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  • From Communists to Foreign Capitalists. The Social Foundations of Foreign Direct Investment in Post-Socialist Europe
  • Joshua Sears
Nina Bandelj . From Communists to Foreign Capitalists. The Social Foundations of Foreign Direct Investment in Post-Socialist Europe. Princeton: Princeton University Press, 2007. 324 pp. ISBN 978-0-691-12912-9, $28.00 (cloth).

Bandelj investigates the transition in Central and Eastern Europe from socialism to capitalism in her book From Communists to Foreign Capitalists. She focuses on foreign direct investment (FDI) as a means of evaluating the individual countries' transition toward capitalism in the first ten years after the fall of communism in 1989. The main purpose of the book is to demonstrate how economic markets are constructed using a sociological perspective that relies on three key mechanisms: social structures, power, and culture. Bandelj departs from the traditional economic view of FDI where the host country plays a passive role. She addresses the institutionalization and legitimization of FDI, the predictors of FDI flows, and the social embeddedness of economic actors that facilitate FDI. Throughout the book, evidence is compiled to support Bandelj's notion of a practical economic actor rather than a rational one. [End Page 427]

Bandelj first analyzes the institutionalization and legitimization of FDI. She finds much variance in the level of active legitimizing processes undertaken by the governments. Czech Republic and Poland were rather quick at setting up institutions to legitimize and promote investment from abroad. On the other hand, Croatia, Slovakia, and Slovenia were more reluctant to immediately open up their national assets to foreign ownership. Bandelj explains the differences between the speed to setting up institutions that legitimize and therefore encourage FDI by the countries' histories, preferences of government insiders, and external pressures including agreements necessary for the move toward EU membership. Supporting her thesis of the social construction of markets, she finds these social indicators of FDI legitimization significant, while all economic indicators turned out insignificant. On the basis of these empirical analyses, she sustains that institutionalization and legitimization of FDI are strongly related to social structures, power, and culture and rejects the classic FDI hypothesis of the attractiveness of foreign capital economic factors.

Bandelj next analyzes the cross-country flows of FDI by taking a relational approach and hence focusing on the investor–host dyad. The analysis shows a strong relationship between the investor's historical– cultural ties with the host country and the investor's FDI flows as well as a strong relationship between network ties (both migration and export) and FDI flows. Again, Bandelj does not find significant relationships between economic predictors and FDI flows, but does uncover marginal effects of political stability increasing the flows from an investor to a country. This analysis leads her to conclude "that a set of social relations between investor and host countries may be more influential for FDI flows than country characteristics such as economic prosperity, political stability, or attractive FDI policy" (p. 130).

Bandelj complements her statistical analyses of FDI with a case study. AmeriCo, an American MNC, had network ties with Slovan, a Slovenian firm, prior to the collapse of communism. After communism fell, AmeriCo, the European market share leader, approached Slovan, a strong European market shareholder, about a possible acquisition. With Slovan looking at great economic benefits from the deal, AmeriCo did not take into account other factors affecting Slovan's decision on whether to be acquired. Slovan had multiple concerns with being acquired by AmeriCo ranging from the fear of job loss due to the American capitalist culture of profits come first to the fear of AmeriCo putting Slovan under the control of another AmeriCo subsidiary located in Italy. In the end, the acquisition did not happen due mainly to middle management and community [End Page 428] opposition. After the failed acquisition, a German multinational that had been a major customer of Slovan for ten years purchased part of Slovan. The justification for selling to the Germans and not the Americans was that the Germans and the Slovenians were culturally more similar and that their business goals were better aligned.

Bandelj focuses strictly on the decade following the fall of communism in Central and Eastern Europe. The narrow time...

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