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The Governance Grenade: Mass Privatization, State Capacity and Economic Development in Postcommunist and Reforming Communist Societies


  • Lawrence King
  • Patrick Hamm


This article critiques neoliberal transition theory from a state-centered perspective. Neoliberal scholars have used cross-national regression analysis to argue that postcommunist economic failure is the result of inadequate adherence to neoliberal precepts. Sociologists, in turn, have relied on case study data to show that postcommunist economic failure is the outcome of too close adherence to neoliberal policy recommendations, which has led to an erosion of state effectiveness, and thus produced underdevelopment. The present paper advances a version of this statist theory based on a quantitative analysis of mass privatization programs in the postcommunist world. We argue that the neoliberal policy of rapid large-scale privatization creates severe supply and demand shocks for enterprises, thereby inducing firm failure. The resulting erosion of tax revenues leads to a fiscal crisis for the state, and severely weakens its capacity and bureaucratic character. This, in turn, reacts back on the enterprise sector, as the state can no longer support the institutions necessary for the effective functioning of a capitalist economy, thus resulting in de-modernization. In this paper, we test the predictions of neoliberal transition theory against those of our statist theory, using cross-national regression techniques. We find that the implementation of mass privatization programs negatively impacts measures of economic growth, state capacity and the security of property rights.

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  • Lawrence King & Patrick Hamm, 2008. "The Governance Grenade: Mass Privatization, State Capacity and Economic Development in Postcommunist and Reforming Communist Societies," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 17, TUT Ragnar Nurkse School of Innovation and Governance.
  • Handle: RePEc:tth:wpaper:17

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    1. Mario Cimoli & Nelson Correa, 2002. "Trade Openess and Technological Gaps in Latin America: a Low Growth Trap," LEM Papers Series 2002/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. J.A. Kregel, 1999. "Currency Stabilization through Full Employment: Can EMU Combine Price Stability with Employment and Income Growth?," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 35-47, Winter.
    3. Mario Cimoli & Giovanni Dosi & Richard R. Nelson & Joseph Stiglitz, 2006. "Institutions and Policies Shaping Industrial Development: An Introductory Note," LEM Papers Series 2006/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Eckhard Hein & Achim Truger, 2005. "Macroeconomic policies, wage developments, and Germany’s stagnation," Macroeconomics 0508015, EconWPA.
    5. Reinert, Erik S., 2006. "The Economics of Reindeer Herding: Saami Entrepreneurship between Cyclical Sustainability and the Powers of State and Oligopolies," MPRA Paper 49798, University Library of Munich, Germany.
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