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 Empire
After 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 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?
 Real GDP Index (in 1989 $U.S.)
+ 40
OECD
+ 30 Poland
EU
+ 20 Slovenia

Hungary
+ 10 Slovakia
Czech
0
Republic

-10

Romania
-20
Bulgaria
-30
Russia
-40

-50
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

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

<classwork.busadm.mu.edu/International/Strasbourg%202003/Guest%20Speakers%20Material/Dr%20Toumanoff%20ppt.ppt >
 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?

 China’s Transitional Economy
In 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 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 China’s further political democratization.
 Path-Dependent Institutions
Preexisting 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.
 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 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
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 2002:91)
 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 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.