Gerald A. McDermott

Institutional Change and Firm Creation in East-Central Europe: An Embedded Politics Approach

A central debate about the transformation of postcommunist countries is how political approaches to institution building affect firm restructuring and creation. This debate has largely been dominated by theories that emphasize either the depoliticization of institutional designs or the determining impact of preexisting social structures. By examining the relative economic performance of Poland and the Czech Republic in the 1990s, this article offers an alternative, embedded politicsanalysis that views firm and institutional creation as intertwined experiments. Czech attempts to implant a depoliticized model of reform impeded institutional development and the reorganization of sociopolitical networks, in which firms are embedded. Poland facilitated institutional experiments not only in the ways it promoted negotiated solutions to restructuring but also in the ways it empowered subnational governments. The study utilizes data on manufacturing networks, privatization, bankruptcy, and regional government reforms collected between 1993 and 2000.

Integrating rule takers: Transnational integration regimes shaping institutional change in emerging market democracies

ABSTRACT How does the transnationalization of markets shape institution building, particularly in those countries that have few options other than to incorporate the rules and norms promulgated by advanced industrialized countries? Building on recent advances in international and comparative political economy, we propose a framework for the comparative study of the ways in which transnational integration regimes (TIRs) shape the development of regulatory institutions in emerging market democracies. The ability of TIRs to alleviate the supply and demand problems of institutional change in these countries depends in large part on the ways in which TIRs translate their purpose and power into institutional goals, assistance and monitoring. Integration modes can be combined in different ways so as to empower or limit the participation of a variety of domestic public and private actors to pursue and contest alternative institutional experiments. We illustrate the use of our framework via a brief comparison of the impact of the European Union accession process on post-communist countries and the North American Free Trade Agreement (NAFTA) on Mexico, with special attention to the development of food safety regulatory institutions.

Transnational Integration Regimes as Development Programs

In drawing on recent advances in international and comparative political economy, this paper argues that diverging paths of institutional development among emerging market democracies are driven by the Transnational Integration Regimes (TIRs), in which a country is embedded. TIRs are more than trade agreements, aid projects, or harmonization systems and should be viewed as development programs. To date, research on the role of international factors shaping local institutional development has done little to move beyond references to markets and hegemonic hierarchies as the main mechanisms of change, compliance, and commitment. This work is largely based on a depoliticized view of institutional change, and overlooks the growing literature on the evolution of regulative capitalism and the diverse patterns of transnationalizing the modern state. By integrating this latter work into our analysis, we show how TIRs differ less in terms of their incentives and largess and more in terms of their emphasis on building institutional capacities and ability to merge monitoring and learning at both the national and supra-national levels. We develop a comparative framework to show these systematic differences through an analysis of the impact of the EU Accession Process on post-communist countries and NAFTA on Mexico.

Public-Private Networks as Sources of Knowledge and Upgrading Capabilities: A Parametric Stroll through Argentine Vineyards

This article uses a unique research design to statistically analyze how a firms public-private network can shape its upgrading capabilities. Such a network includes a firms ties to other firms as well as to associations, cooperatives, schools, and publicly supported institutions that aim to help firms innovate. We develop our argument through an examination of the transformation of the Argentine wine industry in two provinces that uses data from a unique field survey we designed and implemented in 2004-05 to statistically analyze the relative impact of firm level factors, inter-firm networks, and ties to non-firm organizations and institutions. While inter-firm networks are vital to upgrading, institutions bring value to firms in helping reconfigure socio-economic relationships. First, they can help firms improve process and product upgrading capabilities and graduate them to more sophisticated inter-firm networks. Second, linkages to institutions appear especially helpful to the extent they help the firm gain access to a variety of knowledge in different communities of producers. Governments can aid upgrading and competitiveness, especially in emerging markets, by building public-private institutions that not only offer supply-side resources to firms but also act as bridges across regions.

Network Restructuring and Firm Creation in East-Central Europe: A Public-Private Venture

The transformation of East-Central Europe deepens the debate about firm creation in a unique way: how do approaches to institutional creation impact the creation of firms? This paper theoretically and empirically explores this question by offering an alternative, embedded politics approach to explain the sharp contrasts in policy and SME manufacturing growth in the Czech Republic (CR) and Poland. Whereas Polish policies of gradual privatization and state intervention into restructuring led to significant growth in new firms, Czech policies of rapid, mass privatization produced stagnation. I argue that institutional experiments based on public actors becoming financial partners and conflict mediators enhance the ability of network actors to learn and monitor one another, and thus experiment with new forms of organization. Poland facilitated such institutional experiments not only in the ways it approached the creation of market institutions, but also in the ways it decentralized power and resources to local and regional political actors. The study utilizes data on manufacturing networks, privatization, bankruptcy, and regional government reforms collected over the past six years.

The Politics of Institutional Learning and Creation: Bank Crises and Supervision in East Central Europe

This article examines the political conditions shaping the creation of new institutional capabilities. It analyzes bank sector reforms in the 1990s in three leading postcommunist democracies ??? Hungary, Poland, and the Czech Republic. It shows how different political approaches to economic transformation can facilitate or hinder the ability of relevant public and private actors to experiment and learn their new roles. With its emphasis on insulating power and rapidly implementing self-enforcing economic incentives, the ???depoliticization??? approach creates few changes in bank behavior and, indeed impedes investment in new capabilities at the bank and supervisory levels. The ???deliberative restructuring??? approach fostered innovative, costeffective monitoring structures for recapitalization, a strong supervisory system, and a stable, expanding banking sector.

Restructuring in the Czech Republic: Beyond Ownership and Bankruptcy

Restructuring of large industrial holdings in the Czech Republic (S-firms) depends on probes into new markets. The development and financing of probes generates internal holdups and stalemates among the government, banks and S-firms. The government tries to preserve the value of just-privatized S-firms while avoiding subsidies; banks, facing their delinquency, cannot force bankruptcy since keeping them as clients is as important as maintaining capital adequacy. A compromise arises, IMBR (intricate monitoring based restructuring), where the outside parties condition their involvement on a peculiar reorganization of the firm. We provide the empirical and theoretical underpinnings of IMBR, the emergence of which is neither deliberate nor accidental.

TRANSNATIONAL REGULATORY INTEGRATION AND DEVELOPMENT: A NEW FRAMEWORK FOR INSTITUTIONAL CHANGE

A study of how extending regulatory integration into developing nations affects the nature of these contestations and their outcomes.