The Governance Grenade: Mass Privatization, State Capacity and Economic Development in Postcommunist and Reforming Communist Societies.

This article critiques neoliberal transition theory from a state-centered perspective. Neoliberal scholars have used cross-national regression analysis to argue that postcommunist economic failure is the result of inadequate adherence to neoliberal precepts. Sociologists, in turn, have relied on case study data to show that postcommunist economic failure is the outcome of too close adherence to neoliberal policy recommendations, which has led to an erosion of state effectiveness, and thus produced underdevelopment. The present paper advances a version of this statist theory based on a quantitative analysis of mass privatization programs in the postcommunist world. We argue that the neoliberal policy of rapid large-scale privatization creates severe supply and demand shocks for enterprises, thereby inducing firm failure. The resulting erosion of tax revenues leads to a fiscal crisis for the state, and severely weakens its capacity and bureaucratic character. This, in turn, reacts back on the enterprise sector, as the state can no longer support the institutions necessary for the effective functioning of a capitalist economy, thus resulting in de-modernization. In this paper, we test the predictions of neoliberal transition theory against those of our statist theory, using cross-national regression techniques. We find that the implementation of mass privatization programs negatively impacts measures of economic growth, state capacity and the security of property rights.

Post-Manichean Economics: Foreign Investment, State Capacity and Economic Development in Transition Economies

This paper evaluates the role of foreign direct investment (FDI) in the transition from socialism to capitalism. Fixed-effects panel regressions indicate that FDI and domestic investment have an equal effect on growth in the first year of investment, but over time FDI is associated with greater growth than domestic investment. However, this positive impact of FDI turns out to be contingent upon the presence of a relatively well-functioning state in the host economy; in the absence of such a state, the net effect of FDI on economic development may be negative. All findings are robust in light of instrumental variable estimation, which is used to account for potential endogeneity problems.

Privatization and State Capacity in Postcommunist Society

Economists have used cross-national regression analysis to argue that postcommunist economic failure is the result of inadequate adherence liberal economic policies. Sociologists have relied on case study data to show that postcommunist economic failure is the outcome of too close adherence to liberal policy recommendations, which has led to an erosion of state effectiveness, and thus produced poor economic performance. The present paper advances a version of this statist theory based on a quantitative analysis of mass privatization programs in the postcommunist world. We argue that rapid large-scale privatization creates severe supply and demand shocks for enterprises, thereby inducing firm failure. The resulting erosion of tax revenues leads to a fiscal crisis for the state, and severely weakens its capacity and bureaucratic character. This, in turn, reacts back on the enterprise sector, as the state can no longer support the institutions necessary for the effective functioning of a modern economy, thus resulting in deindustrialization. Using cross-national regression techniques we find that the implementation of mass privatization programs negatively impacts measures of economic growth, state capacity and the security of property rights.privatization, transition economies, state capacity, property rights, institutions, growth

Mass Privatization and the Postcommunist Mortality Crisis

During the transition to capitalism, postcommunist countries have experienced unprecedented mortality crises, although there has been considerable variation within — and between — countries and regions. Much of this variation remains unexplained, although alcohol and psychological stress have been found to be major causes of declining life expectancy. We move beyond this finding by showing that the implementation of neoliberal-inspired rapid large-scale privatization programs (mass privatization) was a major determinant of the decline in life expectancy. We find that mass privatization also increased alcohol-related deaths, heart disease, and suicide rates, strong evidence that mass privatization created psychosocial stress that directly resulted in higher mortality. We also find that mass privatization modestly contributed to a decline in the number of physicians, dentists, and hospital beds per capita; however, we find only very weak evidence that this reduction in health resources directly contributed to the mortality crisis itself. By using “control function” and instrumental variable approaches to account for the potential endogeneity of mass privatization, we also demonstrate that the choice of mass privatization as a property-reform strategy was not economically determined, but was rather caused by ethnic politics and the mimicking of policies adopted by powerful neighboring countries.postcommunist, mortality crisis, privatization, psychosocial stress

The Governance Grenade: Mass Privatization, State Capacity and Economic Growth in Post-communist Countries

Why did the transitions from state socialism to capitalism result in improved growth in some countries but significant economic declines in others? Three main arguments have been advanced: (1) the most successful countries rapidly implemented privatization, liberalization, and stabilization policies; (2) failures were unrelated to economic policies but occurred because of a poor institutional environment; and (3) the policies were counterproductive because they damaged the state. We present a state-centered theory which argues that the more radical the privatization program, the worse the subsequent performance. We agree with the second account, that institutions matter, but demonstrate that it was radical privatization itself which was a major determinant of institutional weakness. In addition, our account holds that privatization was in fact a crucial determinant of institutional failure, operating primarily through the creation of a massive shock to state revenues. We perform cross-national regressions for a sample of 30 countries between 1990 and 2000, and find that mass privatization programs negatively impacted economic growth, state capacity and property rights protection. These findings are corroborated with data from a random sample of 4,000 firms from 26 post-communist countries. We show that in countries which implemented sizable mass-privatized programs, privatized firms were substantially less likely to engage in successful industrial restructuring but considerably more likely to engage in barter and have tax arrears than their state owned counterparts.

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

Why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others? Scholars have advanced three main arguments: (1) successful countries rapidly implemented neoliberal policies; (2) failures were not due to policies but to poor institutional environments; and (3) policies were counterproductive because they damaged the state. We present a state-centered theory and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance: mass privatization programs, where implemented, created a massive fiscal shock for post-communist governments, thereby undermining the development of private-sector governance institutions and severely exacerbating the transformational recession. We performed cross-national panel regressions for a sample of 25 post-communist countries between 1990 and 2000 and found that mass privatization programs negatively affected economic growth, state capacity, and property rights protection. We further tested these findings with firm-level data from a representative survey of managers in 3,550 companies operating in 24 post-communist countries. Within countries that implemented mass-privatized programs, newly privatized firms were substantially less likely to engage in industrial restructuring but considerably more likely to use barter and accumulate tax arrears than their state-owned counterparts.Sociolog

This paper explores the relationship between economic growth and the welfare state. We argue that: Postcommunist Mortality Crisis

During the transition to capitalism, the postcommunist countries have experienced unprecedented mortality crises, although there has been considerable variation within — and between — countries and regions. Much of this variation remains unexplained, although alcohol and psychological stress have been found to be major causes of declining life expectancy. We move beyond this finding by showing that the implementation of neoliberal-inspired rapid large-scale privatization programs (mass privatization) was a major determinant of the decline in life expectancy. We find that mass privatization also increased alcohol-related deaths, heart disease, and suicide rates, strong evidence that mass privatization created psychosocial stress that directly resulted in higher mortality. We also find that mass privatization modestly contributed to a decline in the number of physicians, dentists, and hospital beds per capita; however, we find only very weak evidence that this reduction in health resources directly contributed to the mortality crisis itself. By using “control function” and instrumental variable approaches to account for the potential endogeneity of mass privatization, we also demonstrate that the choice of mass privatization as a property-reform strategy was not economically determined, but was rather caused by ethnic politics and the mimicking of policies adopted by powerful neighboring countries

Food Production during the Transition to Capitalism: A Comparative Political Economy of Russia and China

The principal analytical objective of this dissertation is the assessment of changes in the political economy of food production during the transition from socialism to capitalism in Russia and China. The dissertation is equally interested in the consequences of this transition for human welfare resulting from changes in the availability of food. As a conditio sine qua non for human survival, food serves as an objective yardstick for human welfare. By studying changes in the political economy of food production it is therefore possible to draw general inferences regarding the welfare implications of the transition to capitalism in Russia and China. This dissertation uses a combination of classical political economy and comparative institutional analysis: The three empirical chapters show how changes in state objectives result in the formulation of economic policies that in turn shape the organization of food production - with momentous consequences for the Russian and Chinese people. Both countries achieved a significant increase in the output and variety of food, yet new problems concerning the availability, quality, and safety of food products have resulted from the introduction of markets. These problems are not externalities, but rather constitute a necessary consequence of the establishment of a market economy in which profit-oriented actors engage in competitive exchange without regard for human welfare. As a result, both countries are compelled to balance their desire for economic growth with the provision of sufficient and adequate food to their populations. An in-depth comparison of the development trajectories of two agro-industrial sectors (wheat and pig production) moreover reveals a convergence in government policy and economic institutions, indicating that Russia and China no longer represent alternative transition models. Following the reassertion of state authority during the first Putin presidency, the Russian government adopted an extensive agricultural modernization program, which strongly resembled China's existing state-guided reform strategy. Recently, both governments have taken active steps towards increasing the global competitiveness of their food economies, while intervening in markets as needed to ensure domestic food security. This demonstrates the centrality of the state in establishing and administering a capitalist economy.Sociolog