EUROPEAN ELSEVII uropean Economic Review 43(1999)1085-1094 Economics of transition and Chinas Reforms Why is China different from Eastern Europe? Perspectives from organization theory Yingyi Qian. *, Gerard Roland, Chenggang Xuc Department of Economics, Stanford Unirersity. Stanford, CA 94305. USA ECARE Universite Libre de bruxelles. Brussels. Bel epartment of Economics, London School of Economics, London, UK Abstract We draw from recent work in organization theory to explain the differences in reform trategies between China and Eastern Europe. An experimentation approach was ad- opted in China whereas a big bang approach was more favored in Eastern Europe. The explanation is based on differences in the organizational structure of central planning: U-form in Eastern Europe and M-fc China. The M-form is more flexible because it makes local experiments possible, contrary to the U-form where this would give rise to major complications in coordination. C 1999 Elsevier Science B V. All rights reserved. JEL classification: P3: P5 Keywords: Transition; Organizational form; Coordination; Experimentation; China 1. Introduction Reforms in Eastern Europe and China are often contrasted as comprehensive VS partial; rapid vs. gradual; big-bang'vs. experimental. Moreover, Chinese gradualism was characterized by local experimentation with reforms. Partial experiments with reforms were more scarce and mostly unsuccessful in Eastern Corresponding author. Tel: 650723 3984; fax: 650725 5702; e-l an@leland. stanfordedu 0014-2921/99/S-see front matter C 1999 Elsevier Science B.V. PI:S0014-2921(98)00116-0European Economic Review 43 (1999) 1085}1094 Economics of Transition and China's Reforms Why is China di!erent from Eastern Europe? Perspectives from organization theory Yingyi Qian!,*, GeHrard Roland", Chenggang Xu# ! Department of Economics, Stanford University, Stanford, CA 94305, USA " ECARE, Universite& Libre de Bruxelles, Brussels, Belgium # Department of Economics, London School of Economics, London, UK Abstract We draw from recent work in organization theory to explain the di!erences in reform strategies between China and Eastern Europe. An experimentation approach was ad￾opted in China whereas a big bang approach was more favored in Eastern Europe. The explanation is based on di!erences in the organizational structure of central planning: U-form in Eastern Europe and M-form in China. The M-form is more #exible because it makes local experiments possible, contrary to the U-form where this would give rise to major complications in coordination. ( 1999 Elsevier Science B.V. All rights reserved. JEL classixcation: P3; P5 Keywords: Transition; Organizational form; Coordination; Experimentation; China 1. Introduction Reforms in Eastern Europe and China are often contrasted as comprehensive vs. partial; rapid vs. gradual; &big-bang' vs. experimental. Moreover, Chinese gradualism was characterized by local experimentation with reforms. Partial experiments with reforms were more scarce and mostly unsuccessful in Eastern * Corresponding author. Tel.: 650 723 3984; fax: 650 725 5702; e-mail: yqian@leland.stanford.edu. 0014-2921/99/$ } see front matter ( 1999 Elsevier Science B.V. All rights reserved. PII: S 0 0 1 4 - 2 9 2 1 ( 9 8 ) 0 0 1 1 6 - 0