Why transition still matters

Besley I produced the Transition and Transition Impact paper that helped to shape the assessment of transition impact and enhance the EBRD’s sustainability agenda in the years that followed. The Besley II report, Transition Impact and the EBRD’s Mandate, eventually led to the development of the new transition concept approved by the EBRD Board in November 2016.

The 2016 transition concept argued that a sustainable market economy – the goal of the EBRD’s countries of operation – should have six desirable qualities: competitive, well governed, inclusive, green, resilient and integrated.

The rationale for this rethinking was clear: while most EBRD countries of operation had moved from being centrally planned to market based, this transition resulted in substantial political backlash and even a reversal of reforms. To be sustainable and have political legitimacy, transition reforms had to promote innovative and competitive (rather than monopolised) markets, maintain equality of economic opportunity and political access, avoid damaging the planet and nature, and protect the economy and society from shocks associated with financial crises, food and energy price spikes, and supply-chain disruptions.

When the new transition concept was introduced, it was welcomed not just by the Board of Directors but also by the EBRD’s Banking teams, who found it easier to understand and to explain to EBRD clients. A couple of years later, our sister institution, the International Finance Corporation, adopted a similar approach; its Anticipated Impact Measuring and Monitoring (AIMM) system was also based on “market outcomes”. The five market outcomes at the time (very similar to the EBRD’s six qualities) have now been merged into three: competitiveness, resilience and sustainability (again, very similar to the Bank’s). Incidentally, in my view, the EBRD may also want to think about merging some of its six qualities, (for example, folding the “integrated” quality into the “competitive” and/or “resilient” quality).

In the last 10 years, the EBRD has faced a number of unprecedented shocks and major changes, including a global pandemic, a full-scale war in Europe and expansion to sub-Saharan Africa.

The 2016 transition concept continues to serve the EBRD well. I am certainly not objective, but I believe that it captures, in a comprehensive and flexible way, everything we need to know about socially and environmentally sustainable market economies. These six qualities are relevant to European, Asian or African countries, whether or not they have had a communist past.

One of the trickiest discussions in 2016 revolved around the use of the word “transition”. In the 1990s, it was clear that “transition” stood for “transition from planned to market”.

As most EBRD countries of operation had already built basic market institutions by 2016, however, talking about transition and transition impact seemed outdated.

Ironically, today, it is no longer a problem, as nobody remembers the “planned to market transition”.

All EBRD countries of operation, with or without a history of central planning, need to transition to a sustainable economy and society. The EBRD’s six qualities are, therefore, relevant for any economy.

Sergei Guriev
Dean at London Business School | Former EBRD Chief Economist