This document discusses the political economy of reforms. It notes that initial reforms often generate winners and losers, increasing inequality, and this distributional impact can lead to public backlash and the rise of anti-reform populists. It also discusses how the 2008 financial crisis and expansion of the internet further eroded public trust in elites and established parties. To move forward, the document argues for policies promoting fair competition, redistribution, rebuilding trust in institutions, and better communication strategies to counter populist narratives online.

1. The changing political
economy of reforms
Sergei Guriev
Sciences Po, Paris

2. The traditional narrative
Distributional impact: reforms generate winners and losers
• Must be able to compensate the losers
• Need state capacity to redistribute
Time dimension: short-term pain, long-term pain
• Need patient voters and their confidence in the elites
• Need long-term oriented elites
• E.g. established political parties
Communication strategy: good reforms sell themselves
• Need public trust in experts
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3. Challenges already before the global crisis:
Lessons from the post-communist transition
Major backlash after the first round of reforms
• Reforms delivered on average
• But not for the median voter:
only for the top 44% transition reduced the income gap vs. the West
• Not just rise in inequality but rise in unfair inequality
• Emergence of oligarchs with political influence and media ownership
The backlash brings anti-reform populists to power
• Build crony capitalism
• Subvert (relatively weak) democratic checks and balances
• Pro-reform politicians cannot come back to office
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4. Share of respondents supporting market economy
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Source: EBRD (2016)

5. Evolution of income distribution in post-
communist countries
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Source: EBRD (2016)

6. A typical country-level “elephant curve”: Russia
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Source: EBRD (2016)

7. Political economy of reforms after the crisis
European (and American) trust crisis
• Rise in unemployment -> rise of populist vote
• And decline in trust in national and European elites
• No impact on interpersonal trust
• Disintegration of traditional parties
Internet and the populist narrative
• expansion of mobile internet reduces confidence in government
… benefitting populist opposition (but not the green opposition)
• “this time is different”: social media have low barriers to entry + user-generated content
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Source: Algan et al (2017)

9. 29/11/19 Sergei Guriev 9
Source: Guriev et al (2019)

10. 29/11/19 Sergei Guriev 10
Source: Guriev et al (2019)

11. Way forward
Fair competition and anti-oligarch agenda
• Anti-trust policies
• Political and media anti-trust
Fair redistribution
• Fighting global tax evasion
• Increase labor’s bargaining power: UBI vs. unions/min.wages?
• Equal access to public goods
Rebuilding trust
• Deliberative/participative democracy (citizens’ assembly, participative budgets etc.)
• Opening up elite selection
Communication strategy
• Time to stand up to populists online
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