THE COMPLEX ISSUE OF TRANSFORMATION IN EASTERN EUROPE
When considering the phenomenal modalities of the transformations in Eastern Europe (EE) in general and the failure of the economic models applied in the region in particular, it becomes obvious that two areas have been underestimated by theory of transformation. First, little attention has been paid to the broader socio-cultural environment in post-communist countries. Second, the problem of hastily applied and unadjusted (neo-) liberal models has not been examined conclusively. Both areas are of course interrelated and connected to the issue of continuity and discontinuity in the Eastern European transformations. In this context, the problem of the inability of the political domain to create necessary conditions for a functioning standard market mechanism ought to be the focus of comprehensive assessment of transforming economies.
Modern political comparatists seem to know one or two things about political and policy requirements regarding development of capitalism; however, even if this is the case, what they know is often tentative and pertaining to the Western experience only. They have been divided over requirements and implications of capitalist formation processes elsewhere, particularly when dealing with conceptualization of this problematic in transforming post-communist societies. Not only we deal in the latter case with the fact that the assumed original and "natural" course and order of capitalist economic development had been once reversed or diverted in the region and had to be created or recreated, but also with the fact that this (re-) birth of liberal democracy and market have been hampered by the surviving obstinate legacies of the collapsed communist monopolist rule (state socialism). As a result, in EE we have faced the complex and interrelated processes enfolding simultaneously without any proven blueprint or precedent, to which some refer to as the multifaceted transformation.(1) Accordingly, most students of Eastern Europe have agreed on that the economic and political aspects of transition/transformation have been very closely interrelated; though the modes of this relationship are so far rather underestimated in the theoretical and analytical work. The purpose of this paper is to investigate some aspects of the specific dynamism between the economic and the political spheres--by bringing to attention some inadequacies in the attempts to graft liberal (or "neo-liberal") models of capitalism (that have been the end-results of many decades of unique evolution in the Western societies) on societies with distinct cultural characteristics and existing in a different historical era.
PARADOXES OF INHERENT CONDITIONS IN EASTERN EUROPEAN TRANSFORMATION
At the centre of an analytical assessment of the dynamics of the transformation processes is the dilemma of continuity versus discontinuity; continuity as embodied in the legacies of communist rule and discontinuity as a deliberate effort to reorganize the system from the previous "communist" one. In an "ideal" model of post-communist transformation, reform discontinuities ought to take into full account the nature and the scale of continuities, especially those on the social and cultural levels (however not limited to these spheres only)--which has very rarely been the case.
Multiple and simultaneous transitions in post-communist Eastern Europe have also meant more or less parallel beginnings of the political and economic transitions. Nevertheless, political transition (understood here as the change of the regime) has been completed faster that economic transition. According to Balcerowicz, this asymmetry "produces a historically new sequence: mass democracy l(or at least political pluralism, i.e., some degree of legal political competition) first, and market capitalism later."(2) Although this may not apply to all post-communist states to the same degree, most of them have been affected by a set of tensions within this asymmetry. As a result, the objectives and the process of transformation have been marked by multiple paradoxes. They can be seen as inseparable from the starting conditions and as representing inherently contradictory requirements of the post-communist transformational project.
1. The Paradox of the State
The post-communist state declared as one of its main goals to give up its all-pervasive and omniscient role. At the same time, the state has an obligation to manage, at least temporarily, the transitional processes which are prohibitively complex in their nature. The debate about the proper role of the state in creating conditions for transformations has been inconclusive: and reflected in the tentative status of reforms.
2. The Paradox of Elites
The "new" or "reform" elites often rose up from among the old communist cadres, since under the totalitarian regime, others had been kept out of the option to acquire necessary skills. This has perpetuated many old (non-democratic) attitudes and habits and prevented a genuine democratization. Recruitment of by communism untainted elites have been blocked by the old ones and proved difficult also for other reasons. This paradox is mirrored by
3. The Paradox of Capitalism
At the centre of it is the concept of de-nationalization (privatization) and creation of a capitalist class (entrepreneurial elite). The outstanding issue here is how to reconcile requisites of legality, effectiveness, and fairness in the process of privatization in an environment in which virtually nobody had (legally acquired) means to buy larger state-owned assets. At the same time, almost nobody except for the former nomenklatura have the expertise to manage the economy and individual companies. The ultimate question is whether a market can develop an appropriate normative order under the conditions in which the ethics and practices of the old system (hardly consistent with those required by the workings of the markets) are perpetuated.
4. The Paradox of the Standard of Living
In many countries, the pressure that resulted in the collapse of old regimes had been mostly economic, not ideological. While the old economic system has been in the process of being dismantled and a new one of being created, the masses have suffered from the deterioration in their standard of living--the opposite of what their intention had been to achieve. Opinion on how to compensate for the social costs, vary widely; not surprisingly, they include demands for old securities--perhaps a "capitalism with a human face."
5. The Paradox of Democracy
According to standard theories, a certain level of economic development creates conditions for democracy to evolve and take roots. If democracy precedes economic development, there is a danger that conflicts, which in the early phases of transformation inevitably arise, cannot be solved because of lack of economic resources.
6. The Paradox of Time
The ad hoc timing, sequencing, and "time-horizons" of individual transformational steps (and their synchronization) have negatively affected the fate of many reform policies, while these time-factors have generally been underestimated. From the point of reform support, it seems vital that a relatively good economic performance and reasonable standard of living be reached as soon as possible. This is, of course, virtually impossible; the realistic time horizon for comprehensive reforms to materialize would be rather in decades and generations. Meanwhile, the patience of the population at large may have some limits, however.
Such contradictory conditions and requirements have become part of the underlying paradox of post-communist transformation: that of "Worn-out Faith and Trust." On the one hand, Eastern Europeans were asked to embrace values that had once been vigorously rejected by their communist elite. On the other hand, their hopes and efforts have often been in vain. They have also been deprived of the opportunity to make use of a congenial model or "how-to-do" books that would guide them. Without seeing the results around the corner, less privileged groups and individuals, often comprising a majority of the population, have lost their faith that ultimate results will be worth all the sacrifice.
THE ORDEAL OF DEMOCRACY IN EASTERN EUROPE
We may assume here that generally there exist a substantial interaction and correlation between the dynamism of the political sphere and the dynamism of the economic and social transformation.
We may also assume (and the literature seems to confirm the trend) that a higher level of economic freedom supports a higher level of political freedom (democracy). We also know that capitalism--as a system producing some fundamental inequalities--has not generally been too supportive of substitutive forms of democracy--it is such forms which would enhance the degree of equality in the political sphere and introduced a conclusive (and inclusive) fairness into the economic and social spheres (the latter, for instance, on the basis of consensually accepted notion of justice). These problems have yet to be addressed both on theoretical and practical levels.
As Claus Offe and others have noted, the transformation processes underway in EE have been historically unique. According to this view, the existing conditions of transition in post-communist EE and all variables and modalities regarding the economic and political trajectory have been exposed to both the products of their interactions and to the influence of universal and external factors, to the degree that temporary outcomes hardly resemble any recognizable stage in the development of capitalism in Western countries.(3) Several attempts to elaborate on a theoretical framework which would embrace the specific features of the East European transformation have been made, but so far the transformational project has been rather left to spontaneous evolution and after-the-fact assessments than subjected to actual theoretical modeling or comprehensive theory building. "Theories of transformation" have been produced only on the general-approach level. "Particular" models, such as the "(neo-) liberal" one--as well as implementation models derived from them--have mostly not only ignored the specific legacies (social, politico-cultural, psychological) of the communist rule, but have also generally underestimated the difficulties associated with the establishment of democratic and market institutions.
Regardless of the fact that many post-communist countries may qualify as polyarchies, at least nominally (i.e., from the procedural point of view), the nature and substance (and stability) of their democracy remain questionable. For a number of Eastern European countries has been valid the point Stephen Holmes has made of the political system in Russia:
Russia mounts elections and tolerates a free press, but it does not have democracy. Why not? Voting in Russia is not a means by which citizens discipline their rulers. Elections in Russia, in fact, do not create power. For the most part, they mirror the power that already exists. Incumbents find their supporters in hidden networks. They do not draw their power, in any way, from the majority of average voters, which is why the public, although bitterly resenting its rulers, has given up actively opposing the government. Russian elections do not produce anything even vaguely resembling accountable or responsive government largely because of institutional weakness.(4)
Typical features of the political transformation in most East European countries have included the excessive and distorted (pathological) fusion of the political and economic spheres, with all the negative implications for managing economy and politics (corruption, criminalization of economic activities, social polarization, moral decline, etc.). This mutually parasitic constellation is mostly due both to the legacies of communist rule and to the deficiencies in the new legal-regulatory framework in which the state is not effectively autonomous and lacks independent and efficient professional administration. The question is, to which extent such a quasi-democratic mode may be corrected in the foreseeable future? Speaking of "sustainability" or "consolidation" of democracy in EE, we should carefully consider whether forms of democracy found in the region meet at least the minimal standards of advanced Western polyarchies an how they are improved or maintained, or whether they languish or degenerate into quasi-forms known from many Third World countries.(5) The latter political modalities when occurring in transforming countries might in turn worsen the conditions and the prospects of economic transformation. In this way, the economic and political reforms in most of Eastern Europe have reached a mutually reinforcing and paralyzing vicious circle of unfulfilled promises.
WHAT KIND OF CAPITALISM? THE CASES OF RUSSIA AND THE CZECH REPUBLIC
The liberal model and its "neo" variants that were opted for and simplistically interpreted by most post-communist countries have primarily focused on the market dimension of transformation. Here, privatization became the preferential task of reforms. Even though in some countries this logically inevitable task has been carried out more successfully than in others (e.g., in Hungary), it has become a cumbersome stumbling block in virtually all countries. This process--which is daunting even under normal circumstances--has often been associated with problematically designed and poorly implemented privatization schemes. As a rule, "privatization programs" have been based on simplistic assumptions: It was believed that several general political and/or macroeconomic--especially monetary--policy decisions, together with a handful half-baked laws and quasi-political directives can create a standard market environment, even without taking into consideration the weakness of the starting conditions and the complexity of the task. What East European countries have often achieved as a result of such measures was proliferation of symptoms of "unfettered" capitalism resembling the 18th and 19th centuries' capitalism in the West. The main difference being, perhaps, that Gilded Age of American capitalism in the late 19th century, though rife with social polarization and abuse, functioned within a powerful code of Protestant conviction which hold that gaining wealth was connected to certain virtues and also a certain amount of trust and responsibility. In EE, given the lack of cultural restraint and elite underdevelopment, as well as the one-sided emphasis on the market dimension of society and ignoring pro-active measures in support of other sectors, this has led to economic paralysis and to thwarting of some vital self-regulatory functions of society and generally to the stagnation of society's productive and self-reproductive functions.
THE CASE OF RUSSIA
Any discussion on the state of capitalism and society in today's Russia ought to begin with some undisputed facts. Potentially a rich country, Russia has recently been now plagued with a dilapidating industrial base, unpaid wages and taxes, the capital outflow, economy without capital and rife with crime, social devastation (such as the low life expectancy--22% of Russians living below the official poverty line of some $70 a month), all as a result of the eight-year rule by "reformists."
As a recent OECD Survey has showed, the fiscal dilemma encountered by Russia at each level and in almost each sector is logically related to problems in corporate and public governance. Declining enterprise profits and liquidity, the predominance of insider-controlled firms, poorly-developed financial markets, and various incentive problems at the micro-level have hindered restructuring of economy and contributed to further declines in investment and production activity. In addition, a growing trend toward the integration of enterprises, financial institutions, and government organs in financial-industrial groups has posed increasing challenges for ensuring fair competition and transparency in economic policy. The environment for small businesses and entrepreneurship has also been marred by many problems.(6)
What has been seen as a panacea against the industrial decline and public insolvency until now--the privatization project--has not yielded any meaningful results.(7) Grigorii Yavlinskii, the leader of the Yabloko party (who is, by the way, an ardent advocate of a market economy), has recently argued that transferring ownership from the state to private persons would not, in itself, guarantee the emergence of a standard market. He has suggested that while 82% of all enterprises in the Russian Federation no longer belong to the state, at the same time, few are genuinely privately owned. In fact, their new "owners" are the old communist-era bosses-managers, who consider their new possessions to be more like the collective farms of the past than the private enterprises of a market economy. That is, they do not seek to invest and to maximize their profit in competition with other firms but rather to maximize their immediate personal wealth and to gain additional subsidies from the state. Yavlinskii has warned that such "disinvestment" not only pushes any turnaround in the Russian economy further into the future, but also means that any future growth will start at a far lower level and with far fewer available resources. According to him, both the "owners" and the bureaucrats with whom they are allied generally oppose any real reform lest it challenge both their incomes and power. For all these reasons, Yavlinskii has suggested, Russian privatization has done little to bring about a genuine reform (as well as some prosperity) as many in both Russia and the West had expected. Instead, privatization has often had the effect of reinforcing rather than undermining Soviet-styles of economic activity and has done little to mobilize necessary resources for technological modernization.(8)
With unpaid and shrunk real wages, consumer spending was forced to collapse at the same time that exports within the formerly socialist trading bloc imploded in a chain reaction. For all the talk of creating a market economy, diminishing real incomes, ineffective local producers, and market distortions have contributed to the situation that there have been no effective markets in which firms could sell their goods, and, as a result, total domestic output consequently dropped below potential supply. Adding to that, implications for the social sphere have been no less alarming: increasing social polarization and (how ironic) almost destruction of the middle class that had emerged under the previous state-socialist system.
Tragically, in Russia, at all levels, corrupt practices have become entrenched and frustrated the weak state that has been unable to do almost anything about it. (Holmes speaks of "debility" of the state in this context.) For instance, in the industrial sector, in typical schemes directors of state-subsidized ,enterprises "buy inputs from friends at inflated prices and sell outputs to friends at bargain prices, thereby decapitalizing their firms and siphoning public wealth into private pockets. They walk away with assets and dump liabilities back into the public debt. They can skim so deftly only because no one with the public interest in mind has the power to stop them...."(9)
THE CASE OF THE CZECH REPUBLIC
To some it may come as a surprise to include the Czech Republic in the category of the "problematic" implementation of a market economy. However, the first fiscal crisis of the spring of 1997 and the deepening economic slowdown (characterized, among other things, by growing unemployment) and the subsequent political crises resulting from several scandals in financing major political parties and fraudulent privatization, have shaken the country's image considerably. Consequently, namely the previously admired model of the Czech privatization has begun to be questioned and scrutinized both in the media and within society at large. Discussions have focused on the causes of the faltering economy and the embarrassing ethical state of political affairs.(10) In the ensuing debate, two distinct camps have emerged. The camp of "pragmatists"--as represented, for instance, by the former prime minister Vaclav Klaus--have maintained that the Czech privatization--especially its prevailing method, the so-called "coupon" (voucher) privatization--had been well designed and basically well implemented--and that, given the scale of the task, some mistakes must have been made down the road. They have also argued that the process have brought about fast concentration of ownership in private hands which could provide in the future for effective corporate governance.
Opponents of this approach (the "skeptics") have criticized especially the implementation side of privatization. They have attacked--and with much justification--the insufficient legal environment regulating the whole process. From the purely economic point of view, they have argued, the process has so far failed to secure effective governance of many denationalized companies and to restructure them and make them actually competitive. This camp have decried the infamous role of investment privatization funds (which the public came to regard almost exclusively as criminal institutions sucking money from the common people), as well as the government bureaucracy charged with privatization. According to the skeptics, the Czech mass (voucher) privatization has been marred by two key problems: First, that ownership has been concentrated in the wrong hands (mostly in the hands of speculators and predatory investment funds) and, second, that the rapid speed of privatization and insufficient regulation led to what an observer has dubbed "muddled ownership."(11) The argument here has been that the much acclaimed voucher scheme has amounted to nominal privatization only, after which a large number of Czech companies still do not have clearly defined owners. This legally chaotic ownership arrangements have meant that real and responsible owners leading to responsible and effective management and restructuring have not been found, which left room for rampant abuse and corruption.(12)
Typically, as a result of the Czech mass privatization, several investment funds, mostly several banks and other financial groups that manage the funds, vie for control of individual companies. Banks often have come to be partly owned by investment funds and the largest banks are still owned by the state. The result is an ownership maze with direct or indirect links to state officials which enables managers (often members of the old nomenklatura) to run their companies without effective control. Considering the imperfect legal framework, these arrangements, have led to collusion and fraudulent enrichment of both funds' and companies' managers and their friends, often simply by way of stripping assets from their companies, banks or funds; such and alike schemes has been called "tunnelling" (tunelovani) in the Czech Republic.(13) Billions of crowns have been siphoned out of banks and investment funds using illegal and semilegal methods and loopholes in the legal system. The money, unfortunately, seem to be mostly lost for the economy since "tunnelling" is done by speculators who are not interested in contributing new capital, but rather to obtain cash for new speculation. Even in cases when speculations have been outright illegal, the money is largely untraceable in the maze of branching up and disappearing accounts and companies. So far, almost nobody has had to face charges as a result of these activities.(14)
WHAT ROLE FOR THE STATE?
The examples of Russia and the Czech Republic, the countries in many respects very different, nevertheless indicate a common disturbing fact: the non-transparent, distorted and counterproductive collusion between economy and politics; the fact that has negatively affected the quality of both the economic and democratic transitions. In other words, the prevalent: tendency toward the non-transparent corrupt relationship between the two overlapping groups, i.e., between those with access to economic resources and the political elites has become in both countries the major obstacle to progressive development.
By and large, in these and some other countries, there has been no cohesive and comprehensive transformation model followed; in both cases, there has been a significant failure of political elites to steer the process in the direction of securing a higher legitimacy of economic transition and the newly created institutions and to create conditions for stimulation of the economy. Sooner or later, the reform project has bogged down into a chaotic competition of private interests and especially privatization of large enterprises has become an unscrupulous "privatization game," which has contributed little to growth of investment and productivity. At the same time, it has increased the social costs of the reform--by allowing abuse of the system in which undeserved incomes have been milked by the narrow elite at the expense of both investment and other societal groups--and created excessive social polarization. Given the unique business and political cultures and the lack of incentives and resources on the part of the system, i.e., on the part of the weak and paralyzed state, private resources rarely find their way as investments particularly badly needed in the infrastructure and in the restructuring of productive capacities. In fact, as long as the causes of the situation are not addressed, resources will continue to flow where their capitalization is low or even negative, with all the economic and social implications.
Very generally, for all this pitiful state of affairs explanation ought to be sought perhaps in the combination and mutual reinforcement of several general causes: (1) the syndrome of the social and cultural legacies of the communist past; (2) the overall institutional weakness caused partly by the collapse of the old system; and (3) the uncritical embrace of the unfitting and simplistically perceived model(s).
There is no doubt that one of the causes of the unique collusion between the political and the economic integral to the particular post-communist political economy are the corruption-prone relations inherited from the previous system. These institutional relations have only needed adjustments to the new conditions, since otherwise statecentred exchange and distribution networks have continued to be populated primarily by officials from the old communist nomenklatura. As Michael Burawoy has noted, "[the] power monopolies established by local cliques in control of executive offices and their attendant resources are thus able to subdue potential resistance to their rule by exchanging those resources--subsidies to the press, premises for the courts and so on--for preferred behaviours."(15) Typical for such an interlocking of state and economic power is that it represents "the premier power bloc in politics and government whose branches run directly into other sectors of the economy with profit-making potential, suturing together a collection of state-private conglomerates." These "conglomerate" groups channel their interests directly into the state organs and participating individuals, bypassing publics, and parliament, making a mockery of democratic aspirations of societies. In transforming societies this has led to mafia-style groups taking over legitimate businesses, dividing territories among themselves and dictating prices.(16)
The acceptance of the simplistic (and often distorted) liberal (neo-liberal) models of capitalism/privatization fitted well in the above mentioned tendency, thus contributing to a "plunge" into a decontrolled vacuum of "pseudocapitalism." In the absence of accepted norms of legal governance only few institutions essential for a long-term capital accumulation have been introduced and functioning. In short, in EE, both the transformation and the actually existing variant of capitalism/pseudocapitalism have suffered from the lack of a network of regulations and laws governing a civilized market and by the non-transparent fusion between the political and economic spheres. More specifically, the system has become characterized by poor regulation, irregularities of early accumulation of capital, growing social polarization, incomplete property transfers and muddled ownership, and non-transparent financial and economic transactions (preference of an immediate cash-flow before longer-term investments). The rising social costs, corruption, and criminalization of parts of the economy so typical for the early stages of capitalism, have become endemic.(17)
The suspicion that the state is not strong enough and not equipped to direct properly and/or keep the economic transformation under control, has become a new focus of recent criticism, drawing mostly on the works by authors sometimes called "institutionalists" (or, rather, "new institutionalists"). According to them, proper institutional arrangements are decisive for the economic performance of a society. In reality, this means, as institutionalists would argue, a shift of focus from the content of macroeconomic policies and measures to the performance of the system as a whole through efficiently functioning institutions and the legal system. They also suggest that a better approach to reform is to put emphasis on the requirement of the micro level and to focus resources on incentive structures and institutional arrangements that determine actual individual actions relevant to the expected outcome of the economy than on general and vague political and macroeconomic statements and measures. But they also maintain that an "exaggerated emphasis" put on macroeconomic measures and privatization may have little effect if not accompanied by reconstruction of governmental bureaucracy, improvements in social and legal systems and legal reform.(18)
Some (new) institutionalists have also emphasized the role of social and historical events and structures in the transitional process. This approach has acknowledged the existence of constraints (historical, cultural) imposed by "path dependence" and has rejected claims that post-communist reforms are a technical process with "inherent technical solutions that can be imposed everywhere."(19) Institutionalism also maintains that economic development is primarily determined by the success or failure of the institutional structure to enable uncorrupted and efficient use of resources. The political and economic issues (and, of course, their inherent problems) are always interrelated and by definition more so during the transformation period from the centrally-planned economy with virtually all assets owned by the state--to a market economy with prevailing private ownership. In the later case, all macroeconomic decisions are inherently political and most of political decision-making concern the economy).
Beside purely legal and institutional side, this problem has also the psychological and socio-cultural aspect, including that at the level of the individual enterprise. For instance, when a Western entrepreneur considers his longer-term (or even shorter-term) private interests, he thinks of them, more often than not, as concurring with the interests of his own company. He has no problem therefore to invest into his enterprise, modernize it, and thus increase its competitiveness. Contrary to this expectation regarding the unity of the Western entrepreneur's interests, in many post-communist countries the longterm interests of an entrepreneur are not identical with the interests of his own company. This paradox can be explained in the following way: (a) since the owner of the company or a group of managers are able to extract a substantial amount of cash from the company (prior to any investment in it) and, (b) since this extraction enables them to secure their and their families' comfortable well-being for life, or at least, for many years to come regardless of further profitability of the company, they have no incentive to invest in it later (also, they often do not believe in the company's prospects anyway). The current uncertainty inherent in the transitional conditions contributes to the phenomenon. In this respect, a necessary legal framework, as well as entrepreneurial culture, have been--as a result of historical circumstances--seriously underdeveloped in EE. The structural transformation thus has languished in the constellation in which private agents tend to look toward short-term profits and speculation rather than towards longer-term investment and responsible management.(20)
One traditional argument born in the American academe has proven to be simplistic and naive in this respect. David Satter, for instance, has advised: "What you have to do is create a class of property owners through privatization, and those property owners will then create the moral and legal structures to defend their own property, and they will be forced to do by the rigour of the international market place."(21) This advice may work in the long-run, perhaps after several generational turnovers, but it does not solve any of the painful problems of the present situation.
In this context, one cannot help to consider a possibility, that--given the uniqueness and complexity of Eastern European transformation--even relatively good legal norms available that would have corresponded to those in place in advanced market economies, might have not been enough I0 prevent transformation "irregularities' and criminalization of economy and the public life. The period of the massive transfer of property perhaps required more extensive constraints on the concentration of economic power and, for instance, more severe penalties for breaking laws than it is common in well-established capitalist countries, and perhaps application of some other non-standard methods.(22)
In EE, the situation has often been complicated by the fact that many state enterprises have been left in a de facto property vacuum, existing in various stages of "de-etatization," and facing uncertainty regarding their status as independently acting subjects, with uncertain perspectives for utilizing their resources. The problem, when put into a language of enterprise behavior, has been formulated by Poznanski quite appropriately: "Thus ... it is possible that state enterprises, being unclear about the future, found it advantageous even to allow for decapitalization. Enterprises could have neglected investment for the sake of consumption, that is, wages because of the very short time horizon. In addition they could have also engaged in asset stripping through sheer neglect."(23) Similarly, Chang and Nolan have warned that it was an illusion to advise that market forces should be given free reign at the expense of the "desirable economic functions of the state over an extended transition period."(24)
In the light of such developments, and considering the fact that certain pre-requisites of a fair and efficient market have not been able to evolve themselves from the fledgling market itself, it seems justifiable to reconsider the greater role of the state in almost any area of post-communist transformation. This should be done not only in guaranteeing the property rights structure but also in its efficient functioning. Hans Aage, for instance, has argued, both generally and specifically, that "there are very strong arguments in favour of improved government intervention in economy." What is needed to achieve that, according to Aage, is a redefinition and implementation of government institutions. As he believes, a larger state, ought to restore law and order, secure efficient tax collection, and supervise restructuring and growth through deliberate industrial policy as well as the management of natural resources. The effective (it means also non-corrupted) state will be able to facilitate in the direction of creating mechanisms to meet such objectives.(25) What is clear, however, is that a stronger state being called for does not mean a paternalist state with sweeping regulatory authorities, nor a state arbitrarily interventionist; such a state is required which is capable of performing certain irreplaceable functions in modern society--first of all, of being capable of setting and enforcing the condition for it to allow to exercise such functions.
CONCLUSION: ARE THERE BETTER MODELS?
Broadly speaking, economic and political transition in Eastern Europe may be seen as depending on: (1) initial economic and sociopolitical conditions; (2) external developments; and (3) governmental policies. Since the two first conditions are beyond the control of an individual country undergoing transformation, flexibility of governmental policies toward the first two conditions and toward a newly created dynamics of transformation, and toward chance factors should become the focus of reform strategies. (Until comprehensive market conditions have been established, one cannot expect that the market itself would be able to take over and "regulate itself.")
Further, we may generally distinguish three main types of economic policies: (1) macroeconomic transition and stabilization; (2) microeconomic liberalization; and (3) institutional restructuring.(26) The purpose of macroeconomic transition and microeconomic liberalization is to create fundamental market conditions, especially by removing previous restrictions on economic activity. The goal of institutional restructuring assumes a more constructive approach and comprises restructuralization and enhancement of the old institutions and the creation of new ones; (previously non-existent, such as stock exchange). This third policy type is the most challenging, not only in terms of time and resources, but particularly in terms of specific cultural and professional skills.
Certainly, we are not living in an ideal and static world and one cannot expect that there can really be an "optimal" model which would prescribe how the institution-building and the transformation should be done under the conditions of radical systemic change (as it is the case of Eastern Europe). Even if there is such a model, the fluid transitional conditions are not an ideal environment conducive to any comprehensive and fast implementation. In contrast, the Chinese model of the "slow boat to China," due to its incrementalist approach, seems to be more "manageable" and enables that all steps in the process be monitored and controlled to the extent that the process is less overloaded with "unintended consequences" and is thus more predictable. The Chinese model cannot be, of course, seen as a panacea (nor should it serve as universal paradigm for emulation), especially due to its deficiencies in the democratic process (or lack of it). It is arguably only one of possible methods how to manage both internal change and external pressures, one that avoids major negative effects brought by an out-of-control economic transformation (such as breakdown of law and order or territorial disintegration) and therefore it should be given a qualified consideration.(27)
One of the obstacles to solution of this dilemma of the models has been that in the theoretical literature on transformation, a perception has persisted that the only options in economic transformation are either a radical reform or a gradualist one. As Aslund has put it,
The outcome of this reasoning is that there is no crippling contradiction between the political and the economic requirements for a successful political-cum-economic transition. The only major contradiction is between the urge for speed and the desire for a comprehensive and technically well designed program. In practice, the question is whether the "big-bang" will come in four months time, as in Russia, or after a year, as in Czechoslovakia.
According to Aslund, "radical systemic change is likely to produce greater accomplishment than gradual reform on every front...."(28) Notwithstanding some merits of such an argument, it has become clear over time that this is a rather simplified approach. It might have been justified in 1989-1991 when the dilemma really was how to fast get rid of the old system of the centrally planned and state-owned economy--though even at that stage, speed of transition could was probably less important than timing and sequences of individual reform steps (as well as their consistence among themselves) and their legal and social underpinnings. Speed itself can be relevant only to the extent to which it supports consistency of individual steps in the transformation process. This is obviously a very complex procedure that requires a more innovative approach. Interestingly, as Anatol Lieven has pointed out, the post-communist approach to the problem of economy and society reminds, because of its single-mindedness, "the one taken by the Marxist-Leninist regimes on many counts."(29)
What we have seen in post-communist EE was that the transformation has been much politically biased and inconsistent largely due to being constrained by both the limitations involved in the simplistic understanding on the part of (neo-) liberal model and by the conditions of its implementation. From the observations regarding the discrepancies between the intentions and expectations of the (neo-) liberal model's applicators and the impact of their reforms, one can infer that the model as adopted by local reformers has been ill-suited for the post-communist practice and/or that it has proved to be grounded in an incomplete theory. The introduction of nominal democracy and a market is evidently not enough without them being enforced properly, since interests of the capital tend to take the weakness of the state as a signal for a free reign of corruption. As it has been noted, laissez-faire models are "simply not appropriate to the task of reconstructing industrial Russia and Eastern Europe under the competitive conditions of technologically advanced, contemporary capitalism."(30)
A revised theory of the political-economic transformation in EE should consider that decreed liberalization cannot precede formation of a legal and enforcement regulatory framework, however impossible it may seem to create such requisites in time (i.e., optimally, one step ahead of the respective liberalization step). The project of transition to capitalism does not require, as a sole requisite, the "invisible hand" that (neo-) liberals had envisioned. In a better functioning model all inherent contradictions and predictable difficulties of the transformation project within the specific historical context should be taken into account. Especially, the paradox-tension between the deconstruction of the "strong" old state and building a new liberal but state should and can be resolved in a comprehensive and more innovative way. What is needed above all is a strong and effective but autonomous and ultimately democratic state. This is what, for instance, has D. Rueschemeyer identified as the key condition without which democracy "cannot exist;" according to him, only this condition can warrant a required "fairly strong institutional differentiation of the political realm of formal collective decision making" from the overall economic and social system in a society.(31) Almost the same point has been made by David Beetham who has noted that "the political liberties intrinsic to democracy depend upon a plurality of power centres capable of checking one another, among which the separation of power between the political and economic spheres and within each ... is the most critical."(32)
As I have shown, under the current circumstances in EE, the state has not unfortunately proven itself to be up to the task. What is even worse, it does not seem to serve the population at large; it has been overtaken and used as a vehicle of manipulation and easy enrichment by groups within the political elite--often identical with or acting in collusion with irresponsible owners of the capital.
Considering short- and mid-term prognoses, the collusion of bureaucratic-oligarchic rule and the system of corruption at almost all levels in EE will be very difficult to break up. Nevertheless, corrections and alternatives to the single-minded liberal model have already started to be discussed, not only among theoreticians but also among certain political elite circles.
On the level of general and macroeconomic policies, it has been argued that reform ought to be comprehensive and integrated, and cover all interrelated institutions (Prybyla). Other suggestions have focused both on a redefined role of the state, on its regulatory functions, particularly in pre-emptive economic legislation (Holmes, Shlapentokh), and also on alternative strategies of privatization--on such forms that would put emphasis on the privatization process as the means of invigorating economy (including prevention of the capital outflow and fostering domestic investment) rather than as a self-serving goal.(33)
Some specific suggestions have been made to address the issue of the economic restructuralization and revitalization. Landesmann and Abel, for instance, have advocated that the state economic and industrial policy be oriented to bringing public resources to selected areas which would be: (a) neglected by private sectors (even in normal circumstances); (b) be able to stimulate performance and export benefiting the economy as a whole; (c) bring improvement of corporate governance; and (d) stimulate structural reform, discipline, and development of financial markets and financial organizations. By and large, it seems that in certain depressed areas (at least temporarily and selectively) more close and more protective economy is needed, especially in order to secure necessary resources that could be directed toward restructuring of domestic industry. Such provisions would, of course, have to be temporary ones, contingent on the dynamics of implementing the investment and restructuring goals.(34)
On the theoretical side, intellectual effort should be directed toward creating a congruent political-economy model of transformation, grounded in the realities of modern economic life and transformational dynamics rather than the free-market myths. The unique post-communist constellation has been continuously reminding us that historical considerations regarding the issues of social and cultural pre-requisites and of timing and sequence (i.e., "synchronizing" steps in institutional building) really "matter." The coordination of steps pertaining to economic and political liberalization, recognizing distinct sequences in institution formation and industrial modernization, and tuning-up between the internal changes and the external context must be, contingent on causal and historical sequential analysis, designed in a comprehensive and innovative way.(35)
Not in the least, it could be argued that capitalism must not only be reasonably well regulated, but also fair. Although not all of us would agree that the concept of justice and fairness should be absolute; few would argue that substantial parts of the population can be left out from it. In this respect, it is hard to believe that a capitalist market is capable, as of itself, to become inherently fair (if not altogether just), without art elaborate web of the broader socioeconomic environment that supports it. That is, a lot of things must be in place before we may expect the market to function properly--including, perhaps, an appropriate culture.(36) Also, it is necessary to take into account the factor of perceptions and interests of the population at large. In their majority, they have perceived the resulting social polarization as "undeserved" which--even apart from its potential effects on societal stability--has had adverse psycho-social (and economic) implications. Considered should be the fact that Eastern Europeans had been used to a certain social securities during the period of state socialism and that they expect to live in a sort of welfare state. But the liberal model clearly assumes that significant parts of the welfare state must be dismantled without any immediate compensation, while the remaining parts of such a state are in jeopardy of disintegrating and/or malfunctioning as revenues are being transferred to the (old-) new elite, which is not interested in sponsoring the state; at the same time, the state, in order to sustain the reforms and not to become bankrupt must contemplate further eroding the disappearing welfare system.
From a general standpoint, the key problem may be identified as the incompatibility between the systemic continuity of societal factors and the discontinuity assumed in the until now considered models. While a (neo-) liberal models present an almost total negation of practices of actually existing/state socialism (discontinuity), in the post-communist constellation, many elements, not yielding to the pressure of (neo-) liberalist change, have persevered from the regime ancien (continuity). The following thus seem inevitable for resolution of the predicament: to formulate a more realistic transitional model adapted to the level of continuity of non-economic, esp. social and cultural, variables and that would reflect the complexity and needs of individual countries and individual phases in the East European transformation. Simultaneously, an improved theory of the state is needed because it is the state that specifies the property rights structure and warrants its proper development in an open and substantially fair and democratic society.(37)
As Adam Przeworski has suggested, democracy is "sustainable when its institutional framework promotes normatively desirable and politically desirable objectives, such as freedom from arbitrary violence, material security, equality, or justice...."(38) Elsewhere, however, he warns that under the conditions of profound economic transition, requirements of "fair and effective" democracy cannot be simultaneously fulfilled by any system of democratic institutions.(39) Frustrating effects of the liberal economic transformation have made the democratization process problematic and extremely painful; the results of such "reforms" have often attracted attention of not so democratic or anti-democratic forces and have been undermining political stability and the goals of economic restructuring and transformation itself.(40) To reverse this trend, substantial corrections to the way the (neo-) liberal model applied in EE (and with qualifications, to the model itself) are required--not to mention the need for a renewed political will.(41)
(1.) Claus Offe, Varieties of Transition (Cambridge, Mass.: The MIT Press, 1997), p. 8; see also Valerie Bunce, "Should Transitologists Be Grounded?," Slavic Review, 54:1 (Spring 1995), pp. 111-127.
(2.) Leszek Balcerowicz, "Understanding Postcommunist Transition," in Larry Diamond and Marc F. Plattner, eds., Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 87; italics by Balcerowicz.
(3.) Cf. Claus Offe, op. cit.
(4.) And he adds: "Why govern?" Why take the trouble to govern, if you can feed off the imperial remains and vacation frequently in European resorts? The rest of society, the great mass of citizens, is left out of the contract, left in extreme cases to die out in a Darwinian struggle for survival." In Stephen Holmes, "What Russia Teaches Us: How Weak States Threaten Freedom," Johnson's Russia List (e-list), firstname.lastname@example.org, 24 June 1997, pp. 5-7.
(5.) The latter concern has turned out to be a not too far-fetched prospect. Cf. e.g., Attila Agh, "The Paradoxes of Transition: The External and Internal Overload of the Transition Process," in Terry Cox and Andy Furlong, eds., Hungary: The Politics of Transition (London: Frank Cass, 1995), p. 20; and Charles Gati, "The Mirage of Democracy," Transition, Vol. 2, No. 6, 22 March 1996, pp. 6-12, esp. p. 6. Agh has distinguished "four types of degeneration or distortion of democracy which threaten the democratic transition in the countries of ECE which he calls semi- or pseudo-democracies." These distortions are: (1) formalist democracy, (2) elitist democracy, (3) partyist democracy (partiocrazia), and (4) tyrannical majorities (Agh, ibid., pp. 28-29; italics by A.A). Gati has collected the evidence to the fact that most of the regions countries have found themselves in the dead-end between democracy and totalitarianism. He has concluded that "the transition is producing a group of semi-authoritarian, semi-democratic, nationalist, populist regimes" (Gati, op. cit., p. 6).
(6.) "OECD Economic Surveys--Russian Federation"; December 1997, Johnson's Russia List (e-list), email@example.com, 28 December 1997, p. 3.
(7.) Some go even as far, as considering the whole project of privatization a mere scam. Being asked for her analysis, free market economist Larisa Piyasheva seethed, "These guys were able to carry on the biggest privatization in the world without creating a single private enterprise. It's an amazing fact of mass hypnosis which some day psychiatrists might be able to explain." Quoted in Anne Williamson, "Crime of the Century," Johnson's Russia List (e-list), firstname.lastname@example.org, 12 February 1998, p. 2.
(8.) Cf. Paul Goble, "The Paradoxes of Privatization," in Radio Free Europe/Radio Liberty/Newsline, 2 October, 1997; also Konstantin Valtukh, "Theorems of the Impossible," in Problems of Economic Transition (A Journal of Translations from Russian), November 1994. Russia's privatization programme has been criticized that it was done "back to front." While it seems advisable that enterprises be restructured first and then sold at the highest possible price (thus maximizing the return for the state and minimizing the risk for new investors), in Russia unrestructured enterprises were given into the private hands for worthless voachers. Thus, "the industrial monoliths should have been broken first so that price competition between their privatised bits would lead to rest." Cf. Claus Offe, op. cit., p. 8; also see Bunce, op. cit., pp. 111-127. In Russia, unregulated "business groups" and networks have paralyzed a potential progress. As one analyst has put it, these "clans" service their respective sectors of putatively privatized firms, "whether arranging barter relations, cheap state credits or international transactions ... skim proceeds for themselves." (Quoted from Michael Urban, V. Igrunov, and Sergei Mitrokhin, eds., The Rebirth of Politics in Russia [Cambridge: Cambridge University Press, 1997], pp. 295-6.)
In the same vein, it has been holed that "[the] directing forces in the economy are primarily parasitic ones, deriving their profits from the movement of goods and services--licensing duties, taxes, marks-ups on turnover, bribes and protection payments--rather than from production." Consequently, production stagnates, as resources appropriated from it "are not reinvested for future growth but either end up in Western banks (as the `flight capital') or consumed or set to work at home but just to renew the turnover in trade and the disproportional profits derived from it" (Urban, Igrunov, Mitrochin, op. cit., pp. 295-6). Also, as it is known, the combination of over-regulation and laxness in responsibilities, arbitrary administration rulings, abrupt tax changes, and chaotic and primitive judicial application of business law have frustrated many joint-ventures. (Cf. "A Survey of Russia," The Economist, July 12, 1997, p. 13.)
(9.) Holmes, "What Russia Teaches Us," pp. 4-6. According to Holmes, the Russian state is an illiberal state partly because it is insolvent, and it is insolvent because it is corrupt because norms of public service are weak, an potential taxpayers do not trust the government (ibid., p. 5). Handelman has warned about potential implications of such a state of affairs for the global order:" ... it is capitalism of an older, darker model. Left unrestrained by legal authorities, Russia's economic "boom" threatens to institutionalize the rapaciousness which once lay concealed behind the rigidities of Soviet society. And it is not hard to imagine the dangers when a corruption-plagued economy the size of Russia's becomes part of the network of global trade and finance. In Stephen Handelman, "Russian mafiya"; a review on St. Handelman's book Comrade Criminal (1997), in Johnson's Russia List (e-list), email@example.com), 6 April 1997. And as Shlapentokh has maintained, "organized crime is the dominant segment" of current Russia.
(10.) Here, we should realize that the Czech experiment in privatization (especially its mass-voucher scheme) has been unprecedented, particularly in its several first years; it had not been done on such a scale and with such a speed of privatization of the former state assets anywhere in the world before. (In terms of the volume of privatization, perhaps, with the exception of the former East Germany by the Treuhandanstalt.)
(11.) Cf. Kristian Palda, "Czech Privatization and Corporate Governance," in Communist and Post-Communist Studies, Vol. 30, No. 1, 1997, pp. 83-93; and Jiri Pehe, "Czechs Fall From Their Ivory Tower," in Transitions, Vol. 4, No. 3, (August 1997), pp. 22-27.
(12.) Pavel Mertlik of the economics institute of the National Czech Bank has pointed out that so-called "corporatization"--or the state-owned enterprises' transfer to the National Property Fund (a state organization) and transformation into joint-stock companies--"is, in contemporary Czech economics, also considered a form of privatization. That means that everything that is called `privatized property' in ... statistics in reality presents a heterogeneous plurality of manifold proprietary organizations, where the owners could be both private and public." (Here quoted from Aurelius M. Pedziwol, "The Great Game of Privatization," in Transition, Vol. 3, No. 1, 10 January 1997, pp. 3640, esp. 39.)
(13.) "Tunelovani" has been the most popular new term in the Czech language in the past two years. More then 10 banks collapsed in such schemes in the last 3 years. The trick has been, in principle, the same as that described by Andrei Kortunov in his comments on similar practices in Russia: "The director of a large plant just starts a small private venture and then signs a preferential contract with the part of the state enterprise which he controls and--just gradually--transfers all the goodies from the state to his enterprise. The higher position you have, the greater the opportunity." (Here quoted from Anne Williamson, op. cit., p. 4.)
(14.) The insufficiently controlled transfers of property, cash and ownership have raised the suspicion that corruption may be a systemic one.
Also, because of the resulting non-transparent capital market, investment in the region has been far below what is needed. Regardless that after Hungary and Slovenia, the Czech Republic has received the highest investment per capita, the Czech economy has suffered from the lack of investment. Associated with the problem of the lack of transparency in property ownership and business dealings has been the poor performance of the Prague Stock Exchange, resulting in that fresh capital is rarely raised in the Czech Republic through the stock exchange, and foreign portfolio investors have left the country.
(15.) See in Urban, Igrunov, and S. Mitrokhin, op. cit., p. 295.
(16.) Ibid., 305.
(17.) Also, in both countries, identifiable have been some aspects of the mechanism, which some have called "crony" or "rent seeking" capitalism. (Cf., e.g., Goble; also Holmes, both op. cit.) In this respect, the problematic of Eastern Europe is not as much distant from the dynamics we have seen in Latin America: In both cases, there have been: (1) flawed democratic process; (2) oscillation between the weak and strong state (often it takes a form of shifts between authoritarianism and liberalism); (3) a higher Gini coefficient, i.e., a raising gap between the rich and the poor; and (4) seemingly perpetual lagging behind advanced industrial countries.
(18.) "Thus, a chief priority in the transition process is to design effective bureaucratic institutions. In order to improve bureaucratic performance, a continuous process of formal and informal control and pressures must be institutionalized." (Paul Aligica, "The Institutionalists' Take on Transition," in Transition, Vol. 3, No. 7, March 1997, p. 48).
(19.) Aligica, op. cit., pp. 46-49; also Michael McFaul, "State Power, Institutional Change, and the Politics of Privatization in Russia," in World Politics, 47, January 1995, esp. pp. 214-15.
(20.) Cf. Ha-Joon Chang and Peter Nolan: "Europe versus Asia: Contrasting Paths to the Reform of Centrally Planned Systems of Political Economy," in Ha-Joon Chang and Peter Nolan eds., The Transformation of the Communist Economies: Against the Mainstream (New York: St. Martin's Press, 1995), p. 39. According to David Satter, the Russian economy has been fatally criminalized; as he explains, Russian businessmen "go into business not in order to create business, not to create the enterprises, but to destroy those enterprises, to live off them as long as they can and to send the money out of the country until the day comes when they will follow that money." Here quoted from David Satter, "Criminalizing Russia," an interview with David Satter, Voice of America, 9 November 1998 (a transcript).
(22.) Cf. Vaclav Kluson, "Vlastni zajem nade vse" [Own Interest Above All] Listy, Vol. XXVII, No. 6, (1997), pp. 6-10.
(23.) Kazimierz Z. Poznanski, "Introduction," in K. Poznanski, ed., The Evolutionary Transition to Capitalism (Boulder: Westview Press, 1995), esp. pp. 10-11.
(24.) Chang and Nolan, op. cit., p. 39.
(25.) Hans Aage, "Transition and Transplantation of Economic Systems," in Anne Lorentzen and Marianne Rostgaard, eds., The Aftermath of `Real Existing Socialism' in Eastern Europe (London: Macmillan Press Ltd., 1997), p. 31.
(26.) Leszek Balcerowicz, "Understanding Postcommunist Transition," in Larry Diamond and Marc F. Plattner, eds., Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 91.
(27.) Robert Dahl has noted that transition to democracy (i.e., polyarchy) is the most successful when the transition was taken slowly, initially limiting political contestation to a small stratum of the population. Cf. Robert Dahl, Polyarchy: Participation and Opposition (New Haven: Yale University Press, 1971), esp. Chapter 3.
(28.) Anders Aslund, "The Case for Radical Reform," in Larry Diamond and Marc F. Plattner, eds., Economic Reform and Democracy (Baltimore: The Johns Hopkins University Press, 1995), p. 84.
(29.) Lieven has listed them as: (1) an aridly monolinear view of the development of human societies, excluding the great majority of possibilities; (2) an attitude to history which combines indifference, simplification and demonisation; (3) a tendency to speak in slogans and cliches ("Russia's Bold Young Reformers"); (4) a concentration on decisions at the expense of political context and the realities of political power; (5) a profound contempt for ordinary people lacking in the necessary characteristics; and linked to this, (6) a complete indifference to individual psychology or human needs and behaviour outside the confines of the ideological paradigm. Adapted from: Anatol Lieven, "History is Not Bunk," excerpts from Anatol Lieven, The West's defence of Russian crime in the name of the free market (1998); received at: firstname.lastname@example.org, (8 November 1998).
(30.) "Strategies ...," ibid., p. 6.
When advocates of "market fundamentalism" refer to "institutions" and the necessity of "institution building" in order to foster capitalism, they have in mind a strictly limited agenda: the definition of property rights, contract law enforcement, and the removal of impediments to private enterprise. Such a notion has been shown to be clearly insufficient and myopic (not to mention that it has been rarely fully implemented). Not only it does not take sufficiently into account the legacies of the past, but it has also overestimated the positive aspects of the liberal project itself. Mere price liberalization and privatization (particularly the "Russian-style") have appeared to be too simplistic tools to attain a genuine market, one embedded in the sustained web of entrepreneurial responsibility and society's expectations. Unfortunately, both practitioners and theoreticians have focused on this kind of naive ready-made "end" models, in which their promoters have often pretended "as if"--i.e., as if we faced standard conditions-instead of focusing on transitory "custom-made" and, at the same time, dynamic models. The issue of incompatibility of models and theory with the post-communist reality have been recognized by Stark and others as the problem of "cookbook capitalism" or "capitalism by design." Cf. David Stark, "Path Dependence and Privatization Strategies in East Central Europe," in J.M. Kovacs, ed. Transition to Capitalism? (London: Transaction Publishers, 1994); cf. also Bunce, op. cit. Especially Stark has suggested that the poor performance and the ensuing political instability of the post-communist countries have stemmed from copying the wrong capitalist model voluntarily or otherwise. In Stark's notion of "path dependence," the problem of transition in EE cannot be "solved by the rationalist design of economic institutions," for three reasons: (1) capitalism as such has not been created by design, (2) capitalist institutions are not easily transplantable, and (3) institutional legacy of the old state socialism "shape the possibilities of transformation in the subsequent stage." He believes that the East European countries must learn from both their own past and the experience of successful late-industrializers and work out their own sensible policies, specifically geared to their current status, otherwise their efforts to restructure and to make a transition to a market economy will continue to fail (Stark, ibid., pp. 63-66).
(31.) Cf. Dietrich Rueschemeyer, Evelyne H. Stephens, and John D. Stephens, eds., Capitalist Development and Democracy (Chicago: University of Chicago Press, 1992), esp. p. 63.
(32.) David Beetham, "The Limits of Democratization," in David Held, ed., Prospects For Democracy: North, South, East, West (Cambridge: Polity Press, 1993), p. 67.
(33.) Adam Przeworski et al., eds., Sustainable Democracy (Cambridge, Mass: Cambridge University Press, 1995), esp. pp. 95-98; also Jan Prybyla: "Out of Socialism: Easier Said than Done," in Joan Serafin, ed., East-Central Europe in the 1990s (Boulder: Westview Press 1994). Cf. also: Vladimir Shlapentokh, "The Four Faces of Mother Russia," in Transitions, Vol. 4, No. 3, October 1997, pp. 59-65; and Stephen Holmes, "When Less State Means Less Freedom," in Transitions, Vol. 4, No. 4, September 1997, pp. 66-75.
(34.) Cf. Michael Landesmann and Istvan Abel, "The Transition in Eastern Europe: The Case for Industrial Policy," in Chang and Nolan, eds., op. cit. What seems indisputable is that many East European countries still have significant comparative advantage in its human potential which could assert itself in the international division of labour.
(35.) D. Rueschemeyer, op. cit., pp. 76-7.
(36.) Perhaps, further thought should be given to the argument that even in its introductory phase, capitalism does not have to play the role of an all-pervasive force and domineering dimension in society, to a degree that its logic would dictate all the other relationships and subject them to its hegemonizing power-field, thus reducing all values to profit-making and putting natural instincts of unprepared society permanently on defence. This sort of argument might find support with those who have become increasingly aware that the post-communist troubles may have "re-discovered" inherent weaknesses in the capitalist system itself.
(37.) North, Douglass, Structure and Change in Economic History (New York: Norton, 1981), esp. p. 17.
(38.) A. Przeworski, ibid., p. 107.
(39.) Adam Przeworski, Democracy and the Market (Cambridge University Press, 1991), p. x.
(40.) One can agree with Charles Gati's observation that "under conditions of economic decay, democracy cannot take root." (Charles Gati, op. cit., pp. 6-12).
(41.) Nevertheless, in the long-run, we may expect that a real and effective challenge to the current interpretations of the (neo-) liberal model will come from established democracies first.
Jiri S. Melich Carleton University, Ottawa…