Gradual Economic Reform

A gradual approach to the implementation of economic reforms has benefited many countries. Losses from economic reforms are immediate, while gains accrue over time. Gradual economic reforms help to offset the immediate losses. Moreover a gradual approach also helps to bring down the resistance to economic reforms.
Economic reforms undertaken by several countries since the 1970s have been gradual in nature. These gradual economic reforms have mostly been adopted by the developing economies. A gradual, step by step cumulative approach to economic reform programs has yielded encouraging results in terms of economic growth in many countries.

Countries in Latin America and China have adopted gradual economic reforms. Reforms generally do not seek to bring about sudden radical or fundamental changes unlike revolution.

Gradual economic reforms ensure that the structural changes arising out of reforms can be sustained. Moreover the society and its constituents get time and opportunity to adjust to the changes over time. The initial stages of economic reforms are always the most difficult ones. Shifting from an accustomed economic pattern to an absolutely new one can include complex adjustments.
Adopting a gradual approach to the implementation of economic reforms helps to a certain extent to offset the initial concerns.

The benefits of economic reforms accrue over a long period of time while some immediate losses have to be bourn by an economy in order to implement the reform measures. For example some public sector workers may loose their jobs or have to forego part of their wages during the privatization of public sector units. The immediate losses from the implementation of reform measures can be difficult for some economies to sustain and continue proceeding with reforms. In such a case the economic reforms would be interrupted and loose effectiveness. On the other hand, implementing gradual economic reforms ensures long term sustainability. In such a case, for example, privatization of public sector units can be taken up in a step by step approach, thereby negating the threat of a sudden surge in unemployment. Many countries have adopted this approach, taking up Structural Adjustment Programs (SAPs) along with the reform measures to offset the initial problems and increase sustainability.

Another important aspect, in this regard, is the resistance to economic reforms. Economic reforms generate competition thereby creating economic winners and economic losers. The groups, who are under threat of losing their interests due to reforms, put up strong resistance against it. Public sector workers, bank employees, political opposition in a country are known to put up strong resistance to reforms, delaying their implementation and disrupting the process. Again in such a case, implementing the reforms gradually, without affecting large interest groups at the same time, helps in bringing down the resistance to economic reforms. Gradual economic reforms increase the possibilities of successful implementation of economic reforms without major disruptions.

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Last Updated on : 26th June 2013

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