The Political Economy of Dual Transformations: Market Reform and Democratization in Hungary

1. Party and State Institutions in Dual Transformations

CHAPTER I Party and State Institutions in Dual Transformations The Dilemmas of Dual Transformations What are the theoretical grounds for supposing that political liberalization and economic transformation are mutually antagonistic? The main predicament of dual transformations is that the surge of popular participation following democratization clashes with the austerity requisite to stabilization, adjustment, and market reform. It takes years for states to build public confidence in democratic institutions. Lacking reservoirs of "stabilized expectations," new democracies are often unable to sustain economic policies imposing heavy costs on the population.I The experiences of the capitalist South, where democratic governments grappled with the exigencies of market reform throughout the postwar period, illustrate the problems ofsimultaneous economic and political change. Some scholars contend that the new East European democracies are moving along a similar trajectory as the dual transformers of the South. During the early postcommunist period, successor governments benefited from the disarray of key societal groups opposed to marketization . But organized opposition is mounting, especially among trade unions and public sector workers. Meanwhile, the segments of postcommunist society likely to benefit from market reform-intellectuals, professionals , private entrepreneurs-remain organizationally weak and hampered by widespread suspicion about their activities. Sustaining and deepening economic reforms in the East is thus proving more difficult than initiating them, as in the South.2 On the surface, the prospects for resolving this contradiction between economic and political liberalization appear bleak. Among the Third World countries that implemented ambitious adjustment programs, virtually all did so through concentration of authority in politically insulated I. Joan Nelson, "The Politics of Economic Transfonnation: Is Third World Experience Relevant in Eastern Europe?" World Politics. April 1993. 442-47. 2. Nelson, "The Politics of Economic Transfonnation," 447-54. 11 12 The Political Economy of Dual Transformations executives. But in the highly fluid circumstances attending the disintegration of communist rule, executive authority in Eastern Europe is weak. "Windows of technocratic opportunity" did open up in a few countries, notably Poland, but quickly closed in the aftermath of parliamentary elections . Repressive measures of the sort employed by the East Asian and South American countries in the 1960s and 1970s might improve the chances for economic transformation while endangering democratic consolidation . Delaying economic adjustment, the strategy pursued by postFrancoist Spain in the late 1970s, is hardly feasible in view of the magnitude of the problems facing the East European economies. And democratic corporatist arrangements, which in postwar Western Europe helped to ease distributional conflicts between labor and capital, seem unlikely to emerge in the East.3 Under these circumstances, postcommunist governments will be strongly tempted to resort to executive decrees and other quasi-authoritarian methods. Eastern Europe is therefore unlikely to escape the recurrent economic crises, political instability, and social inequities of the capitalist South: "The East has become the South."4 This book challenges such arguments concerning the dangers of simultaneous transformation in Eastern Europe. Far from hindering marketization in the former communist countries, democratization facilitated it by insulating successor governments from particularistic claims, bolstering the capacity of state institutions to administer global regulations, and channeling distributional conflicts into the electoral arena, where the "losers" of market reform operated at a disadvantage in the early 1990s. In this chapter, I develop an institutional theory to investigate the relationship between political and economic liberalization in Eastern Europe. I focus on party organizations and state agencies, assessing how the transformation of those institutions altered the distributional politics of stabilization, adjustment, and market reform. I argue the following: While the legal authority of the communist states was vast, their capacity to enforce universal rules ofeconomic conduct was limited. The exigencies of central planning compelled factory-level actors to procure inputs outside the state's formal allocation system, conceal information from ministerial officials, and commit other illicit activities. Communist leaders tolerated these deviations from legal/rational norms because they helped enterprises meet the ruling party's own production goals. The result was to skew the communist states toward institutional particularism. While the 3. Nelson. 'The Politics of Economic Transformation." 454-63. 4. Adam Przeworski. Democracy and the Market: Political alld Economic Reforms ill Eastern Europe olld Latin America (Cambridge: Cambridge University Press, 1991), 139-46, 180-91. Party and State Institutions in Dual Transformations 13 Marxist-Leninist system deprived local agents of means to advance their interests via collective action outside the Communist Party, it afforded them multiple access points to lobby state agencies for individual exemptions from central directives. The market socialist reforms introduced in Hungary and...