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The Two Transitions in Central and Eastern Europe and the Relation Between Path Dependent and Politically Implemented Insti A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Zweynert, Joachim; Goldschmidt, Nils Working Paper The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politically Implemented Institutional Change HWWA Discussion Paper, No. 314 Provided in Cooperation with: Hamburgisches Welt-Wirtschafts-Archiv (HWWA) Suggested Citation: Zweynert, Joachim; Goldschmidt, Nils (2005) : The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politically Implemented Institutional Change, HWWA Discussion Paper, No. 314, Hamburg Institute of International Economics (HWWA), Hamburg This Version is available at: http://hdl.handle.net/10419/19286 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politically Implemented Institutional Change Joachim Zweynert Nils Goldschmidt HWWA DISCUSSION PAPER 314 Hamburgisches Welt-Wirtschafts-Archiv (HWWA) Hamburg Institute of International Economics 2005 ISSN 1616-4814 Hamburgisches Welt-Wirtschafts-Archiv (HWWA) Hamburg Institute of International Economics Neuer Jungfernstieg 21 - 20347 Hamburg, Germany Telefon: 040/428 34 355 Telefax: 040/428 34 451 e-mail: [email protected] Internet: http://www.hwwa.de The HWWA is a member of: • Wissenschaftsgemeinschaft Gottfried Wilhelm Leibniz (WGL) • Arbeitsgemeinschaft deutscher wirtschaftswissenschaftlicher Forschungsinstitute (ARGE) • Association d’Instituts Européens de Conjoncture Economique (AIECE) HWWA Discussion Paper The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politically Implemented Institutional Change Joachim Zweynert (HWWA and University of Hamburg) and Nils Goldschmidt (Walter Eucken Institut) HWWA Discussion Paper 314 http://www.hwwa.de Hamburg Institute of International Economics (HWWA) Neuer Jungfernstieg 21 - 20347 Hamburg, Germany e-mail: [email protected] The present paper is an outcome of a research project on the historical and cultural path dependency of the transition processes in Central and Eastern Europe, which is carried out jointly by the Hamburg Institute of International Economics (Department European Integration) and the University of Hamburg (Institute of Economic Systems, Economic History and the History of Economic Thought). The project is funded by the Volkswa- genStiftung. The paper has been presented and discussed at the first project workshop that took place in Hamburg at November 27, 2004 and at a Brown Bag Seminar at the Walter Eucken Institut at February 16, 2005. We are indebted to the discussants of our presentation at both events as well as to Lena Nievers for language assistance and a number of helpful comments. This version: March 10, 2005 Edited by the Department European Integration Head: Dr. Konrad Lammers HWWA DISCUSSION PAPER 314 March 2005 The Two Transitions in Central and Eastern Europe and the Relation between Path Dependent and Politi- cally Implemented Institutional Change ABSTRACT The increasing gap between the formerly socialist countries of Central and Eastern Eu- rope (CE & EE) with regard to both their economic and political performance cannot be explained by their different starting conditions after the breakdown of the Soviet Union alone. Rather, it is due to cultural and historical circumstances that shape the particular tradition and societal environment. Taking a cultural approach and referring to the ne- wer literature on the transfer of institutions, we try to improve the understanding of the interrelation between formal and informal institutions. Our central thesis is that the ‘re- action rate’ of informal institutions depends on their compatibility with imported formal institutions. The transition processes in CE & EE can tell us much about the relation between path dependent and politically implemented institutional change. During the 20th century the countries of CE & EE twice went through rapid institutional change: For centuries they had acculturated to Western Europe, but as a result of the October Revolution ‘Eastern’ patterns were imposed upon them. Since the breakdown of the SU in the late 1980s they have ‚returned to Europe‘ by (re-)establishing democracy and ca- pitalism. In our opinion, to understand the differences in performance between the tran- sition countries, it is necessary to interpret both transitions as processes of institutional transplantation and ask how the informal institutional settings in the different countries interacted with the imported formal institutions. Keywords: Cultural Economics, Institutions, Transition, Path Dependence. JEL-Classification: Z 10, P 51. Joachim Zweynert Hamburg Institute of International Economics Department of European Integration Neuer Jungfernstieg 21, D-20347 Hamburg - Germany Phone: ++ 49 + (0)40 42834-428 E-Mail: [email protected] Nils Goldschmidt Walter Eucken Institut Goethestrasse 10, D-79100 Freiburg im Breisgau Phone: ++49 +(0)761 79097-13 E-Mail: [email protected] 1 Introduction In the euphoria of the early 1990s the formerly socialist countries of Central and Eastern Europe (in the following: CE & EE) were generally expected to quickly turn into de- mocracies with market economies. The experience of the last 15 years, however, has shown that only some of them (the Baltic States, Poland, Hungary, the Czech Republic, Slovakia and Croatia) have consistently chosen a reform path that aims at establishing Western-type societies. In the cases of Russia, Belarus, Bulgaria, Moldavia, the Ukrai- ne, Romania, and Serbia and Montenegro, by contrast, it is not yet clear where the jour- ney goes. As especially the recent events in the Ukraine have forcefully demonstrated, these countries are – albeit to significantly different degrees – still ideologically divided on the issue of the appropriate reform strategy: Should one try to develop according to Western European and US-American patterns or is this policy doomed to failure becau- se it does not fit the geographical, historical, cultural and economic conditions of these societies?1 The increasing gap between the two groups of transition countries with regard to both their economic and political orders cannot be explained by their different starting con- ditions after the breakdown of the Soviet Union alone. Rather, it also has its causes in the cultural and historical circumstances shaping the particular tradition and societal en- vironment. Indeed, the experience of transition has led to a growing awareness of the role of informal institutions in the process of institutional change in institutional and evolutionary economics (see Roland 2002, 47). Although a lot of work has been done on this problem during the last few years, we still do not have a satisfying explanation of the role that informal constraints of human behavior play in institutional change. To clarify this problem further, the course of our argumentation is as follows: When in institutional and evolutionary economics the idea of historical and cultural path depend- ency is applied to the problem of CE & EE transition, it is often overlooked that the European nations did never only develop according to the tracks determined by a – however defined – ‘cultural heritage’. Rather, they evolved in close political, military and economic competition with their neighbors, and this competition time and again 1 In some of the countries mentioned, e.g. Belarus and Russia, clearly the latter approach has taken hold, whereas Bulgaria and Romania have decided to continue the ‘Westernizing’ reforms necessary for accession to the EU. 1 forced them to adapt to the institutional arrangements of the more successful nations.2 This is not to say, however, that the idea of historical and cultural path dependency has to be rejected. For whenever formal institutions are taken over from abroad, in the course of their implementation they mingle with the ‘soil’ of the prevailing informal constraints of human behavior and thought, which are determined by the legacies of the past. This phenomenon can be described as a transplantation of institutions (see Badie [1992] 2000; Polterovich 2001; Djankov et al. 2003, 609-12; Oleinik 2005, forthcom- ing). According to Vladimir Polterovich’s (2001, 24) definition, institutional trans- plantation is “the adoption of institutions, that have developed in another institutional
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