THE SoFT INFRASTRUCTURE OF A MARKET ECONOMY

A Western economist’s first visit toa socialistnation is an eye-opening experience. One’s first impressions are rather like those from visiting the poorer regions of our own economies—most visibly the lower levels of creature comforts, health, and environmental conditions. It would be a mistake, however, to explain the differences between the market and socialist economies in terms ofthe conditions that explain the differences over time or among regions in the productivity and average income within a market economy. An economist studying a market economy, for example, is most likely to focus on the differences in human skills, private and public investment, and natural resources, and the incremental or small dif-ferences in government policy. We are less likely to study the basic institutions of a market economy, because they have changed only gradually over time and are common across the nation. Indeed, our standard graduate training in economics hardly mentions these insti-tutions, and few economists have more than a shallow understanding of their importance. The most important differences between the market and socialist economies, however, are the less-visible or quantifiable differences in these basic institutions. I am not a specialist in the socialistecono-mies, so my understanding of the Soviet economy is necessarily secondhand. For the past several years, however, the inchoate reforms in the socialist economies and my own brief visits to several other socialist economies have led me to reflect on the basic institu-tions, or “soft infrastructure, ” of a market economy. The present paper gives me an opportunity toshare my reflections in a systematic way