Institutional Change in Post-Socialist Regimes: Public Policy and Beyond

By Kalantaridis, Christos | Journal of Economic Issues, June 2007 | Go to article overview

Institutional Change in Post-Socialist Regimes: Public Policy and Beyond


Kalantaridis, Christos, Journal of Economic Issues


Kuznetsov and Kuznetsova (2003) advance the argument that post-socialist institutional settings are transitory. Drawing upon the ideas of new institutionalists, particularly Douglas North (1997), they suggest that these transient institutions are sub-optimal in comparison to their counterparts in advanced market economies. As a result, the prevailing institutions are preventing the incentives of the market system from revealing their full strength, and thus obstructing the process of economic development. In response, Kuznetsov and Kuznetsova (2003) put forward the thesis that the creation of an up-to-date institutional system can bring post-socialist capitalism (in Russia) into the modern age. They call for the state to perform the pivotal role of driving the process of institutional change. This is because "the 'natural' evolution of institutions is not an option as this would mean ignoring available international experience and wasting time and resources rediscovering institutions that have already proven their worth in countries with greater market experience" (Kuznotsov and Kuznetsova 2003, 911).

This view falls within a growing current of opinion that favors a bigger role for the state in post-socialist regimes (Martin 2002; Tompson 2002). These views draw on analysis of diverse factors such as geographical position and climate (Lynch 2002), democratization of society (Steen 2001; Sheltsova 2001), industrial development (Carlsson, Lundgren, and Olsson 2001), even entrepreneurship policy (McMillan and Woodruff 2002). The argument is that a strong state--which enjoys legitimacy and holds a clear vision of the institutions required for growth--can act as the driver of change. Proponents of this view often caution against the uncritical import of reform from the west (particularly the Anglo-Saxon model), as this creates problems regarding the adaptation and interpretation of concepts developed from one setting (western) to another (post-socialist). This qualification enables advocates of this view to explain the recent inability of the state to establish market institutions. Another argument put forward to explain the limited ability of the state to drive change is the poor record of governance, i.e., the view that Russia had a government but not a state after 1993 (Robinson 2000).

Within this context, the paper sets out to explore how economic actors--for the purposes of this study, the entrepreneurs--from within (who themselves have been defined by the specificities of the context), influence the shape and nature of evolving institutions. In doing so, the paper draws predominantly from the experience of Russia and the Ukraine--the two largest component parts of the former Soviet Union, with much longer experience of planning and the ensuing institutional setting than Central and other Eastern European countries. Conceptually, the paper is influenced heavily by ideas falling broadly within the "original institutionalist" tradition.

The following section questions whether (1) post-socialist institutions are sub-optimal and thus transient in nature, and (2) if the role of the state as an agent of change stands apart from the existing socio-economic milieu. More importantly, however, the paper aspires to advance an alternative, exploring the role of other economic agents in the process of institutional change. In doing so, the paper will focus upon the role of entrepreneurs (section three). Lastly, the paper will examine implications for research and policy decision-making.

Post-socialist Institutions and the State: A Critique

The permanence (or not) of institutions in post-socialist Russia and the Ukraine constitutes a key consideration. During the early 1990s, wholesale changes in the rules that govern the relationship between the state and the private sector, and between firms and individuals were implemented (Johnson, McMillan, and Woodruff 2000). However, reform occurred upon an institutional setting shaped during seventy years of socialist rule, and beyond. …

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