis on the impact of the income distribution on the scale of unofficial economy. Moreover, they re-examine the basic uncertainty and transition uncertainty existing in the transition economies, with their impact on investment and hence economic growth, and they suggest that the government should design comprehensive policies on a scientific basis, for weakening the uncertainty in the process of transition, and to control and promote the process of institutional change, thus to drive the development of the national economy as a whole.Chapter Six analyzes the practical problems of economic transition in China in light of Post Keynesian transition economic theory, and discusses the the relevance of the transitional policies, with the aim of promoting the deepening of China’s reform,Chapter Seven concludes the whole dissertation, and point out the further research directions.The main work and research contributions of this dissertation are as follows:First, systemically review the latest literature on Post Keynesian transition economics, and form an integrated framework reflecting the traditions of Post Keynesian Economics. So far, domestic research in this field limit in the theoretical framework of mainstream and other non-mainstream, such as new Keynesian, institutional economics, and evolutionary economics and so on, lack of systemic understanding on Post Keynesian transition theory. This dissertation reviews post keynesian literatures on transition theory, and proposes an integrated and systemic framework. On one hand, it leads us to understand the frontiers of transition economics well and help us expand our horizons, absorb useful research achievement, and make some contribution to the development of China’s transition theory; on the other hand, it offers a new perspective to interprete some problems in transition countries, and makes the theory richer.Second, this dissertation seeks to explain the economic institutional transition from a new perspective of the dynamic, unequlibrium, and uncertainty, and establishes a new theoretical framework of institutional change including political structure, ideology and initial conditions, which reveals that the transition from planned economy to market economy is not only the change in resource allocation, but also a historical process of profound changes in all aspects of economic, political, and cultural. It makes the research on transition economy more comprehensive and integrated.Third, it reinterpretes the transition of China basing on Post Keynesian transition theory and policy, and discusses to construct the transition economics with Chinese characteristics. Meanwhile, it studies the important problems happened in China’s reform and opening up, and develops policies and measures according to the reality by applying the new theories to help to solve various problems in reforms.