Overview

Countries worldwide are attempting difficult transitions from state-planned to market economies. Most of these countries have fragile democratic regimes that are threatened by the high social and political costs of reform. Governments - and ultimately, societies - have to make hard choices about allocating scarce public resources as they undergo these transitions. A central, often controversial, and most poignant question is how to protect vulnerable groups and the poor. What compensation, what ""safety net"" will be provided for them? Carol Graham argues that safety nets can provide an environment in which economic reform is more politically sustainable and poverty can be permanently reduced. However, these two objectives frequently involve trade-offs, as vocal and organized opponents of reform (for obvious political reasons) often concern governments far more than the poor. The author examines these trade-offs in detail, with a particular focus on how political and institutional contexts affect the kinds of safety nets that are implemented. Graham offers specific examples of resource allocation in three regions: Latin America, Africa and Eastern Europe. Seh features case studies from Chile, Bolivia, Peru, Senegal, Zambia and Poland.

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Carol Graham is a senior fellow in the Economic Studies program and codirector of the Center on Social and Economic Dynamics at the Brookings Institution.

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