One of the least expected developments in the economies in transition is the resurgence in the popularity of former Communist parties. In Bulgaria, Hungary and Poland, recent elections have resulted in former Communists returning to power. This raises a number of questions: why should there be dissatisfaction with the transition process given increasing consumption levels for instance, and how does political support for reforms change over the course of the transition?

In Discussion Paper No. 1115, Research Fellow Dani Rodrik seeks to answer these questions by considering a simple model of economic transition in order to analyse the dynamics of preferences over economic policy. The economy is modelled with two sectors: a high productivity private sector, which initially employs a small share of the economy's workforce, and a low productivity state sector, where the majority of the population is employed at the outset. In the early stages of the transition, the private sector expands at a rate that is lower than the rate at which the state sector is contracting, with the result that unemployment first rises and then falls. The government's policy consists of a subsidy to the state sector, which has the effect of slowing down the transition. The analysis focuses on the dynamic evolution of workers' preferences over the level of the subsidy. A worker in the private sector always prefers the lowest possible subsidy to the state sector. The same is true of an unemployed worker as well, as the subsidy only reduces the number of new jobs created without reducing the number of job seekers. But state sector workers have ambiguous feelings over reform strategy and their preferences change over time, since the probability of finding a higher paying private sector job declines as the transition unfolds.

The Dynamics of Political Support for Reform in Economies in Transition
Dani Rodrik

Discussion Paper No. 1115, January 1995 (IM/IT)