The Case for Radical Reform

It is difficult to generalize about the relationship between democracy and a market economy. Nonetheless, for the developed socialist countries of Eastern Europe and the former Soviet Union (as distinguished from developing socialist countries like China and Vietnam), democratization appears to have been a necessary precondition for a successful transition to a market economy. This does not mean, however, that democracy will necessarily be consolidated (or even survive) in these countries if they succeed in forming a market economy.

In developed postcommunist countries, there is a striking empirical correlation between democratization and the transition to a market economy. Every democratic breakthrough in a communist country in Europe has soon been followed by an attempt to establish a market economy. Correspondingly, every country that has tried to introduce a market economy has first experienced a democratic breakthrough.

It is easy to understand why democratization has preceded marketization in developed socialist countries. First, little economic pluralism was allowed to develop under communism, for the interests of the old ruling class—the nomenklatura—dictated otherwise. This class dominated not only the state, but also the ruling party, the whole sphere of state-run enterprises, the world of culture, and the media. Any transformation of the economic system presupposed change in the nomenklatura-dominated political system; in other words, marketization required large steps toward democracy.

A second characteristic feature of the mature socialist countries was the "withering away of the state." Despite the enormous power that remained concentrated in the state, it had virtually ceased to exist as a central authority representing fundamental public interests. As bureaucratization proceeded, the state's power was dispersed among numerous state bodies devoted to their own corporate interests rather than to any broader public concerns.¹ Thus once the old totalitarian structures had been overthrown, the next task was to reconstitute a state capable of representing common national interests. This required a centralization of decision making on such essential matters as basic legislation, monetary policy, and fiscal policy.

Under communism, the formal state apparatus had been subservient to the ruling communist party. The preferred mode of command was phone calls from superiors; written law meant little. When communist dictatorship crumbled, the old chain of command fell apart but the contempt for law remained. Bureaucrats became free to pursue their own interests, disregarding both law and the wishes of their superiors. Underpaid and disaffected from the new order of things, apparatchiki all over the postcommunist world have turned to corruption in large numbers.

The third political peculiarity inherited from communism was the extraordinary strength and ruthlessness of the old nomenklatura. The new political regimes aspired to deprive them of all public property, but many remained well placed to take charge of such property anyway. This posed an extraordinary challenge to fledgling postcommunist states, for failure to confront the old elite's attempts at massive embezzlement could brand the new social order as ineffective and possibly even illegitimate.

In such a dangerous situation, the paramount task of the new, noncommunist leadership was to build a democratic state as simply and quickly as possible. Speed was of the essence both in breaking the power of the old communist apparat and in erecting defenses against the counterattacks that it might mount after licking its wounds for a time. Moreover, the credibility of economic reform depended on the credibility of political reform: the people at large had to be able to see that the rule of the communist party and its nomenklatura had definitely come to an end.

The slower the destruction of the old system, the more trouble and pain the transition brings: given time, communist-holdover officials will find ways to transform their remaining power into property (whether by outright thievery or more subtle methods), thus exacerbating inequalities, undermining public confidence in the state, and preparing the ground for potentially antidemocratic populism. Haltingly democratized countries such as Romania and Russia, where many old communists remain in high office, have been particularly susceptible to populist politics.

There are compelling reasons not only for the rapid destruction of the old order, but also for the speedy construction of a new democratic [End...