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Privatization and State Capacity in Postcommunist Society

  • Lawrence King

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  • Patrick Hamm

    ()

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    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.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp806.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp806.

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    Length: pages
    Date of creation: 01 Dec 2005
    Date of revision:
    Handle: RePEc:wdi:papers:2005-806
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    1. Olivier Jean Blanchard & Maxim Boycko & Marek Dabrowski & Rudiger Dornbusch & Richard Layard & Andrei Shleifer, 1993. "Post-Communist Reform: Pain and Progress," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023628, June.
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    9. Falcetti, Elisabetta & Raiser, Martin & Sanfey, Peter, 2002. "Defying the Odds: Initial Conditions, Reforms, and Growth in the First Decade of Transition," Journal of Comparative Economics, Elsevier, vol. 30(2), pages 229-250, June.
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    11. Campos, Nauro F., 2001. "Will the Future Be Better Tomorrow? The Growth Prospects of Transition Economies Revisited," Journal of Comparative Economics, Elsevier, vol. 29(4), pages 663-676, December.
    12. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan, vol. 42(1), pages 1-57, April.
    13. Jeffrey D. Sachs, 1996. "Reforms in Eastern Europe and the Former Soviet Union in Light of the East Asian Experiences," NBER Working Papers 5404, National Bureau of Economic Research, Inc.
    14. Sachs, Jeffrey D, 1992. " The Economic Transformation of Eastern Europe: The Case of Poland," Economic Change and Restructuring, Springer, vol. 25(1), pages 5-19.
    15. David Ellerman, 2001. "Lessons from Eastern Europe's Voucher Privatization," Challenge, M.E. Sharpe, Inc., vol. 44(4), pages 14-37, July.
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