3 - The political economy of transformation: liberalization and property rights

Summary

INTRODUCTION

The dramatic political and economic changes underway in Eastern Europe and the former Soviet Union present social scientists with a sobering reality and an unprecedented opportunity. The reality is that our disciplines offer very little theory of relevance to predicting the onset, course, or pace of the changes. The opportunity is a “natural experiment” that permits social scientists to study comparatively an important type of institutional transformation: in an amazingly short period of time the communist parties in a number of countries with different institutional and cultural circumstances peacefully relinquished their dominant political positions to allow democratization and the attempt to create liberal political and economic institutions. While many social scientists have been quick to offer advice about how the transformations should proceed, our purpose here is to consider how social scientists can best learn from this natural experiment.

We make two intertwined arguments about studying the postcommunist institutional transformations, specifically, and major changes in economic institutions more generally. One argument concerns what we believe to be an appropriate substantive focus for study: the evolution of property rights and their credibility. The other argument concerns the weaknesses of the disciplines as they relate to the conduct of that study and the desirability of a political economy approach for overcoming them.

An important empirical regularity motivates our focus on property rights: all our previous political experience suggests that democracy is incompatible with the centralized allocation of economic resources (Lindblom, 1977, chap. 12). A market economy with substantial private property appears to be a necessary, although not sufficient, condition for the persistence of a democratic political system.