Potential Reserve Army and Diverging Paths of Transition in (Former) Socialist Economies

Abstract

The causes of diverging transition paths of (former) socialist economies are best understood through a framework centered on the differences in the composition of their working classes; in particular, the sizes of their respective potential reserve armies. An examination of the historical process of market reforms in socialist economies suggests that a sizable potential reserve army could give rise to a gradual approach to market transition. In contrast, a negligible potential reserve army could lead to either a shock therapy or a long impasse.