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Transforming POST-COMMUNIST POLITICAL ECONOMIES

Joan M. Nelson, Charles Tilly, and Lee Walker, Editors

Task Force on Economies in Transition

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.



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Transforming Post-Communist Political Economies Transforming POST-COMMUNIST POLITICAL ECONOMIES Joan M. Nelson, Charles Tilly, and Lee Walker, Editors Task Force on Economies in Transition Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C.

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Transforming Post-Communist Political Economies NATIONAL ACADEMY PRESS 2101 Constitution Avenue, NW Washington, DC 20418  NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This study was supported by Contract No. CCN-0004-A-00-5023-00 between the National Academy of Sciences and the Bureau of Europe and the New Independent States, U.S. Agency for International Development, and Contract No. 94-F 134700-000 between the National Academy of Sciences and the Office of Research and Development, U.S. Central Intelligence Agency. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the organizations or agencies that provided support for this project. Additional copies of this report are available for sale from the National Academy Press, 2101 Constitution Avenue, NW, Box 285, Washington, DC 20055. Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area). This report is also available online at http://www.nap.edu. Library of Congress Cataloging-in-Publication Data Transforming post-Communist political economies / Task Force on Economies in Transition, Commission on Behavioral and Social Sciences and Education, National Research Council. p. cm. Includes bibliographical references and index. ISBN 0-309-05929-1 1. Former Soviet republics—Economic conditions. 2. Former Soviet republics—Economic policy. 3. Former Soviet republics—Social conditions. 4. Post-communism—Former Soviet republics. 5. Social change—Former Soviet republics. I. National Research Council (U.S.). Commission on Behavioral and Social Sciences and Education. Task Force on Economies in Transition. HC336.27.T7 1997 338.947—dc21 97-45305 Printed in the United States of America. Copyright 1997 by the National Academy of Sciences. All rights reserved.

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Transforming Post-Communist Political Economies TASK FORCE ON ECONOMIES IN TRANSITION CHARLES TILLY (Cochair), Departments of Sociology and Political Science, Columbia University JOAN M. NELSON (Cochair), Overseas Development Council, Washington, DC EDGAR L. FEIGE, Department of Economics, University of Wisconsin-Madison ALBERT FISHLOW, Council on Foreign Relations, New York City DOUGLASS C. NORTH, Department of Economics, Washington University ADAM PRZEWORSKI, Department of Political Science, New York University JUDITH THORNTON, Department of Economics, University of Washington KATHERINE VERDERY, Department of Anthropology, University of Michigan LEE WALKER, Study Director

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Transforming Post-Communist Political Economies CONTRIBUTORS ANDERS ÅSLUND, Carnegie Endowment for International Peace, Washington, DC DEBRA BAILEY, Center for Policy Research, The Maxwell School, University of Syracuse ALEXANDRA BENHAM, Independent Scholar, St. Louis, Missouri LEE BENHAM, Department of Economics, Washington University DANIEL BERKOWITZ, Department of Economics, University of Pittsburgh DAVID N. DEJONG, Department of Economics, University of Pittsburgh THRAINN EGGERTSSON, Department of Economics, University of Iceland, and Max Planck Institute for Research into Economic Systems, Jena, Germany EDGAR L. FEIGE, Department of Economics, University of Wisconsin-Madison ZSUZSA FERGE, Institute of Sociology and Social Policy, Eötvös Lorand University LOUISE FOX, Human Development Sector, The World Bank, Washington, DC CAROL GRAHAM, The Brookings Institution, Washington, DC SIMON JOHNSON, Sloan School of Business, Massachusetts Institute of Technology DANIEL KAUFMAN, Development Research Group, The World Bank, Washington, DC JENI KLUGMAN, Department of Economics, University of Australia JANOS KORNAI, Department of Economics, Harvard University, and Institute for Advanced Study, Collegium Budapest YEVGENY KUZNETSOV, Finance and Private Sector Development Network, Latin American Region, The World Bank, Washington, DC JAMES LEITZEL, The New Economic School, Moscow, Russia ALASTAIR MCAULEY, Department of Economics, University of Essex, England JOAN M. NELSON, Overseas Development Council, Washington, DC DOUGLASS C. NORTH, Department of Economics, Washington University LEONID POLISHCHUK, Institutional Reform in the Informal Sector Center, University of Maryland ADAM PRZEWORSKI, Department of Political Science, New York University GEORGE SCHIEBER, Middle East and North Africa Region, The World Bank, Washington, DC

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Transforming Post-Communist Political Economies TIMOTHY M. SMEEDING, Center for Policy Research, The Maxwell School, University of Syracuse JUDITH THORNTON, Department of Economics, University of Washington CHARLES TILLY, Departments of Sociology and Political Science, Columbia University BARBARA BOYLE TORREY, National Research Council, Washington, DC OLEG USTENKO, Kiev State Economic University, Ukraine KATHERINE VERDERY, Department of Anthropology, University of Michigan ANDREW WALDER, Department of Sociology and Institute of International Studies, Stanford University

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Transforming Post-Communist Political Economies Acknowledgments First, we thank the participants in our five workshops for their ideas, insights, and analyses concerning emerging developments and trends in the post-communist world. Both those whose papers are included in this volume and those who contributed through their cogent comments and probing questions in the discussions were central to the work of the Task Force. Second, we express our gratitude to the project's sponsors—the Bureau for Europe and the New Independent States of the U.S. Agency for International Development, the Office of Research and Development of the U.S. Central Intelligence Agency, and the Joint Economic Committee of the U.S. Congress—for bringing their inquiries concerning post-communist affairs to the National Research Council. They provided the impetus and the necessary financing for what we found to be a fascinating and timely project. We hope this volume meets their expectations. We also thank the Research Council staff who oversaw the myriad technical details associated with this project, especially Janine Bilyeu and Heather Schofield. We are particularly grateful to Rona Briere for her editorial expertise. Most important, Lee Walker, the project director, was the linchpin who directed the study, from its earliest glimmer through five workshops and innumerable drafts of papers, keeping us all focused on both the substantive tasks and the administrative realities. This volume would not exist without her work. Finally, we acknowledge the critical and intellectual contributions of our fellow members of the Task Force. We are a small group, and the scope of the topics and the substantial tasks entailed in the project demanded active and substantial contributions from the Task Force members. We are grateful to have had the opportunity to work so closely on this important project with such dedicated, thoughtful, and congenial colleagues. Joan Nelson and Charles Tilly, Cochairs  Task Force on Economies in Transition

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Transforming Post-Communist Political Economies The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

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Transforming Post-Communist Political Economies Contents Introduction   1 I Overview   11     Understanding Economic Change Douglass C. North   13 II Institutional Change, Property Rights, and Corruption   19     Underground Activity and Institutional Change: Productive, Protective, and Predatory Behavior in Transition Economies Edgar L. Feige   21 1   Property Rights in Transition Economies: A Commentary on What Economists Know Alexandra Benham and Lee Benham   35 2   Rethinking the Theory of Economic Policy: Some Implications of the New Institutionalism Thráinn Eggertsson   61 3   Missed Markets: Implications for Economic Behavior and Institutional Change Leonid Polishchuk   80 4   Fuzzy Property: Rights, Power, and Identity in Transylvania's Decollectivization Katherine Verdery   102 5   Rule Evasion in Transitional Russia James Leitzel   118

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Transforming Post-Communist Political Economies III Transforming Management, Labor, and Production   131     Restructuring Production Without Market Infrastructure Judith Thornton   133 6   Learning in Networks: Enterprise Behavior in the Former Soviet Union and Contemporary Russia Yevgeny Kuznetsov   156 7   Formal Employment and Survival Strategies After Communism Simon Johnson, Daniel Kaufman, and Oleg Ustenko   177 8   Observations on the Speed of Transition in Russia: Prices and Entry Daniel Berkowitz and David N. DeJong   203 9   Social Policy and the Labor Market in Russia During Transition Alastair McAuley   223 IV Social Trends, Household Behavior, and Social-Sector Policies   245     Social Costs, Social-Sector Reforms, and Politics in Post-Communist Transformations Joan M. Nelson   247 10   Reform of the Welfare Sector in the Post-Communist Countries: A Normative Approach János Kornai   272 11   Social Policy Challenges and Dilemmas in Ex-Socialist Systems Zsuzsa Ferge   299 12   Health Reform in Russia and Central Asia Jeni Klugman and George Schieber with Timothy Heleniak and Vivian Hon   322 13   Vulnerable Populations in Central Europe Barbara Boyle Torrey, Timothy M. Smeeding, and Debra Bailey   351 14   Pension Reform in the Post-Communist Transition Economies Louise Fox   370 15   From Safety Nets to Social Policy: Lessons for the Transition Economies from the Developing Countries Carol Graham   385

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Transforming Post-Communist Political Economies V Transforming the Role of the State   401     Democracy, Social Change, and Economies in Transition Charles Tilly   403 16   The State in a Market Economy Adam Przeworski   411 17   The State as an Ensemble of Economic Actors: Some Inferences from China's Trajectory of Change Andrew G. Walder   432 18   Possible Future Directions for Economies in Transition Anders Åslund   453 VI Research Priorities for Post-Communist Economies   471     Research Priorities for Post-Communist Economies Task Force on Economies in Transition   473 Appendix: Further Reading   491 Index   497

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Transforming Post-Communist Political Economies Transforming POST-COMMUNIST POLITICAL ECONOMIES

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