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Chapter 4: The State of the Market
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The State of the Market The Market Reform Debate and Postcommunist Diversity László Bruszt This chapter revisits three interrelated claims made in Problems of Democratic Transition and Consolidation, the magnum opus of Juan J. Linz and Alfred Stepan. These claims were about the links between market reforms, state making, and democratization in the context of postcommunist economic and political transformations. The first of them involved the relationship between market reforms and state making; the second was about the relationship between democracy and (regulatory ) state making; and the third was about the proper sequencing of reforms. The arguments Linz and Stepan made were the following: (1) constructing a functioning market economy presupposed state building ; (2) nondemocratic ways of building a capable state in Eastern Europe were not an alternative; and (3) the reforms should start with state building under democratic conditions and later build a functioning market economy on these foundations. At the time Problems of Democratic Transition and Consolidation was written, the dominant view was that market making was about“destatization ”and that democracy, at least in the short term, was a liability from the perspective of the necessary reforms that were supposed to lead to a functioning market economy. The right sequencing of reforms 4 111 followed unambiguously from the previous two propositions of the mainstream view: market reforms should come first; democracy and state building should come later. Linz and Stepan were not alone in claiming that building markets presupposed state making, and they were not the first to claim that democracy might be an asset for market reforms. They were among the first, however, to make the theoretically based claim that if at the end of reforms the goal was to have both functioning markets and sustainable democracies, then building a regulatory state under democratic conditions was the way to start. More precisely, they claimed that to make de mocracy and market reforms compatible, the goal of reforms should be to create the conditions for the orderly politicizing and regulation of the economy. That was exactly the opposite of what the then-dominant neoliberal paradigm suggested: depoliticizing the economy and making it a private business. The orderly politicizing of the market meant creating what Linz and Stepan called an economic society: a “set of norms, regulations, policies, and institutions” produced by political society and enforced by the state. Formulating the goals of reforms this way, Linz and Stepan went well beyond the revisionist reform proposals of the 1990s that suggested creating a market-preserving state as a condition for free markets but were silent about the regulatory state and, more implicitly than explicitly, rejected the politicizing of the issues of economic transformation . I present some empirical evidence on the relationship between market reforms, state building, and democracy and show that in Problems of Democratic Transition and Consolidation Linz and Stepan were right in their theoretical conclusions. Moreover, early on they provided a key to one of the central factors of postcommunist divergence in developmental pathways.1 Twenty years after the commencement of economic and political transformations, the former state socialist countries dramatically diverged on key dimensions of economic development. While most of them have introduced all the liberalizing reforms prescribed to them in the early 1990s, less than half have a well-functioning regulatory state. One can find regulatory states comparable to Western standards only in countries where in the 1990s issues of economic trans112 | László Bruszt [54.147.0.155] Project MUSE (2024-03-29 14:28 GMT) formation and regulation were politicized and decided in a democratic political framework. The development of capable regulatory states in the framework of democratic institutions was the necessary condition for improving global positions in international markets while keeping social inequalities low and domestic social integration relatively high. Lack of progress in building regulatory states meant remaining in or falling to the periphery of the globalizing world economy, drastic increases in social inequalities, and lower levels of domestic social integration (Bruszt and Greskovits 2009). I begin with a brief synopsis of the arguments of Linz and Stepan, then position the arguments presented in Problems of Democratic Transition and Consolidation within the broader debates on what a functioning market economy is and what the politics of economic transformation in the post-Communist countries should be. I will argue that the way Linz and Stepan defined the relationship between market reform, state making, and democratization has a strong family resemblance to the political program of the post–New Deal constitutional...