Incomplete Transition – Is there a “Mid-Transition Trap”?

Abstract

The subject of this paper is the analysis of the classification of economic systems. The traditional classifications of capitalist, socialist centrally planned, and socialist market systems, and the newer classification of variants of capitalism into the Anglo-Saxon, European continental, and Asian models, are inadequate to explain new phenomena in a globalized economy. After the collapse of central planning, countries in transition became a category describing processes of deep socio-economic transformation. These transition countries aspired to meet the standards of developed European market economies, as well as governance standards regarding democracy, human rights, and the rule of law. A new classification of economic systems by Balcerowicz (2014) combines the traditional classification of economic systems with the characteristics of well-governed democratic societies in order to come up with a matrix that shows the interaction of economic system characteristics and governance outcomes.This paper builds on Balcerowicz’s classification by introducing and delineating the categories of state capitalism, crony capitalism, and state capture in order to provide a new classification of economic systems. It uses these concepts to empirically analyze the transition countries, with special reference to states aspiring to EU membership and the new EU member states. The methodology used is analytical and empirical. The results find that the transition is incomplete, especially in terms of governance, leading to the hypothesis of a ‘mid-transition trap’, similar to the much discussed ‘middle-income trap’. The results should lead to further, more refined research.