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Transforming Post-Communist Political Economies
Moreover, allowing decentralization without establishing a legal framework for private ownership is likely to give managers access to rents, leading to a drain of resources from the state-controlled sector of the economy to the informal or illegal sector. Poznanski (1997:276-277) refers to this process as ''creeping capitalism":
From the very beginning, a total shift of control to the centre proved to be impractical, this because of lack of information. . . . With time these informal spheres of free action have gained ground, this process, to a degree, being helped by official reforms. Those communist-era systemic reforms that delegated authority down the decision-pyramid, even if short-lived, were conducive to such expansion. Any reversals in the reform course were helpful because they brought in an element of confusion that served lower-level agents to hide their activities. Personal incentives to work outside of official directives—the central plan—increased further with a decline in the level of coercion. With the practice of subverting the system for personal gain reaching all layers of the system, including the center, interest in applying coercion has subsided. And when in use, coercion was increasingly applied for extracting personal gains as well.
As the government began issuing trading concessions and production permits to members of the political elite, argues Poznanski, a system of what he calls "political capitalism" emerged in Poland. In this system, political power was used by party bosses, state officials, and the police to acquire and safeguard private wealth. The alternative to political capitalism is legal private property.
The Socialist Firm
The institutional features of the socialist firm were similarly perverse. The exercise of state ownership of productive assets left property rights poorly defined, difficult to measure, costly to enforce, and difficult to transfer. Control rights to assets were vested in the political elite that exercised control through an administrative bureaucracy. Cash-flow rights were assigned to the citizens, since they would bear the benefits and costs of decisions in the level of their standard of living. Officially, returns to capital and resources were supposed to be centralized in the treasury in the form of profits, taxes, and charges for resources, but in practice, administrators who enjoyed control rights could assign subsidies and impose costs by the policies they pursued.
Although the institutions of the command system denied individuals legal ownership rights to most physical assets (tenancy rights to housing were allowed), they afforded the elite control rights over the vast rents generated by administrative allocation. Thus, corruption was commonplace. Sometimes, corruption can serve to circumvent bureaucratic obstacles. However, while corruption allows an allocator to "sell" market access at a shadow price re-