Helen Paxton, Director of Communications
Rutgers Faculty of Management
201/648-5177 fax 648-1006
Email: [email protected]
Rutgers' Allan Roth hasn't always believed that it's unwise
for a country to protect its domestic companies from competition.
He does now, however. During the past winter he had
occasion to serve as a consultant in Russia and India and to compare
developments in these two countries with those in China, where he
visits several times a year on school matters. He thus has seen at
first hand the damage that was done by centralized, planned,
"command" economies, and he's examined the three countries'
different ways of trying to recover.
In Russia last December he worked on a report for the
Russian government comparing practices in securities markets around
the world. In India in January he headed a team to evaluate a U. S.
government technical assistance program. And he's been several
times in China as Director of International Programs for the Faculty of
Management.
All three had centralized economies. Decisions about what to
manufacture, and how, and where, were made not by a market that was
influenced by global forces but by central planners who ignored market
considerations.
A lamp factory, for example, might have been located in one
place by command decision, and ordered to make shades, bulbs, and
wires. Anybody who thinks about it can see that the resources and
facilities required for making each of these things are different. In a
competitive system there's no reason to make them all under the same
roof. But the logic of a market system was not the logic of a centrally
planned system.
Now it's different, and these three countries are trying like
crazy to get away from their command economies. Their ways of
getting out differ from one another, but one thing they all have in
common: the social dislocations are enormous.
In Russia, the problem has been lack of direction and
consistency. Gorbachev correctly realized he had to replace the
centralized economy with a market economy in order to become
competitive, but he didn't know how. His 500-day plan never got going,
mostly because the people directing it were constantly in and out of
favor, and nobody ever was sure exactly who or what plan to follow. In
the vacuum left by the absence of a consistent strategy, a kind of
entrepreneurial free-for-all is going on.
In India, 42 years of a non-competitive economy, where the
government owned many, and regulated all, industries, have left a
legacy of inefficiency and dislocation. India's zeal for socialism led to
nationalization of the banks and thereby to destruction of the banking
system. Everything else was under centralized control too. Elaborate
rules and regulations were put in place to protect Indian industries from
having to compete with foreign industries.
The new rulers, Prof. Roth says, seem to be doing the right
things in trying to undo the past bad decisions, but the adjustment
problems are so vast that the government's options are limited.
Unemployment, for example, has risen to high rates. Does the
government assume the costs of helping the affected people? If it
doesn't, it's a failure; if it does, it uses up the resources it could have
spent on modernizing its infrastructure to make it competitive.
China, finally, is faced with the same problems of untangling
the inefficiencies left by its former command economy, but it's
proceeding somewhat differently. Its government is trying to move
gradually -- unlike Russia, where everything has been left to operate
with no plan, or India, where plans that do exist can't be implemented.
For example, instead of abandoning its state-owned
enterprises, the Chinese government is restructuring them into a
corporate form with shareholders and the equivalent of boards of
directors. The government is transforming its role into that of a
shareholder. It continues to maintain control of the enterprise, but it
allows more freedom for management decision-making. The hope is
that in this way the enterprises will more readily be able to transform
themselves into competitively viable businesses.
All three, Prof. Roth believes, will eventually succeed in
making the transition. They simply have to. But as for which one will
get there first, he bets on China, where the gradual approach appears to
be paying off.
ALLAN ROTH, who has taught at Rutgers since 1969, was originally
interested in securities law and came later to his international
interests. He now serves as Director of International Programs for the
Faculty of Management.
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