POST-COMMUNIST%20

1
POST-COMMUNIST TRANSITIONAL ECONOMIES
Past two decades saw at least 30 transitional
economies, in E. Europe, ex-USSR, and Asia more
if African state-socialism nations are included.

• What new varieties of post-socialist
  capitalism emerged in these nations? How did
  they vary from the advanced industrial societies
  types of capitalism?
• Did the peaceful or violent overthrow of
  Communist regimes make a difference in subsequent
  pathways?
• What were the consequences when an authoritarian
  party remained in political control (China,
  Vietnam)?

• How extensively did Chinas market reforms
  change its stratification system, devaluing
  political credentials in favor of education,
  experience, entrepreneurship?
• What role did business groups play in Chinas
  rapid rise in the global economy?

2
Collapse of the Soviet Empire
After a slow decline, the Soviet Empire swiftly
fell apart in 1989-1991.

• Inability to compete militarily with U.S.
  (Reagans Star Wars build-up)
• Series of aged, ineffectual apparatchick leaders
• Gorbachevs glasnost (democratization) reforms
  fostered nationalism of Eastern Europe
• Defections encouraged USSR republics break

Perestroika (restructuring) of the Soviet economy
failed to stem hidden inflation consumer
shortages. Mounting problems unprofitable state
firms, price subsidies, breakdown of
producer-supplier chain, loss of tax revenues
from the anti-vodka campaign ultimately doomed
the Soviet centralized command economy.
Will Soviet-era legacy condemn former USSR to
long-term stagnation?
3
The Hard Road to Capitalism
Ex-Communist nations faced rough transitions to
free-market economies.

• Successor states experienced diverse painful
  social, economic, political crises
• Shock therapy of economic liberalization,
  privatization, opening to international trade
• Declining growth in real GDP (see next chart)
• Rising unemployment, poverty, inequality, crime
• Russian males life expectancy plunged sharply
• Corruption in fire-sale of state assets to
  private investors (Russian oligarchs)
• Resurgence of communists rise of dictatorial
  strongmen in Belarus Ukraine
• Eastward expansion of NATO EU

Why did nations like Poland Hungary make a
quicker, less-painful transition to
market-capitalism, while others like Russia
floundered?
4
Real GDP Index (in 1989 U.S.)
SOURCE Toumanoff. 2003. Post-Communist States
and the European Union. ltclasswork.busadm.mu.edu/I
nternational/Strasbourg202003/Guest20Speakers20
Material/Dr20Toumanoff20ppt.ppt gt
5
Pathways to the New Capitalisms
Iván Szelényi argued that sociopolitical
structures shaped the trajectories of the
capitalisms that replaced the planned economies.
Three ideal-typical paths by which capitalism
emerged from Communism are from above, from
without, and from below. Choice depends on the
outcome of elite class struggles for control of
the new economy between former the Communist
nomenklatura and an alliance forged among
technocrats and intellectuals.
Patrimonial capitalism (Russia) Bureaucrats
adopt nationalist ideology and neo-liberal
policies, transforming into a grand bourgeoisie
by privatizing state-owned enterprises (SOE)
firms use barter-networks Liberal capitalism
(Hungary) Technocracy allows foreign ownership
FDI by MNCs domestic economy well-integrated
into world economy Hybrid (China) Balance among
groups creates private market of small firms tied
to SOEs, which grow increasingly dependent on the
market
What historical institutional forces explain
these evolutionary pathways?
6
Chinas Transitional Economy
In 1978, allegedly saying that to get rich is
glorious, Deng Xiaoping launched Chinas
transition toward a hybrid state-market economy.
Chinas take-off to sustained growth was hugely
successful. Its now the worlds 2nd largest
economy, using World Banks measure of purchasing
power parity (a basket of goods) United States
10.3 trillion China 5.8 trillion Japan
3.4 trillion
China-USA exports 1981-2002
7
The Great Transformation
Disasters of Great Leap Forward (1958-60)
Cultural Revolution (1966-76) delegitimated the
bureaucracy enable technocratic factions to
gain power. Although technocrats blocked
patrimonial capitalism, the Communist Party
constrained technocrat-intelligentsia
implementation of more liberal policies.
Peasants produced for the market and agricultural
production shot up. Foreign direct investments
poured into special economic zones as coastal
cities boomed.
A bifurcated elite structure has emerged within
China prestigious administrative positions in
the state bureaucracy high business-professional
positions with substantial career circulation
of elites. But, the Chinese Communist Party
remains unwilling to cede political power to the
technocrat-intelligentsia alliance. Severe
repressions, beginning with the Tiananmen Square
demonstrators (1989), signaled the limits to
Chinas further political democratization.
8
Path-Dependent Institutions
Preexisting governance forms public property
rights combined into hybrid property forms having
competitive advantages in Chinas transition.
Then, powerful interests lock into these emergent
institutions, making exit difficult.
Victor Nee Yang Cao examined the stratification
orders of Southeast Chinas coastal and inland
villages. Marketization state intervention
interacted with local governance structures to
create various hybrid mixed economies, having
different rates of shift to the market. Path
dependence can explain these cascading effects.
Strong governance in Jiangsu allowed the old
redistributive institutions to remain intact
successfully adapt to economic reform. Weak
governance in Fujian prevented local government
from overseeing development, sustaining a new
laissez-faire institutional environment that was
highly favorable to the property interests of
private-sector firms.
9
Chinese Income Dynamics
To what degree has a more open stratification
system, based on personal education achievement
and entrepreneurial efforts, replaced the rigid
Maoist-era class hierarchy based on party
membership?

• Andrew Walders regression of 1996 household
  income on village context household attributes
  found that
• Large incomes of both cadre entrepreneurial
  households
• Cadre income didnt decline as rural economic
  expanded
• Entrepreneurial income sharply declined with
  wage work

The shift to a market economy has no inherent
implication for relative returns to political
position and entrepreneurship. The impact of
market reform works through institutional change,
to be sure, but in rural China some of the key
institutional changes are inherent in the shift
from agriculture to industry, not from plan to
market. (Walder 2002249).
10
Urban Mobility
Other scholars view the market in large Chinese
cities as changing stratification into an
increasingly achievement-based process.
Xiaoling Shu Yanjie Bian (1999) found that the
proportion of the gender gap in earnings that is
due to education and occupational segregation
increased over time in the most marketized
cities. Market mechanisms increased (occupation,
industry placement, education), but
redistribution-related mechanisms decreased
(state sector affiliation, party membership,
seniority).
State redistributive inequalities are giving way
to patterns increasingly generated by how
individuals and groups succeed in a growing
market-oriented economy. Occupational mobility,
a rare opportunity under Mao, is becoming a
living experience for many Chinese in light of
emerging markets. Scholarly works on status
attainment, career mobility, and employment
processes show both stability and change in the
once politicized social mobility regime. (Bian
200291)
11
Chinese Business Groups
The transfer of the control of state-owned
enterprises to Chinese business groups (qiye
jituan), with a dominant firm in control, was
deliberately modeled on the Japanese keiretsu
Korean chaebol.
Transaction cost proposition Board interlocks
and banking ties boost member firms performance
because implicit contracts informal monitoring
enable business groups to cut transaction costs.
Lisa Keister (1998) analyzed the 1989-90
performance (profits output per worker) of 535
firms in Chinas 40 largest business groups.
Chinese board interlocks serve as major
information sources about markets technological
innovations. In contrast, U.S. board interlocks
typically form when a firm is financially
troubled, i.e., unprofitable.
? Chinese firms in business groups with board
interlocks performed better financially than
firms in groups without interlocking
directorates. ?Firms in business groups with
joint ventures finance companies outperformed
firms in groups without such relations.
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References
Bian, Yanjie. 2002. Chinese Social
Stratification and Social Mobility. Annual
Review of Sociology 2891-116. Keister, Lisa A.
1998. Engineering Growth Business Group
Structure and Firm Performance in Chinas
Transitional Economy. American Journal of
Sociology 104404-40. Nee, Victor and Yang Cao.
1999. Path Dependent Societal Transformation
Stratification in Hybrid Mixed Economies. Theory
and Society 28799-834. King, Lawrence P. and
Iván Szelényi. 2005. Post-Communist Economic
Systems. Pp. 205-229 in The Handbook of Economic
Sociology, Second Edition, edited by Neil J.
Smelser and Richard Swedberg. Princeton, NJ
Princeton University Press. Shu, Xiaoling and
Yanjie Bian. 2003. Market Transition and Gender
Gap in Earnings in Urban China. Social Forces
811107-1145. Walder, Andrew G. 2002. Markets
and Income Inequality in Rural China Political
Advantage in an Expanding Economy. American
Sociological Review 67231-253.