some time ago I was in Vietnam and I met an important young businessman who was there with his son who was 10 years old he was a very wealthy businessman and he arrived driving an old motorbike and we were sitting in a cafe and I asked him why he was not driving his at BMW and I knew he had one and he said to me the reason is that I was born poor and I strongly wanted to improve my con on the condition he find my son realizes that we are wealthy he will not have any intention to become wealthier when he's grown up I found that funny and I rolled it over in my mind in terms of economic incentives and I realized gradually that it's a matter again of values and probably in an open and democratic society it would be virtually impossible to deceive a 10 year old guy about the economic conditions of his family so that was good reason for me to think about economies in transition and wealth or rather economies in transition democracy and development today we're going to address this topic with one of the most famous well the corner economists that focus their studies on economic transitions and transitions between political systems and changes in values to along his Belgian he is a professor of economics and political sciences at Berkeley University is the author of the only book existing in the world as far as I know that addresses scientifically these phenomena of economic and political transitions the English title or the book I'm going to read to make sure that I won't mispronounce it is transition and economics politics markets and firms professor hala was also the head of the transition programs of the Center for Economic Policy Studies of London who was a consultant of the World Bank and the IMF and has been studying for a long time transitions in former Soviet Union and in Central European countries as well as Asian countries so I'm pleased to given the floor right away thank you very much good afternoon so let me introduce a little bit I have been studying in the last 25 years both the socialist economy and also the transition to the market economy and I want to start a little bit by giving you some background about the socialist economy because after all this is the starting point for the evolutions that we have seen since the fall of the Berlin Wall but also with the very important reforms that have been taking place in in China but but also in Vietnam for example from the point of view of the topic of this festival it's important to note that socialist economies had both no market and no democracy so so that's really the starting point some countries like Central Europe and by Central Europe these are really the countries that have become now new member states of the European Union these countries had both a transition towards market and democracy China on the other hand has had a vibrant market economy but no democracy and there are actually very few signs that that democracy will be introduced in the medium run at least the way we can see things on the other hand Russia and in many countries from the sorbets former Soviet Union had a beginning that seemed to be a strong transition towards democracy but then have moved back towards authoritarianism and are a little bit in between so of course these are quite divergent evolutions these are really three kinds of divergent divergent evolutions and how how can we explain them so I'm going to try at least to give you you know very shortly some research of results about this I'm going to talk about three issues which are relevant to this topic of market and democracy in the context of post socialist countries first topic will be about central planning and authoritarianism which again I think it's always very important to look at starting points the second I'm going to try to analyze the reasons for the weakness of the democratization process in Russia and Eastern Europe and bye-bye Eastern Europe I mean mostly the countries from the former Soviet Union a third point I will address is China's successful growth and transition to the market under Communist Party rule how can we explain that this is something that that really is a big puzzle for us today now if we look at different variations of market and democracy since you have two variables and you have two outcomes we have a table of 2 by 2 we have Democratic market economies that's what we have in in most advanced economies we have if you go down you have anyway you can read you have the authoritarian market economy and typical examples of that are of course China but also Singapore Singapore is is a very good example and in a way Hong Kong can be seen like this of course we had Authority rien a planned economies that's what all socialist economies were they were both planned economies so there was really no market as a basic principle for allocation of resources but they were also authoritarianism so these are three regimes we know have existed and they we can associate countries to them and there's been some experience and there is the fourth element here which is the Democratic planned economy well if we think of the Democratic planned economy there are actually no examples in history of this taking place and you know there were many certainly you know the student movements in the 60s etc one of the the big aspirations of people was to have both an on markets that was planned economy but also democracy the truth is we have never seen its function and and and I think there are reasons for that and basically where as authoritarian is authoritative is quite compatible with the market economy and that's a reality I think that has to sink in we have to understand that a little bit better but it is also the case that democracy is not compatible with a centrally planned economy so I would say it's really not a coincidence that we did not observe democratic centrally planned economies and let me just show you that with a very very simple example the centrally planned economies were basically economies were shortage was quite prevalent and and shortage is not exactly scarcity there was in general demand was higher than then supply so let me just show you by a simple example imagine a situation where you have shortage that is where supply is less important than demand and in this example supply would be equals to 19 demand would be equal to 30 and the demand would be coming let's say from three enterprises so you can think of enterprises asking for each 10 units of the goods and there's only 19 so there is there is in a way shortage well how can this problem be solved in a democratic way imagine for a second that people would come together and say let's vote on how to allocate resources let's apply let's apply democracy well one possibility is that to say well to enterprises would get together and they would say look let's split what exists in two we have a majority I'll take nine and a half you'll take nine and a half and number three is in the minority that's too bad we'll get zero now of course the story is not going to stay there because number three is going to go and talk to number two and say let's bargain if you agree to change your vote I will only take nine and you will get ten and number one will get zero so that's a situation where both number two and number three would have a better allocation and they might agree to that of course that's not the end of the story because then you could very well imagine now I'm going to repeat a little bit the Story number one is going to say to number three look actually if you form a majority with me you will get ten I will get nine and number two get zero and so you can imagine that this the repeats number two who's excluded goes to file number one and says I'm going to give you a good deal and again this deal will be contested and is going to be another deal coming up where number three would tell number two you get ten I get nine the other gets zero now if you look at this we've come back full circle we've come back full circle in other words we've come back to the initial situation now I just gave you this very simple example which is an example actually if collective from collective decision theory and which is called cycling in a certain sense you try to reach a democratic decision but you keep on you can never agree because any proposal can be challenged by a majority and so the process would continue on and on and on and I just want to show you that because this shows the importance that was actually very crucial and centrally planned economy of centralized discretion centralized power and typically the way these shortages were solved in the centrally planned economy was by the central authority in a way that was not discretionary in a way that was authoritarian and that could not be challenged and and once the central power collapses then in a way if you do not have a market mechanism then you're going to have conflicts for the allocation of resources and you cannot solve them by simple majority rule you would need more complex decision-making rule so fundamentally I think what we've learned is that democracy and central planning are not compatible because it's necessary in a central planning system to impose numerous day-to-day decisions in terms of resource allocation we need trains to transport some good urgently from this area to that area their day-to-day problems had to be solved by the central planners now you could say well maybe if you have a kradic system but you have a strong bureaucracy if if people obey the democracy at the bureaucracy but then you still have a democratically elected government wouldn't that sort of solve the problem and fortunately in such a system because there are stakes to the decision there are stakes people would engage very much in rent-seeking that is trying to influence the decision of the bureaucrats trying to get over them trying to influence the politicians to tell the bureaucrats to change decisions and these are kind of processes that we do see in market economies we do see that bureaucracies are subject to rent-seeking there's influence people try to influence the the decision-making and in an economy where all the decisions have to be taken by the bureaucracy which was the case of the centrally planned economy having a democratic system would just not have worked with the the economy and so of course this is a little bit of kind of theoretical reasoning but it's also quite startling to see that when Gorbachev came to power and when he started only a limited democratization process when there was a glass nost in the 80s you know 86 87 88 when things became transparent people had more freedom to speak up they were less afraid to speak then actually the growth already started to decline precisely because we saw these kinds of processes enterprises were telling the central planner you're asking me to produce so much but you know what I'm not going to do it unless you give me more resources so people started influencing and blackmailing and actually the the whole authoritarian system of central planning started really to to in a way to collapse which is what what happened later on so in a nutshell the socialist experiment has showed the inferiority of the central planning system with respect to the market economy that's that's a lesson that we've done at the end of the that we've made at the end of the 20th century but also a deeper lesson which which is somehow less obvious but which i think is really very important is the incompatibility of democracy and central planning so again while we might have a market economy with no democracy we cannot have a democracy without the market I think this is a strong lesson from the socialist experiment so that's basically all I had to say about socialism now I'm really going to start talking about the second question I wanted to ask that is how can we explain the divergence we've seen in terms of stabilization of democracy in some transition countries like Czech Republic Poland Hungary where you've had a stabilization and Russia on the other hand or Belarus in other countries where there has been a tendency towards more authoritarianism and I'm gonna start talking by something which is partly related to the talk of Arab Berghof yesterday and which which I think is very interesting is the inertia of values and and beliefs now you know there's always a big question in the social sciences what is the relationship between culture on one hand understood as the values and beliefs and and the economy on one hand you have you know the traditional Marxist point of view which has permeated pretty much social sciences and and which economists without knowing very often are taking over it's the fact that the economic environment influences the values and and the beliefs and then you have the other view which is associated to Max Weber which is more that values and beliefs have an effect on people's decisions people's economic behavior and here this is sort of what I want to tell you that in the case of post socialist countries in central and eastern despite massive institutional changes you know the change in the legal system change in a financial system you know really the institutions of central planning were completely replaced with institutions of the market economy and also of course political institutions have changed in in in a lot of different ways nevertheless there has been much inertia and values and and beliefs and and I think this shows that in general culture seen as the whole set of values and beliefs changes only very very slowly so the question is does this inertia explain the weakness of democracy in the new market economies and let me just give you some examples where these values and beliefs are indeed very different for example labor market discrimination against immigrants and women in the transition countries there's much more support for this kind of discrimination discriminatory policies if you look in the EU similar questions in EU much less you know we would like it to be you know not important at all but but the thing I won't say here that views in favor of labor market discrimination are quite strong in in those countries a second point government ownership of firms there has been massive privatization in Central and Eastern Europe but people who were asked during the transition and even last year by the EBRD was surprising to see that there is strong support for the government owning firms government ownership of firms and this support is actually stronger than what we see in either in the European Union or even in the US concerning the benefit of competition on markets a basic tenet of of economics but also I think of the the cultures in which we live is that we know that competition on markets is eventually even if it requires a lot of effort people it's beneficial in terms of its outcomes for the consumers from those who benefit from the result of competition there's very strong suspicion of competition in Central and Eastern Europe and is there's very big skepticism on the benefits of competition also in terms of responsibilities of government in the economy the values there are are in those countries in terms of people wanting more responsibilities of expecting more responsibilities of the government in in the economy so this is for in terms of a number of economic values that just gave you some some that are very important there are also actually quite important differences in terms of attitudes towards the state and the government so views towards the government vary a lot in countries but it's quite striking that comparing values in Eastern Europe and Central Europe compared to the European Union by European Union in European Union 15 you know the older member states or even the u.s. the priority given to law and order is just much stronger if you ask people what they think the government should be doing it's mainly law and order so this is something very very strong and there's also a taste for strong leader this is something that that is very strong in those countries there's actually having a strong leader is something that is seen as very positive their aspirations towards having strong leaders while there's clear suspicion towards strong leaders in most democratic countries finally there is trust in expert decisions versus elected politicians much more in post socialist countries and then in other market economies and also the attitudes towards democracy even though there is general support for democracy the understanding of what democracy does is is somehow a bit different in those countries and just let me show you a figure because this figure is actually speaks very well so here if you have on the horizontal axis economic values and so on the left you would have let's say more Pro free market and going towards the right you have government intervention is in the economy in the economy so that would be economic values and then if you have only vertical axis government values that is you know again below this would be more emphasis on freedom and smaller government and democracy and on going up it's in favor of more authoritarianism now it's very interesting because here you see you have three clusters three clusters in nineteen nineteen ninety-four and ninety nine and so this is from the world value survey so on in the left corner in the US you see that values are in favor of you know little authoritarianism and little government intervention ISM if you look at the European Union you just your same values in terms of government you know it doesn't go up so not more support for authoritarianism but more support for government intervention ISM in the economy and this is quite stable but then I think what is really striking is we go in the upper corner and so you have 1919 1994 in 1999 the transition countries you know there's really a difference in terms of they want more authoritarianism and also more government intervention so not only are these clusters quite stable but in the case of the transition countries it's remarkable that they have not moved very much so I think this really shows the inertia of values and beliefs so not only do we have inertia values and beliefs but there has been no convergence during the first deck on the contrary we have seen some divergence so for example with the transition experienced people became more egalitarian there has been more skepticism on the source of wealth creation that is that is wealth created by value by creation of value or by simply taking away from others by by rent-seeking people are more skeptical about a creation of value also people have become more skeptical that hard work gets rewarded they think more that there is a that luck has played a big role they have become more anti-competitive than they were at the beginning of transition and actually support for government ownership has actually increased so we do see actually signs of divergence not convergence these different evolutions are probably related to the negative experience of transition because there have been very negative economic experiences for many people but they are not in general linked to individual experiences this is quite interesting it's not the case that somebody who want from the transition is always Pro more Pro market and somebody who lost is always less in general values and beliefs are only actually weakly linked to individual gains and losses from a transition or even to the perception of of absolute loss or relative loss absolute loss did my living standards decrease or relative loss did my living standards decrease relative to all the others so what we see here I think is a picture where we have inertia of values and beliefs not of values adjusting to the changed economic environment now to come back I think this is an interesting finding in itself in general for Social Sciences but to come back to my initial question does this inertia explain the weakness of the democratization process in some of these countries well not really it cannot be the whole story because otherwise we would not see this divergence in Central Europe where there has been stabilization of democracy and Russia and former republics where this has not been the case so and just to give some some examples here the support for democracy is lower in Russia than in many other countries this was also emphasized yesterday by Erich Berghof but it's not necessarily lower in many former Soviet Union countries so for example whose biggest on Kyrgyzstan Georgia and and Ukraine have strong support for democracy stronger actually then Romania or Bulgaria and and in many of those country the support for democracy is actually higher than the support for authoritarianism and is probably higher than the real authoritarianism that we see similarly the support for the market economy is in general somewhat higher in the new member states that's true but it's very variable in former Soviet Union countries it's low in Russia 27% only are supportive of the market economy it's low in Armenia it's low in Bosnia in Kazakhstan but it's very high in Mongolia Albania and Tajikistan so there's quite variability in terms of this so we cannot say that the values in Central Europe are all very strongly Pro market pro-democracy and that they are not in the other countries there's just a lot of variation and and we cannot make a real difference between those groups of countries however the real institutions have changed quite a lot if you look here at the Freedom House index it's quite clear that Central Europe very quickly in the beginning of transition has had a convergence toward democracy very fast same thing for the Baltic countries by the way so Baltic countries are in blue former Soviet Union had some democratization process in the beginning but but very quickly already in the 90s actually the freedom house indices have gone down with Putin of course things have got worse but it didn't start with Putin already under Yeltsin these illnesses were deteriorating in the former Soviet Union so it includes Russia it's mostly Russia because it's the biggest country but also other countries so there there has been a institutional divergence if you look at former Yugoslavia of course you know there was the war and and and the the democratization started much much later so so therefore I think the Europe EU accession has played a role of institutional anchor for many countries so despite the fact that the values and beliefs have stayed quite quite inert the fact that the possibility was given to the Member States to become members of the European Union to adopt the economic political legal institutions of the European Union has played the role of an anchor and this was the case certainly for Spain Greece and Portugal earlier on in terms of stabilization of democracy the European Union has really played a very important role for actually many countries and and in a way the prospects of becoming member of the European Union was a very very strong incentive most of those countries had lived as satellite countries of the Soviet Union so the possibility of being member of this European Union club was was very very important if you remember the incentives certainly in Italy before entry in the European monetary union you know it was very important to achieve the criteria to be able to be a member of you know the European monetary union and to have the the Euro so so in Italy and also in my country Belgium this was very strong well well the efforts to you know to be democracies and to satisfy the criteria for entry in the European Union were actually very very strong of course once you're inside the incentives have disappeared once you know Italy was inside the European Union incentives for fiscal discipline became much less strong once the countries like Poland Hungary became members of the European Union they said AHA we made it and so these incentives have somehow disappeared and therefore they will be for still quite many years attention between the intellect the institutional progress that has made and the relatively authoritarian and interventionist values that exists so we've seen in recent years in Poland and Hungary but also in some other countries the advent of populist movements nationalism which is rather nasty in in some countries and this should not come as a surprise this should not come as a surprise I think it's the result of this tension between the institutional progress and and the values so the European Union will still have to play a very important role in terms of stabilizing the institutions in the new member states and maybe admitting some some more balcan countries for example could be a problem in the medium run because there will be a digestion process necessary so second thing I think the European Union played a very important role in terms of anchoring democracy in Central Europe but that's not everything I think there are some differences in civil society developments and and so to see this let me just contrast here two countries during the socialist periods contrast Poland and Russia for example Poland had the solid Arnage they had the Solidarity trade union they were very active they organized you know many strikes they were really impossible to repress but even the Catholic Church in Poland you know played a very important role so both solidarity the Catholic Church and other movements were kind of indicators of an active civil society that people despite the communist regime were organizing we're doing things together there were independent from the regime in Russia it was not at all like that Russia had a communist regime for much longer dissidents were much weaker they were very courageous dissidents like Andrei Sakharov and and others but the Communist Party dominated most aspects of social life outside the communist parties and it's satellite organizations there was very little in the former Soviet Union and so so let me just show you some research some results of research that I've done on this period where we've actually documented we've collected data on these dissident events and so here this is simply an index of the intensity of dissident activities before the transition so you see it goes from 1985 to the beginning of transition in 1989 the fall of the Berlin Wall or 1991 in the former Soviet Union and it's quite clear that both Central Europe and in this case also former Yugoslavia had much more dissident activities than in the former Soviet Union so this is this is really a striking thing when you put all these data together so you're probably surprised by we see from former Yugoslavia I'm just going to say a little bit more about that in in a minute if you see now the motivations motivations for dissident activity there were several motivations and we have data about that one was political change that is to change the communist regime towards a democracy and you see that very early on motivations for political change were stronger in Central Europe and former Yugoslavia even though the latter went sort of down in former Yugoslavia it's really only in 1990 that it started picking up very strongly in the former Soviet Union if we look at economic motivation this is interesting that a lot of the dissident activities actually most in former Yugoslavia were strikes there were strikes and there were strikes that were actually very economically motivated people just wanted to have higher wages so so if we if we take out these strikes in former Yugoslavia we see that still Central Europe was the area where dissident events in favor of political change were sort of the strongest so briefly in Central Europe the push for democratization was very strong from below because of stronger civil society development even in Czechoslovakia Czechoslovakia had a very repressive regime but actually there was very very much dissident underground activity taking place and you know we know that but Slav Havel for example was a very important figure there and so a lot of the change in Central Europe happened really because of this push from below in the Soviet Union the change happened mostly because there was a push in 1991 that failed the push failed and then all of a sudden the Communist Party was outlawed but this was a surprise it was a big surprise for people but but civil society in a way had not developed enough in or had not matured enough to be really prepared for those events and because they were less prepared that had an influence on the choice of institutions so most former Soviet Union countries had strong presidential regimes why because people who were part of the elites managed to get political change that was democratic yes but with strong concentration of powers in the hands of presidents and presidential systems whereas in central Europe's and the Baltics where civil society was much stronger there was much more push for having less concentration of power in the hands of the executive and parliamentary regimes were where you would have a less concentration of of powers so finally how to explain the differences in Central and Eastern Europe I think that inertia and beliefs and values played a role the European accession played a role as an institutional anchor and also there was less vibrant civil society before the transition in the former Soviet Union however and now I'm coming to my third topic which is is China if you compare economic evolution in Central Europe with former Soviet Union you see Central Europe is the orange curve there they did economically much better than the former Soviet Union certainly during the beginning of transition so in a way if you look at Central and Eastern Europe you can say that countries that became democratic also had better market development and had better growth than other countries and in general you know there is an argument that limited powers of the executive more accountability of governments the organization of countervailing interests would reduce the likelihood and also the strength of any arbitrary intervention against intrapreneurs against investors this is in general better for the rule of law and and we know that the rule of law creates a better protection of property rights and now I come to the Chinese puzzle China has had the most spectacular growth performance of all post socialist countries if you take the the transition country with the best it's much far behind China China has had you know nearly 10% growth the last 30 years and they have done it with maintained Communist Party rule China is much more authoritarian than Russia under Putin and in a way is less random and you know and it's a in its behavior than the authoritarian regimes from from Central Asia so so China is a in a way strong authoritarian regime this is the reality but also China is know Singapore or Hong Kong Singapore or Hong Kong these are non democracies but these are countries where there is rule of law wherein property rights are protected where people know that there is a stable economic environment which is propitious for investment this is not the case for China China does not rank well in terms of indices of rule of law corruption and other institutional indicators that that we think are important for growth so China is a puzzle not only in comparison to transition countries China is a puzzle for the whole world because indeed a lot of research shows that that having good institutions is very important for growth in the long run so what's the answer in my view the answer to the Chinese puzzle lies deeply in Chinese history and also the tradition of meritocratic government and fiscal decentralization and and let me just you know emphasize that a little bit in China still today a high position in the Chinese government is widely regarded as the most desirable career for a people who are among the the elite so this is this is seen as the most prestigious becoming a rich entrepreneur might be desirable but becoming prime minister or a high party official is still considered much more desirable partly even though you might be less rich but you have more prestige you have more power and you have more control over allocation of resources now so it's prestige is very important but at the same time there is yardstick competition there is competition from within the bureaucracy so if people start at the low level of the bureaucracy promotion in China is meritocratic so those who do better than others at their level get promoted faster this is yardstick competition and the yardstick competition has actually played a crucial role in creating incentive for growth at the local level very simply people were told if the province or the district or the region you're responsible for has higher economic growth rates than the others you will have faster promotion and people understood that very well this is a very strong incentive it's a career incentive within a desirable career path and at the same time leaders were given the fiscal instruments with fiscal decentralization they were given the fiscal this instrument to achieve this growth and and so I think this is the crucial part of of the explanation for the growth in in China this is based actually on on research and there are at least two very important pieces of research that show this there's Eric Maskin who got the Nobel Prize this year with a uni Chan and chenggang true they showed that yardstick competition was actually effective for the promotion of of caterers of you know officials they also found a positive correlation between economic performance from the years 1976 to 87 and political advancement within the hierarchy so if the region you were responsible for had higher growth than others you would get faster promotion in a more recent work by Hon Bingley and Liang Joe they looked at the career paths of individuals within the Chinese bureaucracy and they also found that controlling for factors like age education how long you had your job that is the tenure how much previous experience you had if you worked in Beijing before so controlling for a lot factories they found that both average growth of the region you're responsible but also annual growth that is the last annual growth played a very important role in terms of promotion so in a way in China people were told if your region gets higher growth you will get faster promotion and this plate has a very strong incentive this is a very non-standard story in terms of understanding growth it does not fit many of the stories that that we've heard about in in other frameworks but I think it says something about institutions and and growth basically growth and reform happen not simply by shrinking of the governments this is actually a system where the bureaucracy and the this meritocratic administration are a geared are directed towards growth objectives and market promotion there was a Chinese leader who was a conservative opponent of things helping he was called Chen Yoon and he said we can have a little bit of reform that is the Chinese people can be like a bird in a cage and you can make the cage a little bit larger what happened with reform is that the cage was much much larger but still there are typical institutional characteristics of the Chinese system that can actually directly explain the growth performance now what does that mean that means that the meritocracy that was able to achieve spectacular growth should also be able to achieve other objectives such as you know fight against climate change if there is a strong political will that exists I don't think this is the case so far for climate change that's clearly is not we've seen also very recently now with the drama of the earthquake in Sichuan the Chinese administration has responded certainly very efficiently and I was yesterday in a panel with Raghu Rajan where he was contrasting the response of the Chinese god in Sichuan to the response of the American government in the case of Katrina and then I compared that later on to the case of the Myanmar flooding we're really you know it's just a catastrophe what's been happening and so we see here in this example that indeed the Chinese administration is relatively efficient this is not something that's typical to China a competition organized by the government has also played a role in Japan and South Korea so Japan and South Korea government organized competition between firms and the winner would have basically advantages and advantages in terms of exports growth etc so to summarize I I think the socialist experience has showed the incompatibility of central planning and democracy differences in democratic trajectories in Central and Eastern Europe can be explained by a combination of cultural differences accession to the European Union and differences in civil society developments and more democracy has been associated to better economic performance in Central and Eastern Europe finally Chinese growth is unique among post socialist countries and this can be understood by meritocracy and the political in a way nationalistic one can say objective of growth have acted as substitute for the rule of law but but it has worked very well so far thank you very much so imagine a casino multi dimande thank you very much you raised so many interesting topics that I'm sure they're going to be several questions so let's have a show of hands and see who wants to have the floor for Christian Grafton my question is is there really an intention to export democracy and then as a result of that there is a development of the market or is there an intention to develop the market to trigger off a development of democracy to put in another way somehow the market system is favorable for somebody who takes advantage from this development of the market or of a democracy in Europe the Marshall Plan disseminated democracy based on the American model but at the same time it was also a major economic opportunity for the United States as well so I wonder if there is some new ultimate aim behind this new process in other words we talk a lot about Eastern countries now are they the objective of a condom new marshal plan so this is a very broad question probably you were in this session yesterday by Eric Berghof where he cited some research that in Central and Eastern Europe there's been some research showing that countries where there has been more democratic developments were more favorable towards market development but the other way round we don't see it that is more introduction of the market is not per se favorable to a democracy this is some research that has been done at the European Bank for research and development more broadly I think you know more broadly you know there are a lot of questions one one is I do not think you know democracy basically you know means that the people decides that that's somehow you know this freedom and people can organize etc so forcing democracy from outside is a little bit like a contradiction it's a little bit like a contradiction now I mention the case of Spain Portugal Greece and even Central Europe there it's very different it's the positive example of the European Union that basically influenced people to say this is what we want to do this is what we want to do you know you see now with the American intervention in Iraq to to establish democracy it's it's it's really it's really kind of a failure but it hasn't always been a failure after all you know Germany and Japan after World War two you could you know these are probably examples where democracy was established from outside and so it's not the case that it always necessary failed now I'm not going to say that I think this is a good thing it's a good thing to do but you know what is the link even with the Marshall Plan I think that's that's even more complex you have to see that in the context of the Cold War the u.s. certainly had an interest in having strong Western Europe and so certainly the Marshall Plan played a positive role but it's also the case like even though democracy was less stable during the first half of the 20th century you know with you know fascism and Nazism and Frankie's MIT cetera the the the Democratic traditions in Europe were actually stronger and and and I think you know that that certainly they have stabilized much more so so that's why I very much emphasized you have to look at culture and value on one hand and institutions on the other hand democracy is much more stable when both are working hand in hand and and that takes time tanto la ringrazio para splendid are relative first of all I want to thank you for your excellent presentation I want just to make a short comment and then put a question to you I want to make reference to two statements that I heard and I read one concerned China and one concerned Japan you said things that we indirectly in you you provided us stable evidence of that I'm referring to the Chinese case the Chinese miracle meritocracy and decentralization act as substitutes for the rule of law and power separation so you said meritocracy and decentralization even in a non-democratic regime this seems to be extremely interesting particularly as it comes from a person like you in the case of mirror of Japan you said that the advantage is the competition triggered off stimulated by the government which is responsible for the economic growth in Japan so these are lessons that we should learn another statement and then I asked you more directly my question in many Eastern European countries apart from the Soviet Union many of the people that come to Italy from those countries tend to say well the previous regime was much better we were not free but at least we had a job and we could survive this is a statement that I heard many of them making you also pointed out that when those peoples realized that Europe does not provide them an immediate improvement in their economy or provide them with jobs or status they feel an uneasy that's why I'm asking you a question that concerns Italy more specifically do you believe that this being the case do you believe that the REA introduction of a real meritocracy and a strong competition within a free-market system may be an important stimulus for democracy provided of course this is accompanied by a strong government that can take important action on tax policy on promotions on incentives so to conclude on the one hand it seems that meritocracy and competition are important provided they don't trigger off an all-out capitalism and on the other hand there has to be a strong rule of law that rewards those that do better and that provides help also through the fiscal leverage to increase meritocracy to make sure that there's no savage capitalism on the one hand or a condition of utter poverty for many people as is now the case in Italy thank you so so you know I'm not gonna intervene in Italian politics but but since you asked a question I you know it turns out you know I love Italy my wife and I we actually we have a house in Italy where we like to go in vacation and and so we know quite quite many people I don't think meritocracy is like a big tradition in this country and and if you think of now if you think of you know I'm talking about tradition because because people's beliefs are you know there's this inertia of beliefs in China and Japan where does that come from it comes from the kind of you know Mannarino government that existed it's partly the Communists part Communist Party was partly organized like that but for 2,000 years there was you know this Mandarin ell system and people are kind of used to it if you go to Japan or Korea etc you see that young people in schools and university they work very hard because it's competitive you know their ranking is going to have an effect and and it's like that in different stages in in in life and and I you know I think certainly meritocracy is very important to to establish so for example one thing that I see you know which something I know is that the university system in many European countries but unfortunately also in Italy is is not very much it's not based on meritocracy there are barriers to entry there's anti-competitive behavior people are you know protecting friends and cliques and and you know and you have it not only here you have it also a little bit in in France in Germany and and and this is very important and you know if people are used it they think that's how the world works you know then that's kind of bad so so in a way I think some some cultural change needs to take place I think some cultural change needs to take place so that people can find that that other systems are better now when it comes to reform I'm more known for my research on Eastern Europe which was more gradualism I do not believe in in Big Bang where you change all institutions at the same time I think that's one of the reasons why the economic situation deteriorated so badly in Eastern Europe because they just destroyed everything without creating things so I think probably in the case of Italy 1 1 1 there is a need to improve the the institution's there is a need to introduce more openness more competition more meritocracy but one has to see one cannot introduce it everywhere at the same time there should be some campaigns I think for example the the the higher education system needs to be improved because the the school system in this country like again like in many countries primary and secondary school system are actually very good they're actually very good but but if you see the the university system it's just behind what what you have not only in the US or even in other European countries but but behind what is being happening now in some Asian countries so so there are and this is important because this is about human capital I think last year the theme was about human capital here and and one needs to have the best people in the best place and it's nothing wrong to that you know as long as there are rules and the rules are followed and and also there has to be social protection it's not contradictory perfect or who got them into the you Meeka vote I will take the opportunity to ask you a question myself I'll try to be very brief you talked about strong suspicion against competition and you said that people want law and order and they like strong leaders and they like again a strong state involvement in the economy in Central and Eastern Europe you talk about inertia of values again in Central and Eastern Europe I know that this happens in countries that were always the members of the European Union from the very beginning then I wonder is it a matter of inertial values or is it a problem initially of economic troubles and inequalities within the society and gaps economic gaps between the people that triggers of this approach well as I think as I showed you I think that you know even at the beginning of transition these values were somehow different and and you know there's this you know it's it's related to the whole to the whole history and and of course the the thing that that did happen with the transition experience is that because many of these experiences were not positive from the economic point of view events that somehow people have have this has reinforced beliefs that are in a way anti-democratic so so I would say for example that the support for democracy in you know probably you know in the very early 90s for example was probably stronger in Russia than it's been in in in recent years and and so I think there's been you know a tendency in that direction quite generally I do not think as that social scientists have a good explanation for how beliefs and values changes again the only thing I was just showing is that there's just a lot of inertia there is change but we don't understand exactly the change you know sometimes we can explain the change sometimes we cannot sometimes things happen that you know seem like you know coming coming out of nowhere you have periods where you have very long cultural inertia and then you have periods where you have you know very strong change so the the for example you know the granite sauce in a shimanto period was a huge period of cultural change that had a huge effect and and this is over you know a rather a few decades over a few decades you know many things changed at the more superficial level you know there's been changes in and sort of you know the 60s has brought changes in many values etcetera but but this is not fundamental changes you know but but there are periods where things change more quickly and in periods where things change less quickly and and I don't know why we don't have the answer sometimes it's you know some some things just appear and and sometimes they don't appear there's a lot of randomness I think to that if we could predict the evolution of beliefs and values you know maybe we would be much more knowledgeable but I'm not sure we can 1:24 then a question about China how to what extent is the population actually aware about the economic boom people who work you know in the assembly line and in in industry how much are they really aware of the fact that their country is growing fast so let me just explain you something when the reform started in 1978 after the Cultural Revolution China was very very poor it's very very poor people everywhere you know were you know barely survival etc and during the first ten years of reform probably there you know until 1989 something the biggest growth was actually in the countryside was in the countryside where agricultural production doubled during that period where productivity in agriculture became much much larger where a lot of people started going from farms to go to rural industry there was what was called the township village enterprises during that period interestingly the there was growth with a very little inequality that is that if you looked at the income from the richest and the poorest regions in 1978 and in 1989 there was less inequality so that was for the first ten years of reform then reform moved into manufacturing it moved into manufacturing in and as we know mostly in the coastal regions and they've had very strong growth very strong increases in living standards in general and this has been associated with actually rather a large inequality in the sense that many provinces that were mostly rural or that were in the inside have less benefited from that period of growth that some people have become very wealthy but but also there's a strong middle class has been increasing wages in China remain very low and I guess that's what you were indicating they remain very low and you know the lowest wages are basically people who come from the countryside and who you know barely get a better income in the city than what they could get in the countryside and it says this is very low and and no many working conditions are really you know very bad and you know there are a lot of bad examples so in a way this is this is a kind of you know unfettered capitalist development and you know the unions are not strong like like everywhere else so not everything is positive but you have to see that you know in 30 years of growth that that you know it's it's most people have benefited to one degree or the others some people benefited much more but but increase in living standards is is very general even though unequal me and Amanda Tina Tommy I have a question on method a methodological question now you have been using these measurements on values opinions beliefs and based on these measurements you have established correlations with his usual change economic change economic growth in individual systems now my question is are you really sure about the measurements of beliefs convictions values simply by asking people what do you think because you know that there are doubts about the way in which you measure this there are many variables the way in which the question is measured and is asked then the way in which the answer is measured and then the statistical distribution of answers around a mean value now you are using the system you measure beliefs values opinions this means that you are you are beyond these perplexities you do not ask yourself any longer the question whether this measurement is reliable or not but could you tell us something about the real reliability of statistical measurement of values and beliefs based on a direct question to citizens well first of all I I did not claim that I was measuring values in general and I you know the point I was making mostly is about the the inertia and and I think this is something that I wanted to say in this context because it's quite striking if there is any region in the world where you would think that you know things might have changed very fast is it's actually in the post socialist countries and and using these measures which are from from the world value survey which which are are certainly imperfect and they're partial and and you know we find that there's just very little change there's very little change so there are different ways of because these are noisy measures statistically there are different ways of looking at it there is there is actually a whole lot of research that has been started in recent years trying to do this better partly because when you ask one question one language the words not necessarily have the same meaning etc but but psychologists are psychologists and cultural anthropologists are really trying to to refine measures and to make them better but but they are still they are still quite noisy and and I think if I had pretended to say here I'm going to show you this is culture this is value this is you know this is what is causing what I didn't do that I was just trying to make very simple points made on very simple measures and and as with any kind of scientific work you have to start with something partial and try your best and you know and accept criticism and then try to do it better demand a good I have a question which I don't think is just born out of curiosity and it concerns Iraq when we talk about market and democracy sooner or later we end up talking about Iraq now I don't think that we can finish off the debate on Iraq in a simplistic way as the media do when the media right democracy cannot be exported I think that's a simplistic answer I think that the Iraqi issue is much more complicated we have many other factors and play Israel oil Islamic fundamentalism Iran close neighbor and many many other factors so frankly thinking that we may kill off the debate on Iraq just by saying you can't export democracy is trivializing this debate even in the light of what happened after world war ii i mean i think it's it's much more complex than what happened after world war ii and i have got a second point if I may I may be wrong but I keep having the very clear impression that explanations from economists sociologists psychologists always come afterwards whenever they're able to explain something they do it after it has happened never before yes on the second point I think you know that's I think that's quite that's quite right I think social sciences are trying to make progress but it's it's a valid criticism if you ask people to make predictions in general you know if you know people can make some predictions about you know GDP etc making predictions about institutional change it's very difficult I actually you know spend a few minutes saying that we don't understand very well how valuable eh change so so we can't really make predictions about things yes so I think you know we have to be aware of that and just try to do better and and butBut and that brings me to your first point we have to try to do better but if our knowledge is limited if we have to recognize that we might be wrong and I'm willing to recognize that I might be wrong I think this is in a way a stronger argument for democracy in general because you know after all even though you know we might not know sometimes there might be more wisdom in the crowd but even the crowd can be wrong but but you know that's that's a mechanism that we have but precisely because there are things that we don't know I think that that's it should an extra argument about the the Iraqi situation but you arrive it's more complex I mentioned I said after all that you know there was introduction of democracy in Japan after World War two also in Germany that came from outside and and so so we probably have to analyze each case very very differently and you know I'm not an expert of Iraq but but I think in general the the what we do see is that the the sort of neoconservative attempt to export institutions without any knowledge of what exists of the prior culture the prior institutions the prior history I think can only create problems thanks a lot for this systemic overview of transition processes now it's difficult to be systemic and to have too many example one of the things that you did not mention in your presentation but you hinted to during the debate was the fact that there are different countries and different countries had different paths or different trajectories of transition the example I could think of is is Hungary on the one hand and and Poland on the other Poland had what one what one my term as a shock therapy right from the beginning of the transition and you you said I mean you're a person in favor of gradualism now I wonder if if you could say something about international financial institutions in the sense that where as a government clearly have to make decision on the trade-off between markets and democracy international financial institution do not always I mean mostly if we think out of the transition and mostly if we think at the 90s when Jeffrey Sachs was advising the Polish government on how to implement transition he was clearly pushing for a shock therapy for trade for for liberalisation in a crude sense I don't think he had that much the political content of that reform in mind but if you could elaborate a little bit of point thanks I'll try to be sure it's true that in general Poland was more of a big bang approach to transition and Hungary certainly a gradualist approach to transition but things are a bit more complex if you see for example privatization in Poland happen in a much more gradual astray than was initially thought of and and but but we saw some differences in in Poland the very first year of transition you know the shock therapy there was a huge output fall that the first month of price liberalisation prices of you know kilo of meat at in some places was as much as a car of course this did not last you know too long fortunately but but there was really a big output fall in the beginning and I've done some research to show that indeed the way the liberalisation was done in a in a very fast way certainly can it can explain that and Hungary had more gradual price liberalization but then when there was the ComicCon collapsed and Hungary suffered a lot from the comic-con collapse - so the the economic trajectories are not that that different so so I don't exactly understand what your question was about international financial institutions it's true that you know when it comes to transition there was being the Washington Consensus the Washington Consensus which was to say if you liberalize if you privatize you stabilize everything will be ok and in reality you know we had output fall in many countries we had stagnation and decline in the Soviet Union so so the the economic reality was was actually you know completely unpredicted by that and and it's true people have spent the next 10 years and people like me have spent the next 10 years understanding you know what went wrong even though I was certainly more skeptical I was more in favor of gradualism you know in 1989 but no even in my case I did not expect this big output fall and and people did spend a lot of time trying to understand it some some people just like ostriches put their heads in the sand and then you know they didn't understand and I just went move on with the same the same beliefs and and I think people try to you know what one reason why people are much more sensitive to the importance of institutions is really because of this transition experience now again there's there's a good way in a bad way to understand institutions so people and this is something that you see sometimes you know with the World Bank and the IMF they say AHA this institution has worked in other contexts it should be exported everywhere else well you have to be careful you have to be careful and and I think we need a much more country specific approach again I was speaking with John Lord of the Financial Times this morning and and you know we're talking about how to approach development in different countries in some countries it might be you know education will change everything in other countries you might need to reform the electoral law in some other countries it might be the judicial system and in some other countries you know that there is you know any kind of analysis for for development and reform has to be based on an understanding of the the real problems as they are I was quite shocked because you mentioned Jeff Sachs the people young people who were you know even younger than I was in 89 who went to help advise you know Soviet Union in other countries they were PhDs you know right you know even PhD students from Harvard one criterion for choosing them was that they should not know anything about those countries because there was a tabula rasa approach and and people said explicitly we prefer to have people who don't know anything about those countries because they will have a fresh look and and I mean that makes you bleed as a social scientist I think I think it's it's really so much against the the the instinct that you have that this is just in a way experimenting with societies and and we should not be doing that and we should be responsible about about how you know we do want to change and we do want some experiments but we have to you know look at the social costs just on our to demand else at a lamanno any other questions raise your hands please please raise your hands wait to see you professor you have said a half jocularly that you don't think that meritocracy has a long-standing tradition in Italy and I believe that most Italians would agree with you on this and most Italians would have their explanations for this and often we talk about this among ourselves but it would be interesting for us to know what a professional foreign observer who does know something about Italy feels about the at lack of meritocracy in Italy this is this is difficult because you know again I I would really have to apply what I just said before that is that you know you need to understand better what is going on and despite the fact that you know I love coming in this country there's there's a lot of things that I don't understand what I think so one observations I can make and this is very partial is that what I see is that there are strong local traditions people are used to you know the autonomy of a town or a locality or there they're stronger regional identities and and you know which is which is good sometimes it's regional identity is kind of associated to some kind of suspicion towards people who are not from the the larger group and I don't know you know how to do it but but I think some kind of openness some kind of openness would have to be introduced but but also there might be some there might be some institutional solution so for example in France you have the you know in-app école Nationale d'administration which is kind of an you know elite school for government administrators which in a way is meritocratic and and promotions in France at least you know at the level of the administration are really not political they are there is some understanding and it's also it's an understood culture now if you don't trust somebody from another group then you say you know I will I will promote people from you know within my group because I just don't trust you know the other group so it's probably you would need to do two things I think you know some general you know cultural change towards you know being more open so for example I for me it's it's a little bit striking that in this country people have problems with immigrants I think that's part of the lack of openness you know all countries have problems with you know immigration but but I think it's you know it's really part of a culture of openness the tolerance that you have towards immigrants so I think you know there are some cultural things but but probably I think some you know I wouldn't say to reproduce the inner system that you have in France but but I think some it would be good that people who are at a high level in the government administration are understood that they have competence which is backed by diploma rather than backed by you know political support or by by you know some form of client allistic networks and and and that's possible but one has to find the the appropriate form and and I think I think that certainly you know we're in a global world I think Italians can see what is happening and countries and then you know they can choose for themselves what they want to import from from outside and I'm willing to help be a little grain of salt in this debate if you want to thank you multicarts yankee bailiff and kids are speaking very frankly which is always useful let's ease that I need questions again it seems to me there's another person that has asked for the floor again I have to ask you to make short questions not really lectures on you and selecting it some type of democratic process do you agree with that oh yes of course you know I think you know the globalization has different dimensions I think I think there's an economic globalization which which on the whole is I think on the whole is something good even though there are you know aspects that need to be controlled we need to have international governance in a sense you know the kind of governance that we have at a national level we don't have in the international level so so I think there's a strong need for some kind of international governance but at the same time globalization it can be completely consistent with maintain of national identity national local identity culture etc but I think there has to be you know and probably you know people people you know find more pride in their own history in their own while being in a global world but they have to do that in a context of openness and intolerance and I think that's that's very important so for example among today's Europeans simple things like you know the Erasmus program where students can spend some time abroad people learn to you know meet other people from different countries and and then in 20 years the people will meet either in business meetings or in you know your peon meetings their former friends from Erasmus and and that's going to be the European Network and that's completely compatible with you know maintaining you know local identity culture and and this should probably be be reinforced provided I think I think you know that that one one remains open at the same time there there is there is a there is in other countries there is actually a willingness to learn more about the others and and but there's also willingness to to know more about oneself and to so you see for example regionalism it's kind of increasing we see it in France we see in Belgium everywhere and that's that's complete that can be completely compatible with globalization multi glasses so ha you had CL public on the way has cortisone thank you very much again and thank again the audience for spending 90 minutes together thank you