Partial liberalisation leaves the incentives of the old system intact

The argument

Proponents of shock therapy rarely begin by praising speed for its own sake. They begin from a claim about how the parts of an economic system fit together, and the conclusion about speed follows from it. On this account, the instruments of a controlled economy are mutually supporting, and so are the instruments of a market one. Prices that are free to move only allocate resources if the enterprises facing them must cover their own costs. Hard budgets only discipline enterprises if credit is priced and lending decisions can be refused. Open trade only forces efficiency if the exchange rate is allowed to find a level. Remove any one control while leaving the rest, proponents argue, and the result is not a half-reformed economy but an incoherent one, in which the freed margin becomes an opportunity to arbitrage against the part still administered. Liberalised prices alongside soft credit produce inflation without discipline. Private trading alongside subsidised inputs produces profit from diversion rather than from production. The practical conclusion is that the package has to move together, because the complements only work as complements. Proponents of this position accept that the adjustment is severe and that it is experienced as a shock; what they dispute is that a gentler sequence is available. A reform that proceeds control by control spends years in the configuration that performs worst, giving everyone inside it both the incentive and the means to profit from the gap between the two systems. On this reading the choice is not between a fast transition and a slow one, but between a short period of acute dislocation and an extended period in which the distortions of the old system are reproduced in new and more profitable forms.

Premises

Counter-arguments

Critics answer that the complementarity argument proves less than it claims. That measures reinforce one another establishes a direction of travel, not a speed, and reforms can be sequenced so that each step is paired with the support it needs without the whole package arriving at once. They also argue that the incoherence charge cuts both ways: a package imposed faster than administrative capacity allows produces its own arbitrage, because rules written quickly are enforced badly. The strongest objection is that the argument treats the counterfactual as settled, when what a slower path would have produced is precisely what is in dispute.

Rejecting the premises

[Rejecting P1] Complementarity is a matter of degree rather than an all-or-nothing property; many reforms work partially when introduced alone, and treating the measures as an indivisible set is an assumption rather than a finding. [Rejecting P3] Participants profit from the gap between regimes at any speed, since a package imposed faster than administrative capacity allows produces rules that are badly enforced and therefore equally open to arbitrage. [Rejecting C] The conclusion depends entirely on a counterfactual about what slower reform would have produced, and that counterfactual is the matter in dispute rather than evidence for one side of it.