Markets and People: The Czech Reform Experience in a Comparative Perspective / Institutional Design in Post-Communist Societies Rebuilding the Ship at Sea

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Markets and People: The Czech Reform Experience in a Comparative Perspective

Jiri Vecernik

Avebury, Aldershot 1996 Institutional Design in Post-Communist Societies: Rebuilding the Ship at Sea

Jon Elster, Claus Offe, Ulrich K. Preuss, Frank Boenker, Ulrike

Goetting & Friedbert W Rueb

Cambridge University Press, Cambridge 1998

The collapse of the Soviet Empire ruined the careers of quite a number of academics. Some Sovietologists managed to adapt their skills and become experts on Russian affairs. But Kremlinologists, academic experts on deducing the Soviet power hierarchy from the position of leaders on Lenin's tomb during May Day celebrations, disappeared. Still, new academic specializations emerged after 1989. Chief among them is "Transition Studies," the study of the transformation of postcommunist countries from political totalitarianism and command economy to free market democracy. Many transitologists are economists.

Former Czech Prime Minister Vaclav Klaus used to compare the reformers and entepreneurs in the postcommunist world to the first white settlers of America. "The settlers came first and the law second." But when the first white men came to America they faced an embarrassing surprise: though they assumed that they were going to the eastern part of India they discovered they were actually in an unknown new continent. When economists came to transform the command economies of postcommunist countries they also had to face an embarrassing surprise: the assumptions of classical economics fail in the postcommunist context because economic transitions take place within structured societies.

People do not behave in the real world as abstract economic agents of economic theory who attempt just to maximize their profit in a market. Economic behavior is affected by the social contexts in which economic agents are embedded, by their affiliations with a social network, for example, their membership in the old nomenklature. The existence, integrity and independence of institutions such as the police and the judiciary determine whether the rule of law and property rights that are the foundations of any liberal economic system will be enforced. For example, if there are no regulations to prevent embezzlement and theft by company managers; or if the existing regulations are not enforced against criminals with political networks, the assumption of classical economics that wealth is created only by enterprise, labor and free exchange becomes irrelevant. Finally, traditions and habits keep influencing economic behavior irrespective of political changes. For example, the behaviors of the monopolies that dominate the Czech economy and the government bureaucracies that are supposed to control them continue their pre-1989 habits and norms.

The rules of economics are not like the laws of physics: they do not hold everywhere, but only when some social-institutional conditions are satisfied. As anybody who read Hayek knows, a free market without the rule of law, without the institution of private property and an active honest police and judiciary is impossible. A postcommunist economy where these social conditions are not reformed becomes a Valhalla of the nomenklatura.

The recent books by the transition expert Jiri Vecernik and the American-German research team headed by Elster, Offe and Preuss examine the neglected social aspects of postcommunist transitions. Vecernik, probably the best Czech social scientist, applies sociological criticisms of the assumptions of classical economics to offer a better social understanding of the Czech economic transition. Elster et al. compare the institutional changes after the fall of communism in Bulgaria, the Czech Republic, Hungary and Slovakia.

Vecernik examines the process of transition in the Czech Republic from the perspective of the Czech household: how did the changes since 1990 affect Czech families, their incomes, employment, survival strategies, poverty, welfare, and political approaches, in comparison with other postcommunist countries. …

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