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 China’s market reforms change its stratification system, devaluing political credentials in favor of education, experience, entrepreneurship?

• What role did business groups play in China’s rapid rise in the global economy?

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

• Inability to compete militarily with U.S. (Reagan’s Star Wars build-up)• Series of aged, ineffectual apparatchick leaders• Gorbachev’s 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?

The Hard Road to CapitalismEx-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?

-50

-40

-30

-20

-10

0

10

20

30

40

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Russia

Bulgaria

Romania

Czech Republic

SlovakiaHungary

Slovenia

Poland

OECD+

+

+

+

EU

SOURCE: Toumanoff. 2003. Post-Communist States and the European Union.

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Real GDP Index (in 1989 $U.S.)

Pathways to the New CapitalismsIván 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?

China’s Transitional EconomyIn 1978, allegedly saying that “to get rich is glorious,” Deng Xiaoping launched China’s transition toward a hybrid state-market economy.

China’s take-off to sustained growth was hugely successful. It’s now the world’s 2nd largest economy, using World Bank’s 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

The Great TransformationDisasters 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 China’s further political democratization.

Path-Dependent InstitutionsPreexisting governance forms & public property rights combined into hybrid property forms having competitive advantages in China’s transition. Then, powerful interests lock into these emergent institutions, making exit difficult.

Victor Nee & Yang Cao examined the stratification orders of Southeast China’s 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.

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?

Chinese Income Dynamics

Andrew Walder’s regression of 1996 household income on village context & household attributes found that:

• Large incomes of both cadre & entrepreneurial households

• Cadre income didn’t 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 2002:249).

Urban Mobility

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).

Other scholars view the market in large Chinese cities as changing stratification into an increasingly achievement-based process.

“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 2002:91)

Chinese Business GroupsThe 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 China’s 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.

References

Bian, Yanjie. 2002. “Chinese Social Stratification and Social Mobility.” Annual Review of Sociology 28:91-116.

Keister, Lisa A. 1998. “Engineering Growth: Business Group Structure and Firm Performance in China’s Transitional Economy.” American Journal of Sociology 104:404-40.

Nee, Victor and Yang Cao. 1999. “Path Dependent Societal Transformation: Stratification in Hybrid Mixed Economies.” Theory and Society 28:799-834.

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 81:1107-1145.

Walder, Andrew G. 2002. “Markets and Income Inequality in Rural China Political Advantage in an Expanding Economy.” American Sociological Review 67:231-253.