Conventional models of the politics of economic reform tend to be based on an assumption about the costs and benefits of reform, known informally as the J-curve. Reforms are expected to make things worse before they get better. This presents a classic time inconsistency dilemma for reformist governments forced to demand severe sacrifices from the public in the short term for the mere promise of future gains. In response, political economy models of the reform process have tended to stress the importance of insulating governments from the pressures of the short-term losers until a sufficient constituency of winners has been created with a stake in supporting and enhancing the reforms.
Based on evidence from the postcommunist transitions, this article suggests that the most serious political obstacles to the process of economic reform have come not from the short-term losers but from the shortterm winners. Groups that gain substantial rents from the early distortions of a partially reformed economy have a stake in maintaining a partial reform equilibrium that generates high private gains, but at a considerable social cost. In these countries, the main political challenge has been, not to marginalize the losers, but to restrain the winners. This explains the paradoxical outcome of the postcommunist transitions: that political systems which are more inclusive of the losers have been able to adopt and sustain more comprehensive economic reforms than states insulated from popular pressures.
Joel S. Hellman is currently Political Counsellor at the European Bank for Reconstruction and Development.
* The work leading to this paper was supported from funds provided by the National Council for Soviet and East European Research and the Kennan Institute for Advanced Russian Studies, which, however, are not responsible for its contents or findings. This paper was originally presented at the 1996 annual meeting of the American Association for the Advancement of Slavic Studies and the 1997 annual meeting of the American Political Science Association. I would like to thank the participants in those meetings for their very helpful comments, as well as seminar participants at Harvard University and St. Antony's College, Oxford. The views expressed here do not represent those of the European Bank for Reconstruction and Development.