Markets, States, and Democracy: A Framework for 				the Analysis of the Political Economy of 					Post-Communist Transformation

				Beverly Crawford

			




















Introduction

After the revolutions of 1989 and the last gasp of the Communist party's power in Russia, most post-communist regimes proclaimed that they were embarking on a course of economic and democratic shock therapy to transform their societies, economies, and political systems.  Their immediate external and internal mandate was the simultaneous introduction of markets and democracy and the dismantling of the discredited Socialist state. Under what conditions will they succeed, and why will some fail? 
The task was unprecedented.  Liberalizing reforms were launched in the absence of strong civil societies, a prosperous middle class, and widespread liberal values.  New regimes struggled to revive economies that plummeted faster, farther, and longer than anyone anticipated, and they entered the international economy with uncompetitive exports in a period of fierce global market competition in which no external power or group of powers appeared to be willing and able to underwrite the costs of liberalization.  In other regions of the world and in previous historical periods, democracy has failed to put down roots under conditions of economic crisis, and successful market reform has most often taken place in the post-war period under authoritarian regimes who sometimes engage in brutal repression to stabilize and develop their economies.  The only successful recent simultaneous introduction of markets and democracy has been when these institutions were "installed" by an external hegemonic power, as in the case of post-war Germany and Japan (and experts quarrel over how "liberal" these countries are).  
The current intellectual debate on the "sequencing" of economic and political liberalization suggests that the simultaneous effort to introduce markets and democracy will fail in the post communist world.  Democratic rule has historically not been a necessary condition for establishing a functioning market economy1.  For "late developers" the chances for economic growth are best under a strong "developmental" state that is insulated from social pressures and is a recipient of generous external support.  The conventional wisdom gleaned from the experience of the East Asian NICS, Chile, and China is to hold back democracy until market reforms are consolidated.  Simultaneous economic and political liberalization triggers too many demands on resources precisely during the period in which development has been delayed and a rapid accumulation of capital is required.   Weak democracies will impede the project of economic liberalization, because society will not accept the painful effects of price reform, a reduction in welfare benefits, and the inevitable massive social dislocation.  Liberal democracies find consolidated political support after successful market reforms have spawned a middle class, a civic culture, and pluralistic societies.2
 Theories of collective action suggest that market reforms must precede democratic consolidation if liberalization is to succeed.  Assuming that the benefits of economic liberalization are diffuse, aggregate, and long-term, and the costs concentrated, particular, and short term, economic liberalization will create more opponents than supporters.  Consider, for example, the privatization process in Poland.3  The benefits of privatization (in the form of vouchers) were widely distributed throughout the population, but the costs (downsizing and unemployment) fell on the highly organized labor sector.  As plants in declining industrial sectors were shut down, those whose livelihoods and political power were threatened agitated against privatization.  
Collective action approaches suggest that most organized social groups and the mass electorate are rent-seeking actors who work to inhibit the efficient market allocation of economic resources through the political process.  Under democratic regimes, these groups have access to government, and they lobby, bribe, strike, and vote to persuade governments to allocate resources to them.  Politicians need resources to distribute in exchange for their support or they will be punished by being ousted in the next election.  They have a higher incentive to distribute particular benefits to important supporters now than to implement general policies that are likely to lead to overall economic growth in the future.4  They prefer to reward concentrated well-organized pressure groups such as producers over diffuse and less organized groups such as consumers.5  They prefer to reward party activists who mobilize social support for them over external constituencies for whom the rewards may be delayed and whose support is not assured.6  Rewards to party activists are especially important in post-communist societies where the social base of political parties is particularly thin, shifting, or altogether nonexistent.  Under these conditions, politicians are tempted to hold back markets and perpetuate state intervention in the economy to tap those resources and exchange them for support.  It follows that only those regimes that are insulated from these pressures will have the courage to cut state expenditures, sell public enterprises, reduce public employment, and create market allocation of resources to ensure the economic growth.
These claims notwithstanding, new democracies, or "polyarchies" can initiate and implement policies of economic liberalization. They can do so under three conditions: first, if the net benefits of liberalizing reform are not altogether diffuse but accrue to powerful groups that have formed dominant coalitions in the political system to provide support to liberalizing politicians;  second, if these politicians are insulated from punishment by those who bear the costs of reform--that is, if the costs fall on groups that are unable to translate their opposition to reform into demands that are represented in the political process; and third, if politicians are able to make side payments to losers, via economy-wide tax and transfer policies or via discreet channels and linkages between state agencies and various social and economic sectors.  Side payments are intended to mitigate some costs now in exchange for support and impose other costs later.  
Clearly, the second of these conditions--the insulation of reformers from punishment by those who bear the costs--means the undermining or delay of liberal democracy, but may be initially possible in post-communist societies where--as discussed by the contributions by Hall and Ost in this volume-- social groups are not well organized politically.  The third condition--side payments to losers--can take place in more open political systems, but may be difficult under conditions of economic crisis and may discourage or even destroy economic incentives necessary for reform.  Certainly there are tradeoffs in economic and political liberalization, but it is not at all certain that markets and democracy cannot be introduced simultaneously.  
If the above logic holds, simultaneous economic and political liberalization is possible in post-communist regimes.  To explore the connection and predict the odds of success we must first identify the conditions that either support or undermine liberalizers in the political process.  That is, we must examine how the costs and benefits of economic liberalization are distributed throughout society.  Further, we must identify the particular kinds of institutions that structure political participation in ways that permit either liberalizers or their opponents to achieve dominant or at least influential positions in the policy process.  In this volume we focus primarily on the first set of tasks. In this Introduction I construct a framework to analyze these those forces that facilitate support for liberalizers and those forces that create their opponents.  Subsequent chapters explore those forces in specific issue areas.  
I begin here with a general discussion of the liberal ideal, its adherents and detractors.  I then treat the conditions that bolster and undermine liberalizers at four levels:  1)social legacies, 2) state structures, 3) international aid and trade, and 4) economic policy choice.   After establishing this framework, I suggest four hypotheses about how these forces might interact, the political coalitions they support, and the potential expected outcomes.  These outcomes are expressed in the form of four scenarios: 1) the liberal utopia, 2) the region as a new global "periphery," open to the international economy, where weak democracies persist because their political institutions are required as a condition for international aid and because they provide benefits to rent-seeking domestic groups,  3)  successful state-led transition to economic development and political liberalization, and  4) the failure of liberalization and a return to despotism.     

I. A Framework for Analysis of Post-Communist Transformation
The Liberal Ideal
	Economic and political liberalization  have at their root the drive for individual freedom.  Liberals seek to build institutions that foster and protect the individual's right to enter into contracts, own property, buy and sell, speak and practice religion freely, choose government officials, and be protected in those rights from the state and from others in society who would thwart them.7  Two institutions are crucial in this quest for freedom: markets and liberal democracy.  Economic liberalization means the creation of labor markets, capital markets, and financial markets, and the removal of barriers to the creation of those markets in order to efficiently allocate scarce resources in the hope of achieving economic growth.  For economic liberals, the creation of markets does not ensure growth, and it does mean that inequalities in income and wealth are likely to characterize social relations.  Inequality, however, is tolerated in private economic relations because the growth that should ensue from the efficient allocation of resources will make all better off than they would have been in the absence of markets, and economic inequality is offset by equality of citizenship and representation in the political process.   
	Liberalizing politics in new democracies involves the creation of institutions that ensure representative government and universal citizenship.  Under Leninist regimes, political power was vested in a small group of people rather than in a set of impersonal rules.  Political liberalization demands that new rules of political contestation be formulated and implemented to remove the certainty of power for any one political elite and permit new contenders for political power to enter the competition.  Stephen Holmes' chapter in this volume shows how this transformation occurred throughout Eastern Europe and much of the Soviet Union through the process of constitutional reform.  He shows how the clause in every Soviet-era constitution stipulating the leading role of the communist Party was deleted and how constitutional amendments represented a legal and "wholly non-Bolshevik" method for "reacting to and promoting social change."  
	New political institutions would have to only be strong enough to resist the intervention of one or another political actor that might wish to reverse the outcomes of the political process.8  Old institutions vested power in a single party that prohibited opposition; new institutions would have to be created that encourage a "loyal opposition" and  block any incentives on the part of losers to reverse the outcome by force.9  Old institutions concentrated political power, new institutions would have to diffuse it, and they would have to replace regime-coerced political activity with measures that structured the preferences of voters to enhance political participation rather than subvert political institutions. Finally, as Haggard and Kaufman have noted, party systems would have to be created with the strength to effectively channel the inevitable social struggles over distribution of scarce resources.10 To ensure the creation of liberal democracies, politicians would have to construct and enforce a complex web of legal relationships that affirm equality before the law, protect individual rights and freedoms, guarantee political accountability, and ensure free, fair, and competitive elections. 		
	According to the liberal ideal, these institutions create loyalty to the democratic model and provide a non-coercive form of social mobilization for the state while restricting its control over the population.  The success of liberal democracy is dependent upon universal citizenship.  If universal citizenship is not assured, loyalty to the state is undermined and illiberal democracies emerge.  Illiberal democracies exhibit many attributes of polyarchy, like fair voting, freedom of speech, freedom of movement, freedom of association, and freedom of religion.  But they are unable or unwilling to protect their citizens from powerful social groups who would thwart those freedoms.11  
	Holmes' essay here outlines the potential contradictions between liberalism and democracy as they are expressed in the amending formulas for liberal constitutions.  He argues that a stringent amending formula suggests a bias for liberalism against democracy, that is, its provisions protecting liberal rights cannot easily be amended at the whim of parliament.  If stringent amending formulas are adopted, parliaments faced with large social problems can simply deflect disapproval to the courts and escape democratic accountability.  A looser amending formula, on the other hand, suggests the dominance of democratic procedure over the protection of rights.  Constitutional amendments can be used as simply another technique for outmaneuvering one's current political enemies.

The Role of the State
	The most important theoretical debate in literature on economic and political liberalization concerns the role of the state.  There is little debate about the requirement for state strength:  liberals believe that strong states are needed to implement liberalizing reforms and protect new institutions and individual rights from those who might wish to destroy them.12  They therefore caution against confusing state strength with authoritarian rule.  The strength of the liberal state comes from its legitimacy that reflects a diffusion of political power within civil society.  The strength of the liberalizing state rests not on the concentration of its military or police power but on its constitutional authority and its ability to enforce the law. To protect liberal reforms, the state itself must be a liberal institution, governed by the rule of law.  Only those states who have institutionalized a merit-based civil service, a system of "horizontal accountability" through a separation of powers,  multi-level governments, and legal impartiality in the policy process can protect and foster liberal rights and principles in the broader society. 
	Liberals disagree, however, over the role that the state should play in both economy and society.  Should the state be a producer?  A regulator? To what extent should it provide "safety nets?"  For whom? Should it protect citizens from one another or simply restrain its own activity to protect citizens from the emergence of a new totalitarian regime?   One group of liberals argues for a "minimal" state:  the state must create a legal framework to ensure private property ownership, and it must be strong enough to enforce private contracts and adjudicate disputes. In its most extreme form, economic liberalism argues that markets are a form of "natural" spontaneous social order, requiring few if any regulating institutions. Others suggests that states are necessary to provide collective goods not provided by the market.  But even then, the state is clumsy and is less likely to provide collective goods than markets would be.13  The central assumption of those who argue for a minimal state is that markets, not states, create the conditions for investment and capital accumulation, which, in turn, is the essential condition for economic growth.
	Others argue that the state must foster and protect investment, particularly in the case of "late developers."  Alexander Gerschenkron was the first to make this argument, and it is supported by more recent research on the politics of development and by the above discussion on rent seeking behavior of social actors.14   Autonomous and reform-oriented states are needed, the argument runs, to stimulate investment, make markets work, and to support new market institutions.  They can intervene by encouraging and promoting selected activities through the provision of low-cost credit to targeted industries, export subsidies, interest-rate subsidies and technical assistance to those industries. They are also needed to create the infrastructure to support markets and may be needed to provide technical information not furnished by simple prices.  For example, the privatization of public enterprises without infrastructure and information can undermine the market capabilities of new entrepreneurs, leading to the failure of newly privatized industries and thus failure of the privatization project itself. 
	According to Alec Nove's argument in this volume, the state must play an "entrepreneurial role" if reforms are to be initiated and implemented.  Economic crisis provides the credibility in new democracies for the state to play this role; sustained crisis, however, erodes government credibility and undermines political support.  Therefore, to successfully push through liberalization policies, reformers in the state apparatus need to be insulated from social pressures by being granted discretion to operate either outside traditional bureaucratic channels15 or acting within internally cohesive and insulated bureaucracies.16  One way to insulate a reform-minded bureaucracy is to ensure the creation of a liberal state at the outset; that is, rule-based hiring and promotion within the bureaucracy itself, so that political actors are not able to use public employment as a political resource to be exchanged for support. 
	At the very least, many liberals argue, states play a role in the provision of "safety nets" for those who are dislocated in the transformation process.  In centrally planned economies, health care, employment, and housing were all provided by the state. Many liberalizers argue that these benefits must continue in some form as "side payments," particularly if the potential losers in the liberalization process can mobilize political support to oppose further reform.  If the losers are diffuse and lack political organization, these safety nets are unlikely to be provided.  Women and--as David Ost argues in this volume-- labor in some sectors in post-communist societies are as yet diffuse and weakly organized.  Those losers who are concentrated and politically mobilized--such as some industrialists and labor producing for the domestic market-- are likely to pressure politicians for safety nets for themselves.

Conditions that support and undermine Liberalizers
	There are three important conditions created by the fall of communism that support Liberalizers in their efforts to construct liberal capitalist democracies.  First, economic crisis had fully discredited the old regime and its supporters17 and destroyed the last ideological universalistic and cosmopolitan alternative to liberal capitalist democracy.18  Having exhausted their capacity to produce economic growth, command economies were now seen as a fetter on the forces of production; new democratic regimes looked to market prescriptions to their perennial problems of economic "backwardness" in relation to the West.  
	Chapters by both Paolo Guerrieri and Ivan Berend in this volume trace the legacy of this economic crisis and their findings support the argument that the collapse of communism can in part be attributed to the fact that isolation from the international technological change "froze" socialist economies in a previous industrial era, triggering a decline in living standards and a decline in international competition.  Global technological change means that national competitiveness no longer rests on heavy industries that depend on relatively simple technology and a large unskilled labor force.  Instead, prosperity depends on knowledge-based production which relies on a cadre of highly trained engineers and a smaller, technologically sophisticated production workforce in all sectors of the economy.
	Second, without ideological rivals, a "consensus" among foreign and domestic elites on simultaneous economic and political liberalization emerged, providing ideological legitimacy that could be used as a resource to muster support for reforms.  As Ivan Berend argues here, elites throughout the region expressed a desire to again be part of "Europe," and knew they could only do so by rushing to adopt both democracy and markets.  In Central Europe, particularly, the Left and the Right converged on the need for simultaneous economic and political liberalization.  Ideological consensus on liberalization provided an attractive rhetoric for new political parties, especially in areas where the working class--a potential opponent of liberalization--was allergic to class-based political appeals providing alternatives to neo-classical reforms.  
	Finally, the relatively peaceful character of these revolutions, the Communist legacy of civilian control over the military, and the failure of the half-hearted Soviet coup set a precedent against a resort to violence for regime transformation.  The military was initially subordinated to civilian control, and had little stake in opposing economic reform policies of new democratic regimes.

	These three conditions created initial widespread support for reform, and the benefits of having thrown off the old regime were perceived to be greater than the potential costs of liberalization throughout the mass electorate.  Bolstered by these forces and sensitive to both international constraints and domestic public opinion, political elites perceived the need to demonstrate both success in their country's overall economic performance and their distance from Leninism by bringing in a merit-based civil service and institutionalizing procedures for transparency and accountability in government.     	
	Indeed, the degree of initial support for reform contrasted sharply with the situation in many Latin American countries where the Right prefers radical market reform and the maintenance of authoritarian regimes--or the "gradual" introduction of democracy, while the Left and the more populist forces prefer the extension of democratic reforms while holding back market forces that could cause initial widespread deprivation in much of the population.  In contrast, for most post-communist regimes, the question is not whether markets and democracy can be simultaneously introduced; democratic rhetoric--whether liberal or not--remains unchallenged, even if it has yet to be fully realized in practice.  Rather, the debates revolve around the sequencing of economic reforms.19  The splits between liberalizers are between those who advocate the radical and those who advocate the gradual path to economic reform.
	Two factors, however, worked in favor of the political opponents of liberalization.  First, liberalizers have few resources to distribute in exchange for political support.  The features of liberal democracy: rule-based behavior, transparency, and accountability and the requirements for universal citizenship limit opportunities for exchange.  Merit-based hiring and promotion in public employment, competitive contracts, the withdrawal of subsidies, and strict licensing rules limit politicians' ability to reward support with specific benefits.  Liberalizers, therefore, have few specific resources to distribute to their constituencies, particularly in a period of economic crisis.  Without strong political parties to discipline voters to support them as the cost of liberalization rise, they are subject to punishment by shifting coalitions of losers who seek to oust them.
  	Bulgaria's difficulties provide and example:  In 1992, Bulgaria experienced one of the sharpest drops in industrial output in Eastern Europe; its traditional markets in Eastern Europe and the Soviet republics had collapsed, and the government had implemented a strict monetary policy mandated by the IMF and the World Bank.  The decline in living standards not only resulted in a number of major strikes in 1992, but widespread protests were lodged by company directors and industrial elites whose subsidies were withdrawn. These business groups effectively used the national media to criticize and undermine government policies. In alliance with labor, they were instrumental in mustering widespread social support to vote down Bulgaria's radical reformers.20 The minimal state and rule-based political behavior will be resisted by rent-seeking social actors and politicians who need to distribute particular resources in exchange for political support. Small fragile firms often ally with large firms that have been dependent on the state in the past to block reforms and seek protection.  These actors are joined by legislators who are particularly tempted to resist reforms that reduce the public sector because of their need to distribute resources to particular constituencies.  
	Second, these incentives to resist liberalization are reinforced by the weak party system and its thin to non-existent ties to a solid social base in most post-communist societies.21  If these parties are fragmented and disorganized, with shallow roots in society, they intensify the incentive for politicians to exchange favors for support once they are in office.  Their short time horizon and weak party platforms do not permit them to impose party discipline; even if they wanted to liberalize political institutions and eschew corruption, they would be unlikely to mobilize the social or political support needed to keep them in office.  

Liberalizers and their opponents  
  	These last two points deserve elaboration.  In addition to the general conditions in the immediate environment that give rise to support for liberalizers or support for their opponents, the different roles played by politicians themselves shape their political identity and their policy preferences.  Politicians are interested in furthering their careers, and they calculate carefully whether reform policies will advance their own self interest.22  Political elites of all stripes are under pressure to realize the liberal ideal to some degree.  They are pressured to dismantle and reform the old socialist state and rapidly construct liberal political and economic institutions.  In general, however, some politicians have more incentive to engage in these reforms than others.  Presidents are more prone than legislators to support a rapid dismantling and a minimal state because they have a relatively long political time horizon and a national constituency for whom symbolic gestures and market-driven aggregate economic success counts.  They negotiate with international creditors and others who pressure them for liberalizing reforms that affect state's size, role, and strength.23   They need infusions of capital to help reduce deficits and target projects that contribute to success.  
	Former outsiders who have now become part of the political process tend to support a dismantling of the state and merit-based reform of the bureaucracy in order to pull the rug from under the patronage system that kept the old nomenklutura in power.  Outsiders want to eliminate the public sector jobs of their political opponents and build a social base of political support among exporters, finance capital, and labor in export sectors.  They therefore may want to "shrink" the state.
	But, as noted above, the minimal state and rule-based political behavior will be resisted by rent-seeking social actors and politicians who need to distribute particular resources in exchange for political support.  Small fragile firms often ally with large firms that have been dependent on the state in the past to block reforms and seek protection.  These actors are joined by legislators who are particularly tempted to resist reforms that reduce the public sector because of their need to distribute resources to particular constituencies.
	Therefore, despite the triumph of liberal capitalist ideology and new access to the political system for liberalizers, politicians opposing liberal reform can have a weighty influence on the political process.  Many of the forces that shape their opposition to liberalization can be traced to the pre-communist history, the legacy of Leninism and the sudden collapse of the Leninist state.  It is to the sources of opposition rooted in these legacies that the discussion now turns.  

  
The Shadows of the Past as Obstacles to Reform
	Essays in this volume discuss four legacies that will shape the process of transition from Leninism.  The first, discussed here by both Ivan Berend and Andrew Janos, is the lateness, "backwardness", and peripheral status of the region that Communist regimes inherited.24  The peripheral status of the "East" and the conspicuous income disparities between East and West that emerged  created social structures, political reactions, movements and ideologies that now present important obstacles to reform.  Peasant societies characterized by a weak middle class were ruled by autocratic, corrupt, and clientalistic elites.  And populist anti-Western attitudes, as Berend argues "strongly penetrated the entire area" and are "deeply rooted in the soil of humiliated peripheral societies."   Janos adds that "the symptoms of this backwardness are the outmigration of talent, and a deep sense of relative deprivation that manifests itself both in political impatience with economic policy and an increasing sense of collective inferiority that seeks compensation outside the narrowly defined sphere of economic activity."  It is to this peripheralization and its effects, he argues, that public policy must adapt.
	 The second legacy is the interrupted process of nation-building in many post-communist societies.  After the Russian revolution of 1917, communism as a cosmopolitan universalist ideology was supposed to replace particularistic nationalist ideologies as a blueprint for economic modernization; after 1945, this ideology, combined with Soviet domination and Cold war divisions served to repress national discourse in communist countries.  That national discourse as a tool of social mobilization has emerged again, particularly with regard to "national self-determination" and the search for state sovereignty in the international system.
	This is the subject of Daniel Chirot's essay here.  He argues that the imperial legacies and the varieties of nationalism that emerged in Eastern Europe do not have their origins in the more liberal and inclusive "Enlightenment" nationalisms of France and England where membership in the nation was a function of civic behavior.  Nor were these nationalisms born in societies that depended on immigrants, a dependence that demanded the acceptance of settlers as equals in the nation-building process.  Instead, the nationalisms of post-communist societies had their roots in the Russian and German tradition of "Volk," blood, "narod," and race, rather than in liberal traditions as the basis for membership in the nation.  Collective solidarity within that tradition precluded the development of a strong sense of individualism and a strong sense of civic nationalism.  The poison of these particular varieties of nationalism in the region was made more potent by the legacies of imperialism.  The Ottomans in particular, mixed up ethnic and religious groups, redrew boundaries that left large numbers of people outside their homelands, and left a bitter administrative legacy that priveledged one group over others to maintain social control.
	This legacy means that nation-building--the issue of who is included in the nation and who is not included25 is now on the new political agenda in post-communist societies.  If that issue has not yet been decided, new democracies are likely to be weak and illiberal in that they will construct institutions that exclude minority groups or weaken their political power.  These institutions will thus make minority groups politically vulnerable and fan the flames of ethnic or sectarian resentment and conflict.  By forcing minorities to live under political systems that they have not chosen and that do not represent them.  
	Particularly when liberalizers are trying to gain the upper hand in dismantling the state, when appeals to "class" are no longer credible, and when material resources are increasingly scarce,  political entrepreneurs have found that they can offer a "national identity" as a resource in exchange for political support.  In multi-ethnic societies, politicians are tempted to privilege--or promise to privilege--the members of one ethnic group over those of any other residents of the state in exchange for votes.  Both the historical legacy that Chirot traces here and this need to exchange resources for support in order to seize and maintain political power leads them define citizenship in exclusive and collective terms and thus to neglect the individual as the basic subject of constitutional law.   Individuals are diffuse and their identities are multiple and overlapping.  Diffuse groups, as noted above, provide a weak political support base.  Ethnic and sectarian groups are concentrated, and their characteristics can often be easily defined and distinguished from the characteristics of other groups; they are easier targets for mobilization by political entrepreneurs than diffuse individuals.  They may harbor historic grudges that can be easily politically charged.26  Moreover, to the extent that national self-determination as a symbol of sovereignty is associated with freedom from oppression for a specific ethnic group, such exclusivity as a resource to mobilize internal support is reinforced.27  
	When the rights of the "nation" are privileged above the rights of the individual, those privileges are usually justified by national "myths" of cultural superiority that glorify ones own history and character and malign the history and character of others as appeals for political support.  As Chirot clearly describes, history is reinterpreted in this effort to push back the origins of nationalism to a time when it did not exist.  Such appeals garner political support by providing national identity as a political resource in exchange, and they undermine liberal ideology as a basis upon which to build solid nation states, markets and democracy.  Needless to say, as these politicians gain positions of political power, illiberal democracies are likely to emerge if any aspects of polyarchy remain at all.
	The creation of illiberal democracies and the institutional features that support them is illustrated by the new Croatian political system.28  In Croatia, the Croatian Democratic Union (HDZ), espousing exclusive nationalist claims, has gained control of both the legislature and the presidency; the president has broad emergency powers; there is little separation of powers and horizontal accountability in the government.  The judiciary lacks independence; its appointments and dismissals are controlled by the Parliament and there is little freedom of the press.  The concentration of political power has given rise to a new elite of party-state functionaries "whose major decisions are made outside the proper government sphere."
 	 
	A third legacy of Leninism to nurture resistance to liberalization was an industrial structure that left in place a managerial elite positioned to pressure politicians to oppose reform.  Indeed, the industrial structure provides the source of power for this particular elite.  Command economies were characterized by weak and non-existent linkages among suppliers, producers, and consumers and by the absence of a "wholesale trading system."  The formal distribution -- or rationing -- of industrial inputs to producers was carried out by the central state which allocated all industrial inputs and issued supply authorizations for millions of different kinds of goods.  Although there was some variance among communist countries, enterprises had little choice of suppliers and clients; relationships between suppliers and clients were difficult to establish because they were mediated by the central authorities.29
	To overcome the bottlenecks that inevitably resulted from supply centralization, most enterprises had to improvise in order to be certain that critical inputs would be available.  They did this either by finding ways to produce critical inputs themselves -- through ad hoc vertical integration -- or through informal bartering for inputs.  Most enterprises were specifically designed to be as self-sufficient as possible.  Indeed, 30-40% of the value of all Soviet goods were produced on single sites.30  Vertical integration was not based on cost calculations showing that these enterprises could produce the goods as cheaply or as well as others, but rather on intense uncertainty about supplies.31  In the former Soviet Union and elsewhere in Central and Eastern Europe, many enterprises thus become "conglomerates" out of necessity:  they even raised food and manufactured those consumer goods for their employees which could not be found in retail stores.  
	These vertically integrated conglomerates come to characterize the industrial structure of Soviet-type economies, placing their managers in strategic economic positions that would give them disproportionate political clout in post-communist political systems.  The economic power of these managers was reinforced by the economic bottlenecks caused by central planning that gave rise to a set of privileged informal relationships and unofficial exchange networks that worked as powerful instruments of economic leverage.  As a condition for supplying plan-designated industrial inputs, suppliers could often demanded other goods as payment.  If those goods could not be supplied, the input would not be forthcoming.  Soviet tractor manufacturers, for example, could not sign direct contracts with metal suppliers in 1990, even though such contracts were legal, because the metal suppliers demanded meat or sausage, vehicles or building equipment, in exchange for metal shipments.32
	Economic reforms, both under communism and in its wake, intensified these relationships in many post-communist societies by simply removing state control without changing the industrial structure.  As the state moved away from regulating the supply of industrial inputs, both the vertical integration of industries -- the growth of monopolies -- and barter were intensified.  Economic power thus devolved to the monopolistic enterprises described above.  In many cases these conglomerates used their power to control supplies to more dependent enterprises; As Burawoy and  Krotov33 describe the situation in Russia, they became large trading companies, rather than more efficient producers.  Their managers had valuable information about supply sources that allowed them to enter new positions of power where they could maintain their economic control. A similar pattern emerged in Central and Eastern Europe.34  
	These large conglomerates-turned-trading-companies and webs of personal relationships created a political power base for vested interests to oppose reform in many post-communist societies.  As Goldberg, et. al. argue in this volume, in the case of Russia and much of the former Soviet Union, these interests have been able to block the move toward price liberalization and world market pricing in trade.  They continued to benefit from the provision of inter-firm credits and credit provided by Russia's central bank as of mid 1993.  The lesson is straightforward and perhaps too obvious: weak states cannot enforce attempted reforms.
	Two more insidious effects of this legacy are also evident.  First, the socio-economic division of labor created by this industrial structure, in which the workplace doubled as the marketplace, becoming the only focus of social life, enforced social isolation on the part of the working population that would work to prevent the creation of civil society.35  Secondly, the economic structure worked to prevent the emergence of a "market culture."  Although the existence of the "second economy" structured the incentives of the participants to respond to supply and demand signals, its illegal and predatory nature also led to the "exploitation of monopolistic rents," bribery, and exploitation.36  
	Both of these effects work to undermine the social "trust" that John Hall discusses here as a necessary condition for the success of market liberalization.  He suggests that market institutions must be based on trust; contracts and the overlapping linkages necessary for a successful market economy depend on a kind of cooperation absent in these societies.  In particular, it can be argued, the persistence of the culture of the second economy threatens to undermine the emergence of an entrepreneurial market culture that could support liberalization efforts in many regions of the former communist world. 

	A fourth social legacy of Leninism is that it created an aversion to politics in the wider population, particularly the politics of bargaining, negotiation, and compromise necessary in a democracy.  Jowitt37 has made this argument most forcefully:  With their failed promises, brutal exercise of power, and enforced political participation, Leninist regimes prevented the emergence of a "public realm" and instilled in their societies a deep distrust of government. In the absence of a public realm for debate and discussion, rumor became the vehicle for political discourse, altogether corrupting political debate.  Hall's discussion of the necessity of trust is important here: low voter turnouts throughout the post-communist world, are an indicator that trust in government has not yet been instilled.  Furthermore, this legacy reinforces the first one discussed above:  it provides a permissive condition for the rise of political demagoguery based on claims of national exclusiveness and cultural superiority.  
	Stephen Holmes notes another pernicious political effect of this legacy.  Under communist regimes, public bargaining over interests was not only absent but was considered immoral.  This legacy means that new post-communist parliaments will have to fight the dominant public perception that its very modus operandi is illegitimate.  This "culture of communism" combines with the  culture of those actually writing the constitutions in these societies, the human rights lawyers. These lawyers are committed to principles of natural law rather than principles of bargaining and compromise.  Their influence permits this legacy to persist.

Weak State Structures as obstacles to Reform		
	A fifth legacy and the third factor in our analysis is a weakened state structure.  To some, the characterization of these state structures as "weak" is surprising because Leninist regimes were despotic regimes.  At one time they had used centralized power to mobilize resources, displace the peasantry, and create a social and economic infrastructure in the interest of rapid economic growth, distributing resources to labor and managerial elites alike.  But these highly centralized regimes could not sustain economic development under conditions of increasing social and economic complexity.  Although they possessed the capacity for internal repression, they were ultimately weakened by their own despotism; they could no longer distribute resources in exchange for the support of the population.  As their legitimacy dwindled, they became "Wizard of Oz" states: perceived both domestically and internationally as powerful organizations but actually possessing rapidly vanishing power resources.  	
	It goes without saying that command economies were wasteful and inefficient; they reduced wealth and therefore decreased resources that could have been tapped by the state.  The state's monopoly of control over the media reduced the flow of information upon which sound policy decisions are made.  And as these states increasingly failed to achieve the goals they proclaimed, they had decreasing authority to mobilize the support of their populations for a collective purpose.  They were outwardly despotic but inwardly weak.   
  	Post-communist governments inherited these weakened states.  Because of the virtual identity of party and state, the Communist party's fall further undermined the legitimacy and authority of state institutions, leaving in place weak states with illiberal traditions.  These weak states undermine the political strength of liberalizers in three ways.  First, they can be "captured" by those political entrepreneurs espousing the superiority of particular ethnic and national claims over claims for individual rights, or managerial elites who fight to oppose liberal reform.  If these groups capture the state at the outset, they can set it on an illiberal path from Communism.  Developments in much of the former Yugoslavia illustrate this point: the Croatian constitution, for example, states that only those of Croatian ethnicity can be citizens of Croatia, whether they live there or not.  Members of other ethnic groups are not accorded the same rights of citizenship.38    
	Second, as noted above, even if liberal constitutions are drafted and economic reforms proclaimed, weakened central states cannot enforce reform policies; nor can they enforce the law that protects citizenship rights.  Politicians at the regional and local levels who are most tempted to exchange specific benefits for support can simply ignore the directives of weak central states and continue in the old practices.  The large enterprises and the partner relations they perpetrated  became the economic foundation of nationalism and localism.  This is best observed in the new states of the former Soviet Union: markets formerly controlled by the central party apparatus are now controlled by monopoly enterprises within the regions.
Politically, irregular enforcement of the law creates what Guillermo O'Donnell39 has called "low intensity citizenship," in which a weak legal system fails to protect the rights of all citizens.  When this happens, unprotected groups ignore existing law, engage in criminal activity, or fall prey to political entrepreneurs espousing chauvinistic ideologies and exclusive ethnic and sectarian claims in an effort to mobilize support against liberalizing governments.
	It follows that states weakened by the loss of revenues and discredited by early policy failure do not have the resources to either coopt or coerce groups who oppose reform to gain their compliance.  A weakened state becomes a target of opposition for those hurt in the reform process.40  Frequently, the "losers" (or those who perceive that they will lose) in the distributional struggle that inevitably results from liberalization will turn to the most easily exploited means to gain a power base from which to extract or negotiate for resources.   Conversely, powerful groups such as the old nomenklatura may benefit from formal economic reforms, and use their positions of influence to cannibalize the state and line their own pockets thus depleting resources, undermining developmental goals, further enfeebling the state.
	These negative legacies, however, have limited power with regard to predicting the success of liberalization.  How long is the shadow that the past casts on the present and the future?  In the post-War case of West German liberalization, for example, that shadow does not seem long at all: Germany's legacy of authoritarianism and fascism was clearly attenuated by international pressures and the creation of new institutions after World War II.  But, in other cases, as noted above, the shadow of the past can be long if historic memories are "charged" by present political entrepreneurs.  Old industrial structures do indeed create incentives for opposition to reform, but they can be dismantled.  As I shall argue below, international and institutional factors play an essential role in repressing or magnifying past legacies.  Therefore, it is to these two factors that the discussion now turns.
    
International Constraints and Opportunities
	While social legacies and weakened states undermine liberalizers and provide support to their opponents, pressures from the international system that might be translated into domestic political agendas have mixed effects.  Indeed, as noted above, the liberalization of West European--and particularly West German politics and economics after World War II came about largely because of the pressures and incentives offered by the United States and International Organizations.41  Then, United States hegemonic power played an important role in creating and consolidating post-fascist and post-war markets and democracies and setting the terms for global cooperation.  Not only did the U.S. finance recovery and provide markets for exports, but it encouraged economic cooperation among European states and provided military security, relieving liberalizing governments from having to channel precious resources into defense.  To pursue the goal of what John Ruggie42 called "embedded liberalism," the United States provided aid to West European economies for the purpose of developing their export industries, and encouraged the establishment of cooperative institutions such as the Organization for European Economic Cooperation, the European Coal and Steel Community, and the European Payments Union.  In the Cold War shadow of an opposing ideological system and the threat of Soviet military power, Western trade liberalization and economic cooperation was seen as vital to the economic growth of capitalist democracies in their struggle with communism.  The United States provided both military security and financial backing in the form of the Marshall Plan; exercised political pressure on European leaders to pursue policies of liberalization; and permitted economic discrimination against its own economy to encourage trade that would lead to economic growth.  These measures worked to create a social base that provided political support for liberalizing politicians.
	Post-Communist Eastern Europe faces a much different milieu than Western European liberalizers faced after World War II, and a number of authors in this volume assess the effects of this new environment on the strength of liberalizers and their opponents.  Now no external hegemonic power is available to provide aid, credits, and administrative support for reform that can strengthen liberalizers in weak states.  As Andrew Janos argues, post-communist countries are confronted with a "weak international regime."  Furthermore, unlike the post-war period of bipolar competition between West and East, aid that flows from West to East is not accompanied by measures to ensure economic cooperation among post-Communist liberalizers in the region; nor is it accompanied by the external provision of security. In the Cold War shadow of an opposing ideological system and the threat of Soviet military power, Western trade liberalization and economic cooperation was seen as vital to the economic growth of capitalist democracies in their struggle with communism.  But the end of the cold war and the cessation of ideological conflict reduced traditional incentives for cooperation. Because it is widely believed that economic power can be quickly translated into military strength, economic threats are perceived by some to be security threats as well.  Ironically, the global extinction of Leninism, though a necessary condition for liberalization, poses one of the greatest obstacles to liberalizers in post-communist societies in that it reduces the specter of a threat large enough to mobilize international cooperation for their support.

Capital Flows
	Just as in the post-war period of post-fascist liberalization and recovery, the most important international economic determinant of economic success is the availability of global capital and the level of capital flows into the region.   The level and kind of foreign aid and investment will greatly affect the competitiveness and efficiency of industrial enterprise; The availability of foreign capital will influence the exchange rates under which these countries pursue the task of integrating themselves into the world economy; loans, credits, and debt reduction plans help achieve balance of payments equilibrium and ease the task of achieving currency convertibility.    	Capital flows send important signals felt in domestic political struggles.  In the absence of domestic resources for recovery, foreign resources can shore up political support on the part of exporters, financiers, and labor in the export sector for reformers--even those saddled with a weak state apparatus.  They provide the support of the general population if they assist in meeting developmental goals and bolster aggregate economic performance.  To achieve these goals and to provide external support for liberalizers who work toward macroeconomic adjustment, international institutions have begun to provide loans, credits, and aid to East European governments. By mid-1992, Western bilateral and multilateral aid to Eastern Europe and the former Soviet Union totaled $52 billion.  That sum, however, fell far short of the original commitments and disappointed many East European leaders, discrediting their political promises and undermining their base of support.43 By early 1993, the region as a whole experience a net capital outflow.  
	Foreign aid can, however, have the opposite political effect:  politicians-- saddled with weakened states but desperate for resources maintain political support-- threaten to consume aid by distributing it to supporters rather than using it to strengthen national production capabilities for the future.  Conditionality requirements could tip the balance; even opponents of reform are tempted to adhere to the conditions that shape policies for liberalization, because financing by international institutions is often provided on terms that are more generous than those offered by private lenders or investors. International agencies, then, can act as an external constituency in support of liberalizers.

Trade Competition 
	Secondly, Western openness to imports from these transforming economies and their sensitivity to trade competition will bolster support for liberalizers.  Protectionist policies in the West support their opponents.  Import markets provide a magnet for the export industries of liberalizing countries and a spur to their growth.  Even markets for agricultural goods and manufacturing inputs provide an important source of hard currency that can be directed toward developmental goals, boost aggregate income, and win the support of agricultural interests and exporters in both manufacturing and extractive sectors.  	
	As Guerrieri's chapter suggests, post-communist Eastern Europe in the early 1990s had a comparative advantage in minerals, fuels, basic manufactured goods and agricultural products. But it is precisely in these sectors that West European trade barriers were the strongest.  And although the EC has removed most quantitative restrictions on imports from Eastern Europe, restrictions on steel, agricultural goods, and textiles were still in place at the end of 1992.44 
	Furthermore, despite Maastricht's promise of "widening" the European Community to include post-Communist countries, it is unlikely that Eastern Europe as a whole can be integrated into existing EC institutions; without integration, barriers to trade with the West persist.  Exporters, agricultural interests, and some sectors of labor will be harmed, thus undermining a large part of the social base that liberalizers might draw on for support.  Alec Nove's essay here discusses the particular problems faced by the agricultural sector.  He argues that because the terms of trade have turned strongly against agriculture, peasant incomes have fallen sharply while the prices of their necessary "inputs" have risen sharply. Indeed, these groups that are harmed by trade barriers may join right-wing nationalist and populist parties in the hopes of maintaining their own market position in the face of import competition or simply as a protest against the West.
	
.	In the shift from a bipolar to a multipolar milieu, trade competition among industrial powers is intensified, and there are some indications that former Communist countries are rapidly becoming an arena for export competition among the United States, Japan, and Western Europe; their demands create competing political forces within post-communist regimes. Some Western countries, for example, are pressuring East European governments to end the practice of countertrade, a sophisticated form of barter.  Indeed, membership in the GATT, the IMF, and the World Bank is contingent upon halting this practice.45  Its cessation will weaken the old industrial elite, discussed above, who profits from countertrade practices.		
	Nonetheless, other countries, like Japan, want to continue countertrade.  Countertrade usually involves agreements of long duration and can assure the Western firms who accept them a share in the Eastern market.  In fact Japan has negotiated new forms of barter and complex countertrade deals, and reformers are tempted to negotiate because they lack hard currency and are pressured by the beneficiaries.
	One way to weaken these competitive pressures and expand trade in ways that would provide support to liberalizers would be for East European countries to form their own regional economic institutions to help spur economic development and provide a forum for political cooperation.  Such institutions would be appropriate, because traditional trade patterns are intra-regional. Indeed, present regional economic links are deeply rooted in the East, both in trade and in employment and production structures.  Transportation networks, including oil and gas pipelines and railways are oriented toward intraregional trade that moved largely under long-term contracts and provided a certainty of production runs and employment.  For example, the output of machinery and engineering products in Hungary and Czechoslovakia were deeply regionally intertwined, with about 30 per cent for use in other CMEA countries.  Intra-CMEA trade represented between 40 to 80 per cent of members overall trade in 1990.46    		
	Van Brabant 47 has suggested the creation of a Central European/Soviet Payments Union, analogous to the European Payments Union of the early post-war period; Alec Nove's essay here provides an essential guide to this option.  Former CMEA countries face severe liquidity shortages while shifting to hard currency pricing.  Prices have changed dramatically as these countries removed price controls, and this may require changes in the exchange rate in order to protect employment and stimulate production.  A regional payments union could facilitate multilateralism by creating currency convertibility and providing credits to stabilize currencies and exchange rates and ease balance of payments problems.  Daniel Chirot goes even further in his prescription: the creation in the post-communist world of an institution that would function in much the same way as the European Community.  ". . . it is neither a new nation nor just a mere alliance or a trade block. . . .because the larger Community has real powers, because it offers considerable economic advantages and protection for its members, and because, most of all, it is dominated by a liberal, non-ethnic, democratic ideology, the new Europe is drastically different than the Europe of the interwar period or of the nineteenth century."
	The problem with regional solutions is that they may not be feasible for reasons that have little to do with economic costs and benefits.  As noted above, East European countries and the countries of the former Soviet Union are looking to the West and not to one another for cooperation; As Laszlo Borhi has written:  "[Eastern Europe's] goal is to move from the periphery of a fallen semi-Asiatic traditional empire and to become an integrated part of a dynamic power center--Western Europe and the U.S."48  Clearly the years of forced interaction under Leninist regimes did not lay a firm foundation for economic cooperation in the East.  They simply repeated the clearing arrangements that began under German domination in the 1930s.  Indeed, disputed borders and the presence of substantial ethnic minorities outside their homelands can create widespread suspicion and fear, raising the political costs of economic cooperation.  When those costs rise, support for liberalizers diminishes.
	Indeed, regional trade competition rather than cooperation characterized the first years of post-communist trade liberalization. Former Soviet republics competed with Central and East European countries for Western investment and assistance.  For example, subsidized export credits and credit guarantees granted by West European governments for their farmers' agricultural exports to Russia crowded East European farmers out of the Russian market.  The smaller countries cannot finance their exports on comparable terms, again providing the incentive for agricultural interests to withdraw support from liberalizers.  In short, it will be difficult for these countries to enact meaningful reforms and safeguard economic achievements purchased at high social costs if the international economic climate is unstable and if foreign economic relationships are highly asymmetrical and competitive.  Such conditions obviously undermine political support for liberalizers.
	In this volume, Goldberg et.al. address the issue of cooperation vs. competition by examining incentives for the former Soviet republics to stay in or depart from the ruble zone.  They argue that the decision to cooperate or depart is largely influenced by the effects of world market prices in the individual republics.  If those republics erect barriers to shield themselves from world market prices, then they are likely to opt for continued cooperation within the ruble zone; the introduction of national currencies would lead to large income losses due to unfavorable terms of trade. (This proposition does not hold for the oil producing states.)  "Gradualist" reformers (discussed below) are likely to opt for staying in the ruble zone.  If they needed to placate labor in the course of reform, they would not have to accumulate large cash allocations to pay higher wages; rather they could keep wages lower because prices would not rise as quickly.  If liberalizers open themselves to world market prices and create independent currencies they are likely to lose political support if their industries are not yet competitive.  The income losses that result from unfavorable terms of trade are likely to be blamed on the introduction of a national currency, and the blame is likely to be focused on those governing parties that introduced the national currency.  
	Nevertheless, by the end of 1992, the ruble zone had largely collapsed, not because of perceived economic benefits, but because the leadership in the former republics believed they needed to symbolize their national sovereignty with an independent currency.  This collapse led to large income losses in the Baltic states (because previous participation in the ruble zone and the staving off of world market pricing in trade with Russia had maintained price stability); in Lithuania, income losses were the result of a premature introduction of a national currency, and reformers were replaced by their opponents.  Goldberg, et.al. argue that if Russia shifts to world market pricing with Belarus and Ukraine, the effects will be equally devastating, undermining support for liberalizers. Alec Nove makes a similar point for the rest of the post-communist world.
	In short, Eastern Europe and the former Soviet Union are entering a bleak and unfriendly international political economy.  The essay by Andrew Janos in this volume specifically explores how this environment triggers past legacies to produce different dominant coalitions in the political process.   Janos argues that post-communist governments function under a relatively weak international regime that offers economic inducements--prospects, promises, rather than direct payoffs--in exchange for conformity with western standards of national and international behavior.  At the same time, the new domestic regimes are far more open than before to public pressures to respond to problems that have emerged as a result of their global marginalization.  Three typical responses have begun to take shape:   1) Liberalism is a broad strategy of economic integration with the West by means of adjusting domestic economies and polities to western specifications, and by subordinating national grievances to economic benefit; 2) Technocratic nationalism as a rejection of the principles of the market in favor of more autarkic policies.  Technocratic nationalists find it convenient to use nationalist symbols while mobilizing populations for policies of austerity; and finally 3) populism, a strategy that subordinates economic goals to national and cultural ones. Populists reject the notion of trading national identity for a promised economic advantage, and are openly hostile to western culture.  To the degree that economic success is assured by the international environment, liberal coalitions will dominate; to the extent that these countries are further marginalized by the international environment, past legacies will produce technocratic nationalist or populist pressures.	

Alternative Policy and Institutional Choice
	The fourth factor affecting the politics of liberalization is policy choice.  Many believe that if elites can simply "get the institutions and policies right," stable democracy and stable markets can be simultaneously constructed. This perspective suggests that elites can construct institutions that shut out the influences of the past and mitigate the negative influences of the international system.  For these observers, the head of Leninism has been loped off, leaving space for the development of new institutions to structure social incentives according to the rules of liberal capitalist democracy. The political culture that emerged under Communism matters little if institutions can change incentives to conform with democratic and capitalist practices.  This is why they do not worry that former Communists still occupy positions of power in some regions. Their behavior, like the behavior of other powerful social groups, will be shaped by the structure of constraints and incentives that issue from the new institutions.
	Some argue, for example that the lack of a constitutional culture in post-communist societies will doom their attempts to construct democratic constitutions.  Stephen Holmes, however, suggests that a more important obstacle is the weak legitimacy and internal fragmentation of elected parliaments.  In other words, institutions, not legacies are important determinants of outcomes.  The weakness of institutions, therefore, suggests that an incremental or "gradualist" approach be taken toward constitution-building and that the very creation of a constitutional culture in these societies will depend on how constitutional politics and ordinary politics are structured.
	Indeed, a "faulty" institutional structure can actually perpetuate those past legacies that undermine liberal reform.  Dijana Plestina49 has shown that in post-Communist Croatia, electoral laws favor the dominance of the Croatian majority in the political process.  While in the country as a whole, over half of the seats in the lower house of the legislature are elected by majority vote, proportional representation is the election rule in areas dominated by a majority of the Serbian population; this allows Croatian parties from these areas to gain seats in the legislature.  Majority rule would have provided Serbs with more representatives.  Further, parties present a closed list of candidates in all of Croatia; this further entrenches the dominant nationalist party in power, by giving it priority status on the ballot.

	As noted above, an important debate over institutional choice focuses on the scope, speed, and sequencing of economic reform.  Two alternative approaches dominate the debate: the "radical" and the "gradualist" perspectives.  Each strategy distributes economic resources differently and the distribution of resources affects the distribution of support for politicians who either support or oppose liberalization.  

The Radical Blueprint
	For the radicals--whose most enthusiastic practitioners have been Klaus, Gaidar, and Balcerowitz--the key to liberalization is a rapid, widespread, and simultaneous introduction of markets and democratic reforms in the domestic economy and rapid integration into the international economy. The radicals' central hypothesis is that markets and stable democracy will develop simultaneously, because as economic power is diffused, political power will be diffused as well.  Therefore, liberal constitutions must be quickly drafted and defended at the outset to assure both the diffusion of power and universal citizenship.  To rapidly construct markets, a large cluster of simultaneous changes are needed for successful transformation, because the main elements of a market economy are interrelated.  If old institutions that perpetuate the political power of opponents of reform are not quickly swept away, they will block the reform process.  Radical reforms will succeed, proponents argue, if they are introduced during the "honeymoon" of the new regime while legitimacy is still high.50  As Berend's essay describes here, the early economic reforms in Poland and Czechoslovakia exemplify this strategy.
	Consider price liberalization.  As noted above, under Communist regimes, institutions providing access to goods and services were highly politicized.  Price controls created scarcities.  Informal distribution networks often involving simple barter were created and held together by personal and political ties.  Radicals argue that freed prices will abolish these politicized distribution networks, and thus eliminate shortages of goods that they controlled and create incentives for an entrepreneurial private sector to build new distribution networks and purchase inputs at market prices.   
	Furthermore, price liberalization across all sectors will leave little room for well-placed former nomenklatura and industrial elites who benefit from the old practices to block the reform process. A more gradual approach, radicals warn, will permit political coalitions to form that obstruct the introduction of market prices in non-competitive sectors. Some entrenched elites may reap monopoly profits by selling in decontrolled markets and buying in markets still governed by price controls.  Therefore all prices must be decontrolled at once. 
	 For radicals, therefore, the necessary economic reforms must take place rapidly and simultaneously.  Price liberalization must be accompanied by spontaneous privatization and by government efforts to restructure industry through the elimination of subsidies, anti-monopoly policies, and the creation of agencies to penalize those who persist in the old practices. Unless these reforms are pursued simultaneously, prices will continue to be distorted by large enterprises who wield monopoly and monopsony power over markets.  Given the importance of this legacy, industrial restructuring will undermine the power base of the opponents of reform.  Only an industrial structure that includes a significant number of small and mid-sized firms  will transmit realistic price signals for production efficiency and increase output diversity.51  The managers of these firms will support liberalizers who create opportunities for them and withdraw subsidies from enterprises that make up the old industrial structure. 
	According to the Radical blueprint, rapid privatization can trigger industrial restructuring; private investors must have the freedom to restructure existing firms that are inefficiently organized; if large conglomerates are inefficient, investors will be guided by price signals to "downsize" them to optimal size.  Furthermore, the extent to which freedom to privatize is granted will, in part, determine the amount and kind of foreign investment that flows into the economies of these countries. Poznanzki argues in this volume that the post-1989 stagflation throughout Eastern Europe deprived domestic agents of their savings; foreign actors, therefore, played a dominant role, despite initial efforts to limit their participation.  In Hungary, dollar payments by foreigners accounted for 3/4 of the total revenue from privatization in both 1991 and 1992; a similar pattern emerged in Poland.
	But, the radical argument continues, price liberalization, privatization, and industrial restructuring must be accompanied by stable macroeconomic policy.  Because price liberalization initially creates unstable prices and because privatization will result in a rise in unemployment, the temptation to permit high rates of inflation in order to pay off both labor and business in exchange for continued political support is high.  Needless to say, inflationary policies can spiral out of control; hyperinflation undermines the credibility of liberalizers. Therefore the need to introduce simultaneous measures to bring about macroeconomic stability.
	Macroeconomic stability is ultimately achieved when price levels are predictable. Predictability is normally achieved through a monetary policy which controls interest rates, and through fiscal policies which balance government budgets.  But monetary policy is transmitted to the entire economy through financial markets. These markets, therefore, must be created together with other reforms.  The elimination of state subsidies creates opponents of liberalization; market access for start-up companies and enterprises that have been transferred to private owners creates supporters.  A banking system that does not simply distribute state funds can provide loans and credit, creating  a foundation for properly functioning financial and capital markets, further creating political support for liberalizers.  If a banking system is not created, both business and labor will lobby for continued subsidies blocking radical reform.
	Furthermore, as Goldberg et. al. argue here, rather than maintain monetary discipline, governments are tempted to increase the money supply in order to finance fiscal deficits.	Therefore, fiscal policies must be devised which control government budgets.  From the radical perspective, the dismantling of the state apparatus, including the elimination of wage and price subsidies and subsidies to enterprises, will help create a sound fiscal policy.  All of these measures require rapid implementation before they are blocked by those who will be harmed by them.  They therefore require substantial state capacity and bureaucratic insulation to implement them.
	Radicals argue that labor must be disciplined and reformers must be insulated from labor's demands.  In particular, labor must be persuaded to accept a flexible labor market and changes in manufacturing technology which require the dismantling of assembly lines and the introduction of "just-in-time" and other modern production techniques.  Labor market rigidities must be destroyed; industrial restructuring will require flexible wage levels and fluctuating levels of employment.  In sectors where labor is politically mobilized, there is bound to be political resistance.  
	Although David Ost's contribution to this volume (discussed below) suggests causes for the absence of labor mobilization, Poznanski argues that past legacies have made labor politically powerful.  Under communist regimes, the state faced severe wage pressures and had to permit shortages or even price increases to placate labor demands.  "It could be that confronting 'new' owners--whose resources are limited and whose 'legitimacy' has yet to be established--may be an easier task for workers threatened with unemployment than dealing with the 'strong' state."
	Finally, the radical argues, borders must be open to trade, investment, and finance from abroad.  The exchange rate must be fixed to a strong foreign currency or a basket of foreign currencies in order to bring about monetary stability.  Foreign participation in the economy is necessary to stimulate competition.  Rapid privatization is necessary to foreign participation.  Foreign participants should have the same rights of property ownership as domestic participants; they are essential to ensure an inflow of technology, new management techniques, training, and capital.  The radical approach encourages a rapid reorientation of trade toward the West, which demands the elimination of quantitative restrictions on imports and resisting the temptation to raise tariffs or engage in other forms of trade protection.  This aspect of the approach benefits competitive exporters and finance capital; it potentially harms producers in the non-traded goods sectors and all uncompetitive producers.  All economic interests will be potentially harmed by this policy if trade protection in the international economy rises while post-communist regimes are opening their economies.
	
Gradualist Paths
	The "gradualist" approach rejects these radical arguments.  It suggests that, particularly under conditions of economic crisis and the Leninist political legacy, markets cannot be created and democracy cannot be stabilized given the minimal role for the state assigned by the radicals.  Radical economic reforms introduced under conditions of economic weakness  may at worst mean economic collapse, and at best mean severe social dislocation, triggering a backlash against radical policies on the part of powerful and concentrated social groups.52  Therefore, gradualists argue, reformers must have enough state resources available to make side payments to those who will bear the costs in exchange for their support of reform.53  David Ost argues here that labor must be included in this calculation. 
	Gradualists argue that broad and open access to the political arena must be created to rectify the injustices of totalitarianism, but in conditions of economic crisis, economic reform must proceed more gradually.  Gradual reforms will reduce the burden of adjustment for voters who might exert political pressure to halt liberalization.  By preserving widespread political access and reducing the costs of reform, economic and political liberalization can proceed simultaneously.  David Ost's chapter  in this volume represents this "gradualist" position.  He argues that since a democratic system is stable only when the majority of the population accept it, consolidating democracy in Eastern Europe requires the successful integration of labor in order to maintain regime support.  His chapter examines how different post-communist economic reform programs, strategies of privatization, approaches to the state sector, and local economic transformation plans affect the development of an independent labor movement and the ongoing support of labor for democratic institutions.  Although labor is not yet politically mobilized, he argues, if it is not integrated into these new democracies as a class it will turn to more nationalist and populist alternatives and undermine the very project of post-communist democratization.  
	A comparison of the gradualist view of price liberalization with that of the radical suggests fundamental differences in approach.  For the gradualist, radical reform of food and energy prices imposes high costs on the total population.  Voters are then tempted to oust liberalizers in the next election.  In contrast, the gradual approach to price decontrol calls for price reform in stages, sometimes with relative price adjustments throughout the economy, and often on a sector-by sector basis as a "side payment" to preserve political support for liberalizers. 
	Or consider the issue of privatization.  The radical approach assumes that maximum support for liberalizers will be achieved by a swift transfer of property ownership that takes place simultaneously with other liberalization efforts.  They argue that the longer the old structures of ownership remain in place, the more opportunity is afforded to existing managers to consume the capital stock and block further liberalization measures.  Gradualists--like Alec Nove in this volume-- argue that in a radical privatization scheme that simply sells each firm 'as is" does not create the web-like industrial structure of large, medium, and small firms necessary to break the political power of the old elite and to create a new entrepreneurial class that will support reforms.  
	They further suggest that "spontaneous" privatization can simply put more wealth into the hands of the old elite, who will rapidly consume it.  Ivan and Szonja Szelenyi cite the findings of the Polish sociologist Jadwiga Staniszkis on this issue: she claims that by the end of 1990, about 20 per cent of all productive assets in Poland were converted to the personal property of the former nomenclatura.54  For these reasons Gradualists call for a larger administrative role for the state in privatization and the transfer of ownership in stages to guarantee the most appropriate tradeoffs between equity and efficiency and to assure more appropriate prices and limit fraud. Gradualists consider these measures that trade efficiency for equity necessary to ensure widespread political support for liberalizers.  David Ost's arguments in this volume support this view.
	The EBRD's activity in its first year of operation supported the gradualist view of privatization, despite its more "radical"  mandate.  Instead of the 40 per cent agreed upon at the outset, 71 per cent of its loans went to state-owned enterprises to help with restructuring that would make those firms attractive to private investors.  Jacques Attali, the bank's president, argued that administrative guidance was necessary for restructuring, and prior restructuring was necessary to the success of privatization.55  The Treuhandanstalt in Germany also took a more gradual approach, requiring buyers to preserve jobs in the face of a 40% unemployment rate in East Germany.56 Privatization could proceed with the "side payment" of assured employment.  Both moves shored up labor's support for reform by creating expectations that jobs would be saved. 
	Gradualists also disagree with radicals on foreign participation in the domestic economy.57 Indiscriminate  foreign ownership, they argue, will not lead to aggregate growth and may contribute to capital flight, undermining liberalizers in government. Governments should create an investment code that would identify priority sectors for foreign investment--critical sectors in need of restructuring, and restrict foreign ownership in more sensitive sectors.  The Czech government, for example, identified certain sectors (e.g. chemicals and auto manufacture) targeted for foreign investment; major companies in those sectors were then sold to Western firms.  
	Finally, they disagree with radicals on appropriate policies of integration into the international economy.  Gradualists argue that fixing the exchange rate to a strong foreign currency or a basket of foreign currencies--the radical liberal approach-- can bring about monetary stability, but this means dependence on another country's monetary policy and a potential deflationary effect on the domestic economy as a whole.  This may be especially traumatic for former CMEA countries facing severe liquidity shortages while shifting to hard currency pricing.  Prices are likely to change dramatically as these countries remove price controls, and gradualists like Alec Nove argue that this may require changes in the exchange rate in order to protect employment and stimulate production. Without these measures, they argue, integration into the international economy can impose costs that drive large sectors of the population--both labor and capital-- into the camp of political entrepreneurs espousing xenophobic nationalism as a form of "protection."  The odds that radical approaches to economic liberalization will create illiberal politics are especially high if sudden exposure to international competition leads to widespread economic deprivation.  Sequential opening, advocated by Paolo Guerriari in this volume, --such as a delay in import liberalization until after export opportunities have been created--can create constituencies that favor liberalization. In this case, some costs are eased now so that important social groups will be willing to endure other costs later.
	Ivan Berend's essay here describes the original "gradualists," the architects of Hungary's New Economic Mechanism beginning in the late 1960s.  Meciar's Slovakia may provide a post-communist example.  Meciar saw that one way to distance himself from Klaus and the Czech Republic was to argue for slower policies of privatization, continued subsidies, and a mixed economy. In a society marked by an unemployment rate of over 11 per cent, fear of economic dislocation and crisis was high; Meciar's "gradualist" approach provided a political resource to mobilize support.  	Romania at the end of 1992 pursued a variation on this path.  Its third government since the fall of Communism consciously distanced itself from the "radical" reformers of Central Europe; that distance proved to be a useful political resource to garner support.  Arguing that "spontaneous reform and privatization would only lead to anarchy," Prime Minister Nicolae Vacariou, suggested the establishment of a "social market economy," that would take a more gradual approach to reform to minimize social costs.  Privatization, for example, now moves at a slow pace in Romania, and Vacariou planned to revive industry through increased investment raised from higher taxes.58  Protecting jobs in the public sector until opportunities in the private sector have been created can reduce the costs of liberalization and thus undermine support for its opponents.
	 
Three Caveats:	
	As illustrated above, economic policies provide part of the rhetoric of political agendas.  Their intrinsic logic, therefore, may not be as interesting as their political effects.  A declaration of policy "success" from either the radicals or the gradualists is likely to be a function of whether concentrated and powerful interests or voters at large believe that they will benefit from the reform in question, not whether the policy has enhanced aggregate growth or contributed to the growth of liberal societies.	
	Political expediency as a driving force in the debate over privatization policy is a central argument in Kazimierz Poznanski's paper.  Political parties use alternative positions on different issues to define their identity in opposition to other parties; the debate over privatization is a good example.  New parties often adopt a more radical approach in order to distinguish themselves from the more gradualist ex-communists.  Holmes, as well, shows how various strategies of constitutional reform have served political purposes.  He cites the example of the Chair of Russia's former Congress of People's Deputies, the now infamous Khasbulatov, who hired a legal staff to inform him when his legislative proposals conflicted with the constitution.  When they did, he initiated procedures to change the constitution, rather than abandoning his own proposals.  Yeltsin, too, has used similar strategies to outmaneuver his political opponents of the moment.
	Secondly, the conscious gradualist approach must be distinguished from the unintended consequences of failed or "slowed-down" policies.  This is Poznanski's argument about radicalism.  He argues that, with regard to the privatization of state assets, the transfer of ownership is never instantaneous, and the longer it is drawn out, the more chance that the enterprise will be decapitalized.  Income losses quickly follow.  This, he argues, has been a factor behind the recent recession in the Post-communist world.  
	Often policy failure--of either radicals or gradualists-- will result from the political pressure exerted by the opponents of liberalization in their effort to block reform.  Two examples from Russia and from trade and currency reform in the former Soviet republics illustrate.  Through a series of decrees issued by Boris Yeltsin in 1992, "shock therapy" was introduced in Russia: a simultaneous lifting of price controls, privatization schemes, and elimination of subsidies.  Opposition to these measures mounted, however, because they disrupted the process of barter and informal trade between enterprises, thus undermining the economic power base of the industrial elite.  It became increasingly clear that Yeltsin had not built the political support necessary to push through the reforms.  Furthermore measures initiated by the central government were often ignored or opposed in regional and city governments; a weak central state--despite authoritarian measures--found it close to impossible to push through market reforms, and the unintended consequence was a slowdown in the reform process.  Further, as Goldberg, et. al. demonstrate, efforts to engage in price liberalization in inter-republican trade in the former Soviet Union were obstructed both by "the weakness of central institutions" and their inability to enforce reforms and the real threat of trade disruption posed by the reforms themselves.
	Finally, Andrew Janos' argument here suggests perhaps the most important caveat to gradualism: Those elites that I call economic "gradualists" here may be the technocratic or the populist nationalist that Janos describes in his chapter.  He argues that although the advocacy in these countries of a planned economy, a return to economic subventions and price controls and the general suspicion of markets contains an element of economic rationality, the leaders and dominant political coalitions in these countries also tend toward authoritarianism. Their economic gradualism is coupled with chauvinism and threats to political liberalization as well.  Economic "gradualism" is not necessarily coupled with liberal political democracy.

	To conclude this section, the central conflict between the two policy alternatives in the post-Leninist context is not over whether democracies or authoritarian states are more appropriate implementors of economic reforms: democracies can implement economic reforms  1) if reformers are insulated in such a way that they cannot be punished by the "losers;" 2) if the reforms themselves undermine the political power of those losers who would oppose reform, or 3) if the costs of reform are accompanied by side payments that make those costs tolerable to those groups whose support is necessary for continued reform and regime stability. 
	Radical reformers focus on the first two of these conditions, gradualist liberalizers on the third.  In many post-communist societies, reformers are relatively insulated from political pressure exercised by the popular sectors, because those groups are not politically mobilized and have little access to politicians to pressure them to alter the course of reform.  On the other hand, the mass electorate can oust reformers in the next election and are tempted by nationalist and xenophobic political appeals that offer more than long-term aggregate economic growth rates, particularly in societies where "nation-building" is incomplete.  Second, radical reforms promise to remove the conditions that perpetuate continued demands for protection and subsidies, thus undermining the political power of the managerial elite still operating within the old industrial structure.  Nonetheless, the gradualist approach with its promise of side payments seems to promise both more political access and offer more incentives to support reformers than the radical blueprint.  

	What of the future?  Democracies--whether more or less democratic--can initiate policies of economic liberalization, but will they eventually become liberal democracies?  And under what conditions will the reforms succeed in bringing about both growth and development?  In the following section I hypothesize four outcomes in the form of scenarios for the future; each scenario weighs the factors differently to produce alternative hypotheses about the political base of support for liberalizers or their opponents.
 
II. The Consequences of Transition for Development, Democracy and the State: Four Scenarios
 The "radical" liberal utopia
	The radical's central hypothesis is the following:  A favorable international environment, construction of institutions that shrink the state's role in the market, and the appropriate radical policies will quickly undermine the political base of the opponents of liberalization and thus provide insulation for liberalizers from the demands of the most powerful social groups.  Rapid liberalization abolishes the power of entrenched managerial elites; markets and democracy undermine social legacies that shore up the power of the opponents of liberalization.  The dismantling of the swollen, despotic state and its replacement with  minimal, rule-based state institutions will weaken the patronage system of the old nomenklatura.   
	Rapid  marketization and integration into the global economy will lead to export growth in manufactured goods, debt reduction, and economic growth.  A weak entrepreneurial class throughout the region means that initially Western aid and direct foreign investment will be the central agents of successful economic transformation and the key support base for liberalizers; foreign firms will bring in the latest technology; markets will diffuse it throughout the domestic economy; capital will flow to competitive export-oriented high technology industries, increasing the political clout of exporters who support radical liberalizers.  Because foreign capital will flow into post-communist economies, currencies need not be undervalued, and therefore managers' incentives to compete in export markets in goods produced with cheap labor will be reduced. Foreign investors will locate their manufacturing and service facilities in the East because of market and customer considerations rather than proximity to needed raw materials or low labor rates.  These investors will use their clout in the political process to support liberalizers and radical policy choices.
  	As late developers, East European countries and the regions of the former Soviet Union will be able to leapfrog old industrial practices and import the latest manufacturing techniques and infrastructure technologies.  If the "advantages of backwardness" permit the most efficient production methods to take root in competitive industries, these countries can begin to produce for export more quickly. Because skill and education levels are high, and can be enhanced by the inflow of foreign capital and technology, countries who adopt the "radical" approach will develop a comparative advantage in high value added goods.
	The prosperity created by the rapid introduction of markets will create the conditions under which polyarchies can be transformed into stable democracies, social groups can be mobilized by stable political parties, "illiberal" politics, once nurtured by past legacies, can be undermined, and citizenship rights can be extended.  An increase in aggregate growth rates will create widespread political support for liberalizers.  With stable democracies and growing economies, these countries are viable candidates for membership in the European Community.

 The Gradualist critique: The region as Europe's "periphery"
	The gradualist approach puts forth an alternative hypothesis about the effects of radical reform.  It argues that an unfavorable international environment will combine with the weakened state to overwhelm the radical's fragile institutions (even if they are the "right" ones), and that economic crises will shore up the political power of opponents of reform to create unstable democracies and weak economies.  The central assumption of this "dark" side of the radical scenario centers on the role of the state: as the agent of foreign interests, it is denied both autonomy and legitimacy.  Without strong states directing the project of economic liberalization, the gradualist argues, former Communist regimes will not be able to attract the capital needed for development.  And without an infusion of capital, these countries will become low-wage "Third World" raw materials suppliers and export platforms for the European Community's industrial machine.  In order to participate in the international economy, weak regimes will undervalue national currencies, leading to a comparative advantage in low-skill, labor-intensive goods.  To the extent that foreign direct investment flows into the region, it will be attracted by low-cost labor and will concentrate in labor-intensive production methods across the industrial spectrum.  In modern sectors, plants in these countries might be simply "screwdriver factories"--assembling final products, importing key components, and using few local suppliers.  Other foreign investments might be in "services"--sales, marketing, and distribution outlets for imports produced in the West.  Or as Berend points out, investments will flow to low-technology extractive sectors, like oil and mining.  Indeed, this is the dominant form of investment in
Russia today.59  All innovative activity would be concentrated in the West, and competition with the less developed countries of the EC would impede rapid acceptance of these countries into the Community.  Under this scenario, prospects for rapid economic development are bleak.  Growth will continue to decline, thus undermining support for liberalizers. Because weak democracies create their own systems of patronage, state funds are squandered.
	  With massive debt problems brought on by unfavorable terms of trade, high income inequality, and halting or even stalled development, the fate of Central and Eastern Europe could be that of many Third World countries--the periphery or semi-periphery--weak states with weak economies providing commodities and light manufactured goods to the European community and the rest of the world.   The income gap between East and West will contribute to a condition of chronic political instability, weakening democratic regimes because populations  experience a sense of relative deprivation that further undermines the legitimacy of their democratically elected governments.  Highly visible social and income inequalities lead to intermittent political crises and mass migration to the West. 
	In this scenario, then, international constraints weaken post-communist economies, thus weakening liberalizing politicians.  These two factors mitigate the effects of reform intended to wipe out the social legacies of the past.  Although partial reforms are implemented and aspects of polyarchy exist, instability and poverty characterizes the region, meaning that liberalization succeeds in some areas and fails in others; in the absence of strong states and a favorable international environment, liberalization is weakened and cannot lead to strong democracy and market-led development.
 
The Gradualist hope: State-led Development and Consolidated Democracy
	The gradualist hypothesis is that a combination of strong state guidance and gradual reforms will weaken past legacies and direct international forces in such a way that stable democracy and economic development will be the outcome.  Assuming that "peripheralization" will result from the radical approach to liberalization and the pressures imposed by the international environment, the gradualist hypothesis asserts that "late developers" require real state capacity and a large role for the state to mobilize and educate their societies, and protect them from the worst consequences of the market.  If "unfettered" market forces direct investment, they will squelch the ability of nations in transition to compete, and do so at great social cost.  Thus, interventionist states must provide side payments to those who shoulder the costs of economic liberalization; side payments create social support for an interventionist state.  
	In the successful gradualist scenario, open, liberal, but still "strong" states direct development and provide a social infrastructure to ensure mobilized political support for economic success. This is the scenario that one associates with modern post-war democracies in Western Europe.  It is the model of the extensive welfare state with corporatist interest representation, that is, peak-level negotiations between capital, labor, and the state; the hoped-for result in this model is economic growth which leaves room for profits and redistribution and ensures harmonious labor relations. Growth with a just resource distribution is assured and liberal democracy is strengthened.
Ivan Berend argues in his contribution here that variations on this scenario were the hope of "reformers and uncompromising opposition leaders who gathered around the cradle of the newly born systems" after the revolutions of 1989."  These political elites dreamed of worker self-management, Scandinavian Socialism, "Sozialpartnerschaft," or a mix of the Austrian and South Korean systems.  

Failure to liberalize and the return to despotism 	
	This scenario presents the "dark" side of gradualism.  Its central hypothesis is that weak states and an unfavorable environment will permit past legacies to sustain the opponents of liberalization, leading reform governments to fall.  Structures of patronage will be kept intact, blocking incentives to divest the state of its assets.  Failure will result in a return to despotic and predatory rule with the support of rent seeking industrial elites and even labor, who exchange their support for state subsidies, contracts, licenses, and public employment.  Fragile democracies will be destroyed and prospects for economic growth will decline even further.  This scenario, therefore, assumes failure of both the radical and the gradualist alternatives because weak states can be cannibalized by rent-seeking groups, undermining support for liberalizers who are then unable to pull these countries out of economic crisis and destroy the old political culture.  
	It thus predicts the collapse of the project of liberalizing former Communist regimes.  Predatory despotism emerges from the failure of liberal democracy, and authoritarian rulers seize power and direct the project of economic change.  Political loyalty rather than technical expertise becomes the basis for employment in the state bureaucracy; thus there is little chance for a developmental state to emerge.  Political elites preserve as much of the original social structure as possible, and the old political culture remains undisturbed.  These elites refuse to liberalize the economy, because the redistribution of wealth undermines their ability to exchange favors for support.  They are tempted to sever their domestic economies from the international economic system, because successful participation in the international economy demands technical skills rather than political loyalty, and the freedom of movement and information.  Despotic rulers suppress technical elites in favor of maintaining their own political power base. All Western capital is withdrawn, and development is further impeded.   
	This final scenario differs from the peripheralization outcome--the second scenario-- in that all pretense of democratic institutions is abandoned.  In the second scenario, a "democratic" --not a liberal democratic--legislature persists with a weak president, and legislators plunder the state treasury to maintain the support of powerful social groups. The institutions of polyarchy must be preserved to maintain links to international lending institutions and meet their political conditionality requirements.  In this final scenario, however, democratic institutions are completely abandoned.  What Gillermo O'Donnell60 called "delegative democracy" emerges.  Here, the winner of a presidential election governs as he sees fit, ignoring the constitution and abolishing other democratic institutions.  Because the party system is weak and undeveloped, his political base is a mass social "movement" rather than a political party. 

III. Conclusions and Prospects
	Which of these scenarios is most likely to correspond to the emerging reality of post-communist transformation?  Of course they represent ideal types, and reality is always messier than the neat predictions of social scientists.  Post-communist regions must be differentiated: some regions will successfully liberalize and others will not. And what has been presented here is a conceptual framework rather than a theory of change.  Therefore, the reader will find no mechanism in these pages that would help predict one outcome over others.  Nonetheless, the argument of this essay has been that the interaction of trends in four arenas--the strength or weakness of social legacies, the strength and role of the state, the constraints and incentives of the international environment, and alternative policy choices--will shape future outcomes.
	Anecdotal evidence suggests that the first scenario--the radical utopia-- is unlikely in most of the post-communist world for two reasons: the emergence of an unfavorable global environment and the weakness of the state in the region.  When these two conditions hold, reform governments are neither able to buffer themselves from opposition; nor do they have the resources to offer side-payments for cooperation with reformers.  For those countries that are able to attract aid and investment, and where international institutions augment and support the state in strengthening liberal reforms, success is possible.  For those regions partially integrated into the international economy but unable to compete and unable to shore up state capacity, the second scenario--the emergence of a post-communist global "periphery" is the likely one.  
	The conditionality requirements of international institutions are likely to perpetuate the circumstances that lead to this outcome but prevent the conditions that would lead to the fourth scenario--a return to despotism.  The Commission of the European Communities was given the authority to direct and oversee bilateral assistance to Eastern Europe from EC members.  In order to receive that assistance, recipients were required "to have pluralistic political systems with no institutionally favored party, to make rapid movement toward free market economies, to have free labor unions, and to demonstrate respect for human rights".61  Similarly, the European Bank for Reconstruction and Development (EBRD) requires that recipient countries apply the principles of multiparty democracy.   Liberalizers in power who wish to maintain their links to these institutions might prevent their countries from falling into despotism but their nations may remain on the periphery.
	The third gradualist scenario--the emergence of "infrastructurally powerful" welfare states modeled on those of Western Europe--is unlikely for two reasons:  First, it is coming less and less to characterize the political economy of Western Europe as low rates of growth and increasing international competition have undermined corporatist interest representation.  Because knowledge-based production demands freer labor markets, West European governments have begun to dismantle union power and to support corporations in their efforts to reorganize the workplace in order to create firm-level loyalties that undermine union commitments.62  Corporatist decision-making has given way to reliance on technical elites.  
	Secondly, this scenario describes already functioning market economies in a period of rapid economic growth, but is inappropriate for former Communist regimes in transition under conditions of economic crisis.  This scenario is based on the assumption of a strong state and a growing economy.  Those East European liberalizers whose strategies succeed in the liberalization process may evolve in this direction, that is, they may be able to buffer and offer side payments.  But that process will probably be far down the road.
	Recent problems faced by Bulgaria underscore this point.  The post-communist Bulgarian government had established a Tripartite Commission with the participation of business, labor, and the state to discuss major economic and social issues emerging in the reform process.  Although dependent on a coalition of parties for support, the ruling Union of Democratic Forces (UDF) was ideologically opposed to this "corporatist" practice and disbanded the commission.  The result was a series of major strikes, crippling the economy and a deterioration of relations between business groups and the government. Not only was a corporatist solution not viable under the liberal orthodoxy, but the breakdown of corporatist practice weakened the state.63 
	The final scenario--a return to despotism--is most likely in regions where economic crises deepen, where few links to international institutions exist, and where anti-Western political forces dominate.  Here, in the absence of international constraints such as political "conditionality" requirements and the drive on the part of political elites to build liberal institutions, legacies of the past are most likely to persist.  And these social legacies will be used by opponents of liberalization to shape the political and economic future.   
	Finally, what do post-communist transformations tell us about the sequencing and simultaneity of economic and political liberalization?  First, some fragile democracies may be taken over by authoritarian rulers who attempt to push through economic reform (Ukraine may be an example).  But most regimes that maintain democratic institutions will be able to initiate economic reforms if they insulate reformers from social pressures, if the reforms themselves remove the economic and social power base of the opponents of liberalization, and if they are able to make side payments to the losers.  The most important initial danger to economic and political liberalization arises from the incomplete process of nation-building where incentives are created for ethnic and sectarian conflict.  This conflict defeats the liberalization project.
	As Andrew Janos emphasizes here, the long-term prospects for stable economic and political liberalization, of course, depend on the conditions that foster or undermine economic growth.  For Janos, a necessary condition for growth is a favorable international environment--meaning a more assertive Western hegemony.  A second condition might be the guidance of a strong state. In the absence of these conditions, post-communist societies will have difficulty moving in the direction of the liberal ideal.  As Janos argues, the failure of market reforms or the rise of restorationist challenges to the West will favor various forms of national radicalism.  These conditions might even favor the rise of a post-Leninist international entity that justifies its existence as an alliance of nations victimized by western cultural and economic aggression.



Endnotes
1. Comisso, 1991
2. Rustow 1970; Huntington 1984; Johnson 1988.
3. Lenway, Mann, and Utter 1993.
4. Buchanan and Tollison, 1972; Olson, 1982.
5. Schattschneider, 1963.
6. Geddes, 1991.
7. Holmes, 1991.
8. Przeworski, 1991.
9. Hall, 1992.

10. Haggard and Kaufman, 1992.
11. Dahl 1992; O'Donnell 1992.
12. Holmes, 1991; Poznanski, 1992; Hawthorne, 1992.
13. Stigler, 1975.
14. Gershenkron, 1962; Fishlow, 1990; Haggard and Kaufman, 1992.
15. Waterbury, 1992.
16. Evans, 1992.
17. Hall, 1987; Chirot, 1990; and Janos, 1991.
18. Fukuyama, 1989; Jowitt, 1992.

19.  Ellen Comisso made this point in remarks at the Southern California Workshop on Political and Economic Liberalization, University of Southern California Center for International Affairs, Los Angeles, California, November 23, 1992.    Nonetheless, a snapshot of the Ukraine at the end of 1992 might illustrate the publicly stated exception.  Leonid Kuchma, the Ukrainian prime minister, expressed few reservations about using state intervention to secure his economic goals to avert potential economic collapse.  His program included efforts to balance the budget, the lifting of price controls, tight control over credit and money supply, and a program of "forced" privatization.  To implement his economic program, considered "radical" by previous Ukrainian standards, he hinted at limiting the right to strike and the freedom of political parties. See Chrystia Freeland,  "A very Ukrainian Reformist," The Financial Times, November 17, 1992: 2; Edward Balls and Chrystia Freeland, "Ukraine on radical road, " Financial Times, December 2, 1992: 8.  



20. Engelbrekt, 1992.
21. Geddes, 1994.
22. Geddes, 1994.
23. Geddes, 1991.
24. Chirot, 1989.
25. Haas, 1986.
26. Laitin, 1985.
27.  Note the following quote from a member of Ukraine's Party of Democratic Birth, now part of an opposition coalition called New Ukraine:  "What is at issue is the difference between the emphasis on the individual and his rights on the one hand, and on the nation and national independence as the highest goal on the other."  Quoted in Abraham Brumberg, "Not so free at last," The New York Review of Books, October 22, 1992, p.61.

28. Plestina, 1993.

29. Aslund, 1989.
30.  For example, 45 per cent of all metalworking equipment in the Soviet Union was produced in non-machine-building enterprises, and 84 out of 100 machine-building enterprises produced their own forgings; 65 out of 100 produced their own metal hardware; and 76 out of 100 produced their own stock.  See "The Best of All Monopoly Profits" in The Economist August 11, 1990, p. 67.

31. Hewett, 1988.
32. ECOTASS, 1990.
33.  Burawoy and  Krotov, 1992.
34. Stark, 1990.
35. Jowitt, 1991.
36. Poznanski,1992.
37. Jowitt, 1991.
38. Hayden, 1992.
39. O'Donnell, 1991.
40.  This is particularly the case when markets are underdeveloped.  In market economies, opposition is more likely to be directed against the employer than against the state.

41. Herz, 1982.
42. Ruggie, 1982.
43. Wedel, 1992.
44.  Although the EC agreed in 1991 to a gradual process of trade liberalization vis-a-vis Poland, Hungary, The Czech Republic, and Slovakia, to be completed within a five year period, sensitive sectors like agriculture were omitted from the agreement.  In November 1992, for example, the European Community imposed anti-dumping duties on steel imported from Croatia, Poland, Czechoslovakia, and Hungary.  See "Dumping duties anger Eastern Europe," The Financial Times, November 20, 1992.  See also Richard W. Stevenson, "East Europe says Barriers to Trade Hurt its Economies," The New York Times January 25, 1993, p. A1 and C8.

45. Cutts, 1991.
46. Junz, 1991.
47. Van Brabant, 1991.
48. Borhi, 1993
49. Plestina, 1993.
50. Remmer, 1990; Przeworksi,1991.
51. Mann, 1991.
52. Lipton and Sachs, 1990; Gati, 1991.
53.  An alternative version of gradualism is that discussed at the beginning of this essay: the sequencing of economic and political liberalization so that markets are created under authoritarian regimes and democracy is gradually introduced later.  As noted at the outset, this version of gradualism is not generally politically feasible in most post-Communist societies and not considered legitimate in most scholarly discourse on post-communist transformation.  Nonetheless, as the above example of Ukraine and as trends in other post-soviet regions illustrate, authoritarian  regimes may indeed emerge to push through market reforms.

54. Szelenyi, 1993.
55. Okolicsanyi, 1992.
56. Akerlof, et.al. 1991.
57. Nove, 1992.
58. Marsh, 1992.
59. Crawford, 1993.
60. O'Donnell, 1992.
61. United States Government Accounting Office, 1990.
62. Ross, 1991.
63. Engelbrekt, 1992.
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