Rhetoric vs. Reality Revisited

In "Globalization and Its Discontents," Joseph Stiglitz is one of the most recent economists to make the case for a gradual approach to economic reform. After looking at the successful transitions in China, Hungary, and Poland, Stiglitz (2002: 188) reaches the conclusion that "gradualist policies lead to less pain in the short run, greater social and political stability, and faster growth in the long [run]." While Stiglitz speaks with an air of confidence about the merits of gradualism vis-à-vis shock therapy, there is no conclusive evidence that a gradual approach outperforms more rapid reform approaches. In the debate over shock therapy versus gradualism, there are literally hundreds of articles defending one side or the other. This paper is an attempt to set the record straight on the evidence for and against shock therapy. It is not an attempt to address the overall debate on shock therapy versus gradualism. This working paper is instead a plea to the economists doing work on transition and development economics to make sure they have their stories straight before making policy pronouncements in favor of a particular reform approach.