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“Reform” in the economics literature refers to changes in government policies or institutional rules because status-quo policies and institutions are not working well to achieve the goals of economic wellbeing and development. Further, reform refers to alternative policies and institutions that are available which would most likely perform better than the status quo. The main question examined in the “political economy of reform” literature has been why reforms are not undertaken when they are needed for the good of society. The succinct answer from the first generation of research is that conflict of interest between organized socio-political groups is responsible for some groups being able to stall reforms to extract greater private rents from status-quo policies. The next generation of research is tackling more fundamental and enduring questions: Why does conflict of interest persist? How are some interest groups able to exert influence against reforms if there are indeed large gains to be had for society? What institutions are needed to overcome the problem of credible commitment so that interest groups can be compensated or persuaded to support reforms? Game theory—or the analysis of strategic interactions among individuals and groups—is being used more extensively, going beyond the first generation of research which focused on the interaction between “winners” and “losers” from reforms. Widespread expectations, or norms, in society at large, not just within organized interest groups, about how others are behaving in the political sphere of making demands upon government; and, beliefs about the role of public policies, or preferences for public goods, shape these strategic interactions and hence reform outcomes. Examining where these norms and preferences for public goods come from, and how they evolve, are key to understanding why conflict of interest persists and how reformers can commit to finding common ground for socially beneficial reforms. Political markets and institutions, through which the leaders who wield power over public policy are selected and sanctioned, shape norms and preferences for public goods. Leaders who want to pursue reforms need to use the evidence in favor of reforms to build broad-based support in political markets. Contrary to the first generation view of reforms by stealth, the next generation of research suggests that public communication in political markets is needed to develop a shared understanding of policies for the public good. Concomitantly, the areas of reform have circled from market liberalization, which dominated the 20th century, back to strengthening governments to address problems of market failure and public goods in the 21st century. Reforms involve anti-corruption and public sector management in developing countries; improving health, education, and social protection to address persistent inequality in developed countries; and regulation to preserve competition and to price externalities (such as pollution and environmental depletion) in markets around the world. Understanding the functioning of politics is more important than ever before in determining whether governments are able to pursue reforms for public goods or fall prey to corruption and populism.

After years of communism and central planning, Russia and China embarked on broad transformations from planned to market economy and limited political liberalization reforms. Chinese reforms commenced in 1978, while those in the Soviet Union started in 1991. The two countries took contrasting paths to economic reform, and their experiences during economic transition have been viewed as polar opposites. The reform experiences of Russia and China sparked intense academic debates over a variety of issues surrounding transition from communism to market economy. The primary source of scholarly disagreement is whether the pace, the sequence, or country-specific initial conditions determines the success of economic and political reforms. The debates revolved around questions such as whether there is a relationship between economic processes and political reforms in the transitional states, or whether economic liberalization should pave the way for political liberalization. Two dominant approaches to transition from socialism to capitalism advanced in the literature are “shock therapy” and gradualism; the former was adopted by the Russians and the latter by the Chinese. Several lessons can be learned from the Russian and Chinese transition, such as the impact of structural forces on the leadership’s policy preferences and the importance of tenable development policies to ensure the success of economic reforms. Notwithstanding these lessons, there remain a number of questions that deserve further investigation, mainly in terms of the role of China and Russia in world politics.

The activities of International Monetary Fund (IMF) and the World Bank (together comprising the Bretton Woods Institutions) in Africa have continued to generate questions about the impact of economic reforms on democratization and economic growth. The Bretton Woods Institutions strongly believe that economic growth contributes significantly to poverty alleviation efforts and hence generates improvements in living standards, particularly in developing countries, including those in Africa. In the mid-1980s, as many African countries struggled to service their external debts and qualify for additional credit to provide services to their citizens and promote economic growth and development, the World Bank and the IMF offered to help them. However, the Bretton Woods Institutions conditioned their assistance on the willingness of each African country to undertake necessary structural reforms, which included a reduction in the public sector, devaluation of the national currency, deregulation of the foreign trade sector, and more reliance on markets for the allocation of resources. These aid programs, which came to be known as Structural Adjustment Programmes (SAPs) consisted of conditional lending to African countries in economic crisis. At this time, the World Bank felt that the effectiveness of its development programs in Africa and other regions of the world was being undermined by bloated and dysfunctional bureaucratic structures and governmental systems that were hostile to the market generally and entrepreneurship in particular. The World Bank’s desire to condition the extension of credit to African countries on institutional reforms was supposedly to improve bureaucratic efficiency, as well as economic performance, and enhance the effectiveness of the World Bank’s projects in these countries. Thus, the IMF and the World Bank emerged in the 1990s as major players in efforts to improve economic growth and development in Africa. The SAPs were expected to improve macroeconomic performance, produce rapid economic growth, achieve economic diversification, and provide each African country with the resources that it needed to confront poverty and improve national living standards. In fact, in 1994, the World Bank expressed a lot of optimism about the impact of SAPs on African economies. However, many critics have argued that SAPs had virtually no positive impact on the macroeconomic performance of African economies and, instead, created a series of internal political and economic contradictions that have continued to haunt the continent to this day. As a result, critics say, many countries that implemented SAPs continue to suffer from high levels of poverty and became more dependent on external financial resources (such as loans, development aid, and food aid) than before they got involved with the Bretton Woods Institutions and their adjustment programs.

China’s history in the past one hundred to two hundred years has been full of dramas, changes, progresses, and setbacks. This article navigates China’s trial-and-error process regarding accepting incoming Western technology, trade practices, institutions, and ideology/cosmology, things that were genuinely attractive to the Chinese elite but were at the same time largely incompatible with China’s own age-old, well-entrenched, and highly functional traditions. This set the stage for a difficult birth for modernity in China in comparison with neighboring Japan, for example, despite the fact that most ideas of learning from the West originated in China before traveling to Japan. The more progressive party inside the Chinese establishment was made of enlightened individuals who understood the costs and benefits associated with learning from the advanced West. The real challenge came from the question of how to reduce the cost and thus tip the balance in favor of accepting good things from the West. Given that Qing China had a small and cheap Confucian state that commanded only a tiny proportion of China’s wealth, to build a larger state from within became the precondition for China to learn from the West, a point that has only recently been recognized with the rise of the progressive California School and the decline of the groundless Oriental Despotism Hypothesis. It has become clear that much depended on China’s domestic conditions and internal timing, rather than external persuasion accompanied with an increasing degree of political violence that stemmed from Western military supremacy. It is thus not surprising that the 1839–1840 Opium War merely woke China up while the 1850 empire-wide social unrest started to change China from within. What followed was a combination of state rebuilding and economic modernization with or without external threat, a national obsession that continued until Deng Xiaoping’s reforms after 1980.