Joachim Zweynert

The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politically Implemented Institutional Change

The increasing gap between the formerly socialist countries of Central and Eastern Europe (CE & EE) with regard to both their economic and political performance cannot be explained by their different starting conditions after the breakdown of the Soviet Union alone. Rather, it is due to cultural and historical circumstances that shape the particular tradition and societal environment. Taking a cultural approach and referring to the newer literature on the transfer of institutions, we try to improve the understanding of the interrelation between formal and informal institutions. Our central thesis is that the reaction rate of informal institutions depends on their compatibility with imported formal institutions. The transition processes in CE & EE can tell us much about the relation between path dependent and politically implemented institutional change. During the 20th century the countries of CE & EE twice went through rapid institutional change: For centuries they had acculturated to Western Europe, but as a result of the October Revolution Eastern patterns were imposed upon them. Since the breakdown of the SU in the late 1980s they have returned to Europe by (re-)establishing democracy and capitalism. In our opinion, to understand the differences in performance between the transition countries, it is necessary to interpret both transitions as processes of institutional transplantation and ask how the informal institutional settings in the different countries interacted with the imported formal institutions.

The Two Transitions in Central and Eastern Europe as Processes of Institutional Transplantation

In the euphoria of the early 1990s the former socialist countries of Central and Eastern Europe (in the following: CE and EE) were generally expected to quickly turn into democracies with market economies. The experience of the last 15 years, however, has shown that only some of them (the Baltic States, Poland, Hungary, the Czech Republic, Slovakia and Croatia) have done so. With Russia, Belarus, Bulgaria, Moldavia, the Ukraine, Romania, and Serbia and Montenegro it is not yet clear where the journey goes. The increasing gap between the two groups of transition countries with regard to both their economic and political orders (see Kitschelt 2003) cannot be explained by their different starting conditions after the breakdown of the Soviet Union alone. Rather it also has its causes in the cultural and historical circumstances shaping their particular traditions and societal environments. The experience of transition has strongly challenged the neoclassical paradigm (see Murrell 1991), and it has led to a growing awareness of the role of informal institutions in the process of institutional change, not only in institutional and evolutionary economics, but also increasingly in the mainstream. In view of the variety of transitional trajectories, the countries of CE and EE are now sometimes seen as prime examples of historical path dependence with the performance of individual countries dependent on informal rules carried over from the pre-communist past (Winiecki 2004, 143). As much as the idea of path dependence has contributed to a better understanding of transition in CE

Interests versus culture in the theory of institutional change

This paper suggests an analytical framework to bring two explanations of institutional change together. My analysis rests on three building blocks: Firstly on the idea of the transfer or transplantation of institutions, secondly on the idea of functional differentiation, and thirdly and decisively on an understanding of culture as a toolkit leaving room for interest, choice and strategic action. The concepts of institutional transplantation and of functional differentiation will be introduced in the following section. In the third one, I will reformulate Norths neoclassical theory of the state and his elaborations on culture and belief systems in terms of these concepts. Section four, then, offers a proposal of how to bridge the gap between the two approaches. Throughout the paper, I will use the example of Russia to illustrate my theoretical thoughts, a country I have been studying for years and which, as North (1999,9) remarks, is particularly suited to explain the problems of economic change. In section five I will outline in very basic terms how the history of failed attempts at reforms in Russia might be interpreted from the perspective developed here.

Conflicting Patterns of Thought in the Russian Debate on Transition: 1992-2002

The present study is a continuation of an earlier paper by the same author dealing with the economic debates in the Soviet Union between 1987 and 1991 (HWWA Discussion Paper 324; Europe-Asia Studies vol. 58, no. 2). After there had been a paradigm shift in Russian economics around 1990, in the period under review the Russian economists increasingly returned to the path-dependent shared mental models prevailing in their country. In particular, the old debate between ?Westernizers? and Slavophiles was forcefully revived after the liberal reform concept seemed to have failed to solve the socioeconomic problems. The conflict between these camps has not yet been settled. This, I argue, makes it difficult to predict the further development of Russia?s economic and political order.

Economic Ideas and Institutional Change: Evidence from Soviet Economic Discourse 1987-1991

In recent years, institutional and evolutionary economists have become increasingly aware that ideas play an important role in economic development. In the current literature, the problem is usually elaborated upon in purely theoretical terms. In the present paper it is argued that ideas are always also shaped by historical and cultural factors. Due to this historical and cultural specificity theoretical research must be supplemented by historical case studies. The paper analyses the shift in ideas that took place in Soviet economic thought between 1987 and 1991. This case study, it is argued, may contribute to our understanding of the links between ideas and institutions. More specifically, it sheds new light on the issue of whether the evolution of economic ideas is pathdependent, so that they change only incrementally, or whether their development takes place in a discontinuous way that can best be compared with revolutions.

The theory of internal goods in nineteenth-century Russian classical economic thought

The article deals with the development and reception of the so-called theory of internal goods, which is to be considered as one of the most fascinating contributions of Russian intellectual history to economic thought. The theory of internal goods investigates the connections between cultural and economic development. It clearly reflects the question of how Russia could overcome her economic and cultural backwardness compared to Western Europe. Although the representatives of the concept have failed to keep their promise to deliver an economic theory of civilization, they raised questions that to the present day have lost none of their actuality.

Economic Ideas and Institutional Change: The Case of the Russian Stabilisation Fund

An intense discussion is taking place in international political economy on the influence of economic ideas on institutional change. Case studies so far have, however, mainly focused on the Western industrialised countries and research seems to be biased towards cases in which new ideas caused lasting institutional change. The present paper addresses these two shortcomings by analysing the case of the Russian Stabilisation Fund (SF). This case is an example both of the impact of global ideas on a non-Western emerging country and of a ‘near miss’ in the sense that imported neoliberal ideas failed to assert themselves enduringly. Paradoxically, it can be shown how the neoliberally based idea of the SF even contributed to the return to Soviet patterns of industrial policy. The main reason for this, we argue, is that the Funds implementation was not preceded by economic and political debates. Accordingly, the imported institution of the SF had to be filled with ideational content after its implementation.

Conditionality or specificity? Bulgaria and Romania's economic transition performance in comparative perspective

The differences in transition performance among the former socialist countries in Central and Eastern Europe have sometimes been traced back to specific historical or cultural legacies without sufficiently taking into account the impact of EU conditionality. In this context the cases of Bulgaria and Romania are particularly interesting, because these countries belonged to the laggard group before they were exposed to EU conditionality from the late 1990s on and since then have improved their transition performance. Thus an empirical analysis of their transition performance before and after EU conditionality set in might improve our understanding of the relative importance of specific historical and cultural traits on the one hand and of EU conditionality on the other for transition performance. This article applies the before/after and with/without approaches well known from economic conditionality research and relates them to Milada Anna Vachudovas politico-economic analysis of the impact of conditionality in Central and Eastern Europe.

How can the history of economic thought contribute to an understanding of institutional change

Since Moses Abramovitzs “classic†paper on “Catching-Up, Forging Ahead, and Falling Behind†(1986) economists have become increasingly aware again of the significance of “social capability†for processes of economic change. During the past twenty years much research has been done on “soft†determinants of development and growth. Especially some of the so-called new institutionalists and evolutionary economists have now returned to the roots of the institutional research program by acknowledging that “ideas matter†in the process of institutional change. However, it is still often overlooked in the literature that the cognition of social reality is deeply intertwined with the general world-view prevailing in a given society. Certainly, such general world-views are partly determined by the level of economic and technological development, but they are also a reflection of deeply rooted cultural traditions. In particular, the highly divergent outcomes of economic and political transition in the formerly socialist countries of Central and Eastern Europe have brought the connection between culture, ideas, and institutions to the fore again (see, for example, Winiecki 2004). Therefore it is all but an accident that it is one of the leading transition experts who has recently called on economists to “seek a better understanding of the role of values and norms in shaping both ideas and institutions†(Roland 2004, p. 128).

MONEY AND THE EXTENSION OF MORALS: THE CASE OF THE SOVIET UNION

Abstract Functioning markets require a state that will enforce property rights; contracts mediated by money; and the prevalence of a certain type of morality that prevents people from cheating in complex exchange relationships. Monetary exchange abstracts from the personal loyalties that bind small groups together, but at the same time it creates an overarching commitment to norms that bind people more loosely in national societies—as long as monetary exchanges are enforced by the state. In the Soviet Union, conversely, the abolition of money as a universal medium of exchange led both to a deterioration of the norms of impersonal morality and to a loss of state capacity. The state lost control of the economy to informal, personally binding economic networks, and it lost its monopoly on violence in competition with sub-state, personal enforcers of impersonal economic commitments between these networks. Thus, capitalism can be seen as diverting people from norms of loyalty to the members of the relatively small groups of which they are a part toward loyalty to the abstract norms that make it possible for anonymous people to deal with each other reliably.