Paradigms of Transition

Strictly speaking, there is no ‘theory’ of transition from a centrally planned system to a market system. In the late 1980s when change was imminent in the Eastern bloc countries (and was already underway in the East Asian countries of China and Vietnam) there was no theory of transition from plan to market that policy makers and supporters of reform could adopt. What evolved over time, in the period that has passed since then, are two different approaches to understanding the transition process from a centrally planned economy to a market-based economy. ¹ The conventional paradigm – which many policy makers did adopt – is, for want of a better title, the Washington Consensus approach to economic transition and the alternative paradigm is the institutional-evolutionary approach. We outline both viewpoints and their respective underlying conceptual framework in this chapter. ² As a prelude, we begin with the Washington Consensus.