Comments on: Developing a perspective on transition economies as complex systems

By: Ping Chen, National School of Development, Peking University and China Institute, Fudan University, Shanghai

Wed, 29 Nov 2017 23:16:05 +0000

Mano opened an important field of transition economies to complexity economics. As I observed, transition experiments can serve the testing ground of competing schools in economics.
First lesson, the Arrow-Debru model of general equilibrium predicted a stable and unique equilibrium based on private exchange economy, but shock therapy guided by western mainstream economics failed greatly during transition economies. Why? Because neoclassical model assume fixed products with INFINITE product life, but in reality, LIFE CYCLE of infrastructure investment is much longer than agriculture product. That is why China’s DUAL-TRACK approach in market reform have better innovation and stability than East European and former Soviet Union countries adopted the liberalization policy of shock therapy.
Second lesson, neoclassical model of optimization is a closed system without uncertainty and history. However, open market is exposed to tremendous uncertainty and unequal competition. China’s special economic zone (SEZ) succeeded by SELECTIVE OPENING with FIRE WALL that provides a window opportunity for domestic firms in learning and adaption, while unilateral open market of East Europe under IMF directive suffered greatly from asymmetric opening and unequal competition.
Third lesson, HISTORY MATTERS in policy decision. For example, China and Poland were more prudent during transition state, since they had historical lessons in high inflation, while Russia and Ukraine had no similar experiences. That is why China and Poland leaders were more pragmatic in monetary and privatization policy than other transition economies.
Transition economies provided a good example about the complexity thinking in economic policy without mathematical modeling.
The critical lessons here are not abstract idea of evolution and complexity, but trade-off between complexity and stability,
and essential difference between open system with unpredictable uncertainty under historical trajectory (characterized by NON-EQUILIBRIUM or MULTIPLE EQUILIBRIUM) and close system with predictable risk (say, ergotic movements with Gaussian distribution), which can be characterized by UNIQUE & STABLE EQUILIBRIUM.
That is why complexity economics more like a physician, who should examine the patient first, then provide specific diagnosis. Every patient is different in their structure and history. There is no such thing of one recipe (liberalization or privatization) could cure all disease. See: Ping Chen, “Market Instability and Economic Complexity: Theoretical Lessons from Transition Experiments”, in Yao and Yueh, Globalization and Economic Growth in China, World Scientific, Singapore (2006); Ping Chen, Economic Complexity and Equilibrium Illusion, Rutledge (2010).

By: Bilousova O.

Bilousova O. — Wed, 25 Oct 2017 08:39:53 +0000

Excellent Paper.
The conclusions by Dr. V. Mano – ” non-linear interactions of agents cause random and unpredictable effects on the macroeconomic stability and growth of the country ” – are also valid for Ukraine. An example of this is the results of voucher privatization of state property (1995-1998). It was found out that the mass voucher privatization performed within a short period of time had negatively affected the financial provision of enterprises’ modernization and the investment potential as a whole.
For Ukraine, the theory of complexity should be applied when carrying out economic reforms and transformation of the financial interaction between the state and enterprises.

By: Bonokai G. B. GOULD, ChE

Bonokai G. B. GOULD, ChE — Tue, 17 Oct 2017 11:13:29 +0000

It is hard times that we acknowledge the variance taking place in the macroeconomic environment thus making mainstream economic theory unreliable to solve some of the many problems in the economy. Fresh memories is manifested in the Global Financial Crisis when the transition mechanism fail to be a reality by just using interest rate to stimulate demand to get economies out of recession did not work, thus the discovery of quantitative easing. Developing a perspective on transition economies as complex systems could be another step forward to address changes in the economic space and maintain macroeconomic growth and stability.

By: Henry de-Graft Acquah

Henry de-Graft Acquah — Fri, 06 Oct 2017 00:55:51 +0000

Excellent Paper. Bringing complexity theory into development economics and policy research should be the way forward.