that, it would be futile to claim that one strategy is generally superior to the other without considering the effectiveness and feasibility of each policy instrument in each economy's context.

## 2 -4-2 Role of Government

The economic role of government in the capitalist economy has been well-articulated $ ^{3} $ . It is to provide a basic infrastructure both tangible and intangible which makes a foundation on which the market mechanism works, and to complement the market by supplying a wide spectrum of public goods. In other words, we may be able to widen the definition of ‘public goods’ by including all intangible and tangible goods and services to be provided by government.

According to this broad definition, 1) macroeconomic stability and 2) credibility of a policy framework in fighting against system risks are two of the most important 'public goods' that can be provided only by government. These two public goods are not mutually exclusive. Rather, they are closely linked with each other.

Macroeconomic stability has become generally accepted as the first priority not only in transition economies but in general. It is a basic precondition to mobilize domestic saving and attract foreign saving and then to boost domestic investment, thereby embarking on a dynamic growth path. If macroeconomic stability does not exist initially, adjustment costs to regain it would be unavoidable to some extent in the transition process as in the case of Eastern Europe.

However, the costs should be minimized and limited as far as possible only to relevant sectors. Economic reforms inevitably require income and/or asset redistribution as well as resource and/or production factor reallocation across various sectors. In China, the agricultural sector has realized steady growth and successfully supported non-state industrial sectors. In contrast, it seems that, in Eastern Europe, non-state sectors have been burdened by adjustment costs incurred by state-owned enterprises, although this observation might be too early to be definite.

Moreover, macroeconomic stability could be regarded as a guarantee for adequate managerial skills and determined political will of the government. Long-term economic decisions and plans could not be made without credibility of the policy framework or confidence on the continuity of the overall political-economic framework. This is more crucial in transition economies than elsewhere.

In this respect, the reform experience in China has told us much. Aside from political discussions, the government has loosened its leash step by step from centrally-planned to market-orientation, so that the short-and, perhaps, medium-term course of events has been more visible to economic agents than in Eastern Europe, at least relatively speaking.

It is sometimes pointed out that the recent dynamic growth of China has been accomplished significantly by the non-state sector so that substantial decentralization is the key factor. This observation does not necessarily contradict the above assertion, but rather strengthens it, because this decentralization reflects just a continuous reallocation of resources within the same policy framework. Note, however, that this is not to say that the present policy framework will continue to be effective and/or viable in the final stage toward