Building States And Markets After Communism: The Perils Of Polarized Democracy (cambridge Studies In Comparative Politics)

Does democracy promote the creation of market economies and robust state institutions? Do state-building and market-building go hand in hand? Or do they work at cross-purposes? This book examines the relationship between state-building and market-building in 25 post-communist countries from 1990 to 2004. Based on cross-national statistical analyses, surveys of business managers, and case studies from Russia, Bulgaria, Poland, and Uzbekistan, Timothy Frye demonstrates that democracy is associated with more economic reform, stronger state institutions, and higher social transfers when political polarization is low. But he also finds that increases in political polarization dampen the positive impact of democracy by making policy less predictable. He traces the roots of political polarization to high levels of income inequality and the institutional legacy of communist rule. By identifying when and how democracy fosters markets and states, this work contributes to long-standing debates in comparative politics, public policy, and post-communist studies. Half-title 3 Title 7 Copyright 8 Contents 9 Tables and Figures 10 Acknowledgments 13 Introduction 15 Existing Explanations and the Broader Literature 22 Democratic Institutions and Winners Take All 23 States and Markets 25 Partisanship 27 Initial Conditions, Increasing Returns, and the Lure of Europe 29 Causal Depth and Causal Mechanisms 32 Data Issues 33 1 The Political Logic of Economic and Institutional Reform 35 Partisan Policies versus Convergence 37 Partisan Strategies in Transition Economies 38 Previewing the Argument 40 Preferences and Policy Making under Democracy 41 Policy Making in a Democracy with Low Polarization 44 Policy Making in a Democracy with High Polarization 46 Policy Making under Autocracy 47 Assumptions 49 Extensions 50 Scope Conditions 52 Related Literature 54 Conclusion 55 Appendix 1.1 56 Democracy Low Polarization 59 Democracy High Polarization 60 Autocracy 61 2 Political Polarization and Economic Inequality 62 Classifying Political Factions 63 Measuring Political Polarization 67 Economic Inequality and Political Polarization 72 Appendix 2.1: Categorizing Factions 77 Old-Left Parties 80 Centrist Parties 81 Right Factions 82 3 The Pace and Consistency of Reform 84 The Data 85 Data and Methods 88 Multivariate Analysis 91 Initial Conditions 100 The Consistency of Reforms 101 Measuring the Consistency of Economic and Institutional Reforms 102 Initial Conditions and Increasing Returns 109 Presidents and Parliaments 109 Transfer Payments 109 Conclusion 113 Appendix Tables A3.1–5 113 Appendix 3.4: Presidentialism and Parliamentarism 116 4 Political Polarization and Economic Growth 118 Political Polarization and Economic Growth 119 Economic Growth and Economic Strategy 120 Initial Conditions: Birth Defect or Childhood Disease? 121 The Data 122 Statistical Analysis 123 The Model 126 Initial Conditions 130 Polarization and Growth: A Different Take 130 Conclusion 133 Appendix Table A4.1 133 5 Political Polarization and Policy Instability: The View from the Firm 136 Polarization-Induced Policy Instability or Gridlock? 137 The Importance of Microfoundations 141 The BEEPS Dataset 142 Political Polarization and Investment 150 Conclusion 152 Appendix Tables A5.1--3 155 6 Nationalism and Endogenous Polarization 158 National Identity, the Soviet Bloc, and Political Polarization 159 Nationalism, Communism, and the Two Tiers of the Communist Bloc 161 Late National Model 163 Dependent National Model 165 Sovereign National Model 167 Multivariate Analysis 173 The Endogeneity of Polarization: An Instrumental Variable Approach 177 Conclusion 180 7 Russia: Polarization, Autocracy, and Reform 182 High Polarization and Relatively Democratic Politics, 1990–1999 183 Russias Shock Therapy 185 Loans for Shares 188 Declining Polarization amid Competitive Politics, 2000–2003 193 Declining Democracy and Stalled Reforms, 2003–2004 201 Conclusion 205 8 Bulgaria: Polarization, Democracy, and Reform 206 Bulgaria: The Background 207 Bulgaria 1990–1996: The Roots of Political Polarization 207 Polarization and Policy 210 Continued Polarization and the BSP in Power, 1994–1996 214 Declining Polarization, Economic Policy, and the UDF in Power, 1997–2001 217 An Emerging Consensus on Economic Policy 222 Conclusion 224 9 Poland: Robust Democracy and Rapid Reform 227 Background 228 The Political Spectrum: The Centrist Parties 229 Post-Solidarity Right Parties 231 Low Polarization and Rapid Reform 233 Industrial Privatization and Consistent Reform 235 The New Private Sector 237 State-Owned Firms 239 Social Policy 240 Conclusion 242 10 Uzbekistan: Autocracy and Inconsistent Gradualism 243 Background 244 Political Setting: An Old-Left Autocracy 245 Economic Policy 249 Economic Performance 252 State Revenue and Social Spending 253 Conclusion 256 11 Conclusion 258 Democracy and Reform 259 States and Markets 261 Partisanship and Policy 263 The Dynamics of Political Polarization 264 Institutional Legacies, Path Dependence, and Increasing Returns 265 The Value of Microfoundations 266 Final Remarks 267 References 269 Index 297 Series 311 0521767733,9780521767736,0521734622,9780521734622 Cambridge University Press This book examines how democracy influences state-building and market-building in 25 post-communist countries from 1990 to 2004