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DESIRABLE PROPORTIONS OF ALLOCATION

Principle 8—Harmonious growth: There must be harmonious proportions between the resources devoted to investments that directly promote rapid growth and those spent on the welfare sector.

Two extreme views are often heard in the welfare debate. One places a one-sided emphasis on the losses entailed in the transition and fails to acknowledge that the best way to overcome present difficulties is by encouraging the long-term growth of the economy. However trivial this may seem to an economist, it is consistently ignored by those who favor maintaining the welfare-state status quo. They dismiss the elementary economic argument that living standards for the majority in the post-communist countries will never attain the present average level in the West until there is sufficient investment to produce lasting and sufficiently rapid growth.

At the other extreme is the view that sacrifices welfare spending in favor of investment projects. Statistical examinations covering several countries show that in the long term, the fastest growth has taken place in the Southeast Asian countries that spend least on welfare provisions. The authors either leave Eastern European readers to draw their own conclusions, or state plainly that if they want to catch up with the West, they should follow the Southeast Asian model.

To me, as a member of the older generation, this emphasis on very rapid growth sounds familiar. One of the watchwords of the Stalinist-Khrushchevite economic policy was, "Let us catch up with the West as soon as possible." This view led to a forced growth strategy and consequent distortions in the economic structure, a key result of which was that people's immediate welfare needs were ignored (Kornai, 1972). This bias created grave problems within the socialist system, the consequences of which have yet to be overcome. It would be a shame to repeat this failed strategy.

A different conclusion is reached if the international comparison is based not on the relation between aggregate welfare spending and rate of growth, but on that between aggregate welfare spending and level of economic development. As a country develops, state spending on health, education, culture, child care, and the elderly increases. The connection is not deterministic, since it is affected by other factors as well, including the political complexion of the government and cultural traditions. Still, there is a close correlation between overall economic development and government spending on welfare. This correlation is demonstrated in Figure 10-2 and Table 10-4.

Departure from the most desirable proportion between government welfare expenditure and level of development might occur in two directions: too much or too little spending. As an "overcompensation" for the excesses of



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