A Tale of Two Politico-Economic Systems: Implications for Entrepreneurship in Central and Eastern Europe

By Ireland, R. Duane; Tihanyi, Laszlo et al. | Entrepreneurship: Theory and Practice, January 2008 | Go to article overview

A Tale of Two Politico-Economic Systems: Implications for Entrepreneurship in Central and Eastern Europe


Ireland, R. Duane, Tihanyi, Laszlo, Webb, Justin W., Entrepreneurship: Theory and Practice


Following the collapse of socialism in the late 1980s, Central and Eastern European countries initiated attempts to adopt capitalist economic frameworks and promote entrepreneurship. However, persistent economic difficulties and high levels of unemployment have led to dissatisfaction with political parties favoring capitalism. We integrate identity, institutional, and social movement theories to describe the emergence of four competing social movements (capitalist democracy, socialist command, social democracy, and populist command) that are undertaken to pursue politico-economic reforms. We discuss the implications for developing an entrepreneurial culture in Central and Eastern Europe.

Introduction

Emerging economies are countries experiencing rapid economic development that is stimulated by transitioning institutional policies favoring and supporting private enterprise (Hoskisson, Eden, Lau, & Wright, 2000). The adoption of capitalist institutional frameworks in place of previous economic institutions founded in socialism characterizes the transition of countries in Central and Eastern Europe over the past two decades. The intended purposes of these changes have been to increase the influence of the free market and infuse entrepreneurial risk taking into the decisions made within the context of emerging economies (Zahra, Ireland, Gutierrez, & Hitt, 2000).

The emerging economies in Central and Eastern Europe present both opportunities and risks on a global scale (Baldwin, Francois, & Portes, 1997). If, as hoped, privatization and free-market forces eventually engender widespread entrepreneurial behavior, the pro-democracy and economic reforms will have been successful in displacing previous institutions. Indeed, the stabilization of Central and Eastern European economies could then be expected to promote further entrepreneurial investments from developed economies. Conversely, should institutional reforms fail to stimulate adequate levels of entrepreneurship, "stagnant or falling incomes and impoverishment of a large slice of the population could foster widespread disillusionment with market economies and democracy" (Baldwin et al., p. 127). As is evident from these concerns, entrepreneurship is not only an intended outcome of the transition from socialism to capitalism but also a key factor in insuring the transition's success.

The incongruent transition of formal and informal institutions remains a key obstacle to promoting entrepreneurship in emerging economies. Formal institutions refer to the rules, regulations, laws, and supporting apparatuses that establish order in economic, legal, and political frameworks (North, 1990). Informal institutions include the norms, beliefs, values, and similar conventions that form the sociocultural relations within a society (North). While formal institutional policies and structures supporting capitalism have steadily emerged in Central and Eastern Europe, informal institutions remain divided between old and new economic systems. By deterring widespread adoption of entrepreneurial behavior, informal institutions persisting from the socialist system undermined the transition of formal institutions during the 1990s that were intended to promote entrepreneurship. Furthermore, economic turmoil, lack of social justice, growing inequality, and deteriorating welfare services have created dissatisfaction with the emerging capitalist economic system in many countries of Central and Eastern Europe.

How formal and informal institutions evolve has significant implications for developing an entrepreneurial culture in Central and Eastern Europe. By entrepreneurial culture, we refer to a national system of shared values in a particular society that embraces and supports entrepreneurship (Mueller & Thomas, 2000). Here, we integrate identity, institutional, and social movement theories to describe the ongoing transition of the political economies within these countries. …

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