Captured by Business? Romanian Market Governance and the New Economic Elite

In the 1990s, there was a lot of concern in studies of post-communism about communist-era managers stalling institutional reforms due to their ability to gain long-term advantages through institutional capture. By influencing market governance rules (corporate governance, bankruptcy, competition laws), managers could protect and amplify initial economic gains from liberalization, entrenching economic inequality. Yet in the 2000s, even the laggards of transition have implemented significant market governance reforms and have enjoyed rapid economic growth. Moreover, business perceptions of state capture (from BEEPS) have dropped substantially. The paper examines this surprising turnaround with evidence from the Romanian case. I argue that contrary to expectations, business interests have failed to capture market governance institutions. In spite of benefiting from shady privatization deals and other advantages based on political connections, the new Romanian entrepreneurs were not threatened by sophisticated market governance laws. This argument based on the preferences of business actors is a necessary addition to explanations of institutional reforms that rely on international conditionality or on economic crisis.