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Privatization and State Capacity in Postcommunist Society


  • Lawrence King


  • Patrick Hamm



Economists have used cross-national regression analysis to argue that postcommunist economic failure is the result of inadequate adherence liberal economic policies. Sociologists have relied on case study data to show that postcommunist economic failure is the outcome of too close adherence to liberal policy recommendations, which has led to an erosion of state effectiveness, and thus produced poor economic performance. 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 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 modern economy, thus resulting in deindustrialization. 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.

Suggested Citation

  • Lawrence King & Patrick Hamm, 2005. "Privatization and State Capacity in Postcommunist Society," William Davidson Institute Working Papers Series wp806, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2005-806

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    References listed on IDEAS

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    Cited by:

    1. King, Lawrence P., 2007. "Does neoliberalism work? Comparing economic and sociological explanations of postcommunist performance," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 8(2), pages 10-17.

    More about this item


    privatization; transition economies; state capacity; property rights; institutions; growth;

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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