From Shock Therapy to Sleep Therapy

If the 1990’s was the era of economic shock therapy, the present decade may be remembered for economic reform paralysis. Although the reasons for gridlock differ across countries, the bottom line is that few politicians anywhere are having much success in limbering up their economies.

The problem is not just in emerging markets such as Indonesia, Mexico, and Brazil, where an ascendant left has failed to find a viable alternative to the much reviled “Washington Consensus” of economic liberalization. One sees the same phenomenon across many rich countries as well.

In a remarkable coincidence of timing, Japanese Prime Minister Junichiro Koizumi and German Chancellor Gerhard Schroeder called for early elections in the hope of energizing reform. In Germany, the most urgent needs are for tax and labor-market reform. In Japan, the Koizumi government wants to privatize the behemoth postal service, whose giant financial arm is wrapped like a python around the country’s banking system.

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