Economic reforms are on the agenda in many countries. Europe comes to mind because of its dismal growth performance. In early August, the announcement of a GDP decline in Italy underlined the need for action and it prompted a call by Mario Draghi, president of the European Central Bank, for strengthening the EU oversight of national reforms (or the lack of them). But Europe is by no means the only place in the world where governments must consider ways to bolster economic performance.
The same is true in India, where Narendra Modi, the new prime minister, has committed to pro-growth reforms. Brazil also has experienced an economic slowdown. Whoever wins the next presidential election will have to implement an array of reforms to foster development. Even fast-growing countries like China are making plans to improve their performance structurally, change the composition of growth and pay more attention to sustainability and income distribution.
The question in this context is: What is the right strategy for reforming? Should, for example, all key measures be introduced at once? Or is gradualism preferable? When fiscal adjustment is also needed, should it be regarded as a complement to structural reforms, or should it be delayed? A quarter of a century ago, these issues were hotly debated in the context of the transition to the market of the former communist countries. Poland exemplified the radical reform strategy, while China under Deng Xiaoping epitomized the gradualist approach. Both had staunch partisans.
With hindsight however, it is clear that radicalism vs. gradualism was too simple a choice to make sense. Both Poland and China in fact reached their aims, having each adopted a strategy in line with their own economic and political situations. From this experience, however, it does not follow that all reform strategies are equally effective. In too many cases, governments pick and choose from the list of potential reforms the ones they consider the most expedient politically. But what Dani Rodrik of Princeton University calls the "laundry list approach" is generally highly inefficient.