Lack of credibility is functionally equivalent to a distortion in the structure of intertemporal relative prices: economic agents base their actions on prices which differ from those that will materialise if the reform is carried out to fruition.#
The conventional package of reforms was too obsessed with deadweight-loss triangles and reaping the efficiency gains from eliminating them, and did not pay enough attention to stimulating the dynamic forces that lie behind the growth process. Seeking efficiency gains does not amount to a growth strategy. #
We know that growth happens when investors feel secure, but we have no idea what specific institutional blueprints will make them feel more secure in a given context.#
China was able to elicit inordinate amounts of private investment under a system of state ownership (township and village enterprises), something that Russia failed to do under Western style private ownership. Presumably this was because investors felt more secure when they were allied with local governments with residual claims on the stream of profits than when they had to entrust their assets to private contracts that would have to be enforced by incompetent and corrupt courts. #