Crouch & Streeck Part 2 24/4/06 1:46 pm Page 149 6. Making capitalism compatible with democracy: tentative reflections from the ‘East’ László Bruszt INTRODUCTION Making democracy compatible with capitalism is not the same as making capitalism compatible with democracy. The former is about extending citizen- ship rights in capitalist economies that are already established; the latter is about first creating the basic parameters of democratic politics and extending property rights afterwards. Examples of the first process were the (re)democ- ratizations in Latin America in the 1970s and 1980s; examples of the second were the institutional transformations in the former state socialist countries. The two processes differed in their starting points and their initial dynamics; they converged however at a later stage and, in both cases, the variety of outcomes was the same: a certain form of autocratic capitalism, a combination of oligarchic democracy and an under-regulated market economy or, finally, the coming about of a certain degree of co-habitation between liberal democ- racy and a regulated market economy. As to this last outcome – the coming about of compatibility between democracy and capitalism – one can find two diametrically opposing posi- tions in the literature. According to one approach, dominant till the 1980s and revived in the 1990s, broad socio-economic changes allow the two to become compatible with each other. According to the other, conflicts and compro- mises between broad-based political forces make the two compatible. Politics is absent from the first approach that attaches a primary role to general socio- economic change or development. According to this strand in the literature, compatibility is about the coming about of the right patterns of interests, norms and behavioural patterns that are required for the coexistence of the two institutional domains. Social, economic (and related cultural) develop- ments bring about the conditions for the emergence of these ‘proper’ inter- ests, norms and behavioural patterns (for an excellent survey of this literature, see Rueschemeyer, Stephens and Stephens 1992, ch. 2). What exactly these 149 Crouch & Streeck Part 2 24/4/06 1:46 pm Page 150 150 Democratic transitions and consolidation conditions are can be deduced from the experience of the most developed countries that are pictured in this strand of the literature as the endpoints in the development of the two institutional domains. Political factors are at the centre of the second approach that was developed as the criticism of the previous approach and was based on the analysis of political change in Southern Europe and Latin America. In this approach, most forcefully expressed in the work of O’Donnell and Schmitter, compatibility is one of the possible outcomes of conflicts and compromises between broad- based political forces struggling for the preservation or the alteration of the political, and with it, the social and economic status quo (O’Donnell and Schmitter 1986, pp. 66–67). Development, social, economic or cultural, in this approach instead of being a precondition for democratization is one of the potential outcomes of political change. If successful, the process of making the two institutional domains compatible involves complex exchanges among contending forces. These constitute interacting coordination games taking place in parallel within several domains: uncertain coalitions shaped by a rapidly changing balance of forces (1986, pp. 66–67; Karl 1987, 1990). The possible outcomes of attempts to change the rules of the political game are shaped primarily by rapidly changing balance of political forces not predeter- mined by pre-existing conditions. Several different outcomes are possible in that ‘underdetermined’ process of regime transformation. Purposive political action as much as unexpected events and unintended consequences of previous decisions shape the balance of forces between contending actors, and with that, the possible outcomes. In Latin America, authoritarian reversal, some limited extension of citizenship rights and a democratic regime highly constrained in altering economic institutions were the outcomes in countries where the dynamics of the changing balance of forces gave status-quo-preserving coalitions the upper hand in dictating the rules of the game. Revolutionary transformation of the basic parameters of the economy and the polity was the outcome where radical challengers to the status quo could unilaterally impose the new rules. The dynamics of conflict most conducive to making the two domains compatible was the one in which there was stalemate, that is, an uncertain and relatively even balance of forces between contending camps, not allowing any of the sides to impose the new rules and define the new roles unilaterally (O’Donnell and Schmitter 1986, pp. 59–65). It was this situa- tion that forced actors to search for accommodation among diverse interests, to reach complex compromises sometimes instituted in the form of ‘foundational’ pacts and to seek for solutions that could make institutional change in the two domains compatible, if not complementary, with each other (1986, pp. 66–67; see also the insightful analyses of Karl 1987, 1990). In this chapter, I will explore the use of the two approaches for the analy- sis of the post-communist developments. I start with a modified version of the Crouch & Streeck Part 2 24/4/06 1:46 pm Page 151 Making capitalism compatible with democracy 151 old preconditions literature as it was applied to the post-communist cases. The representatives of the Eastern variant of the precondition literature claimed that the newly democratizing countries, due to the backwardness of their social and economic structures have to face a forced choice between continued democratization and capitalist transformation. According to the pessimistic variant of this approach, in the absence of a highly stratified market society, the post-socialist condition, democracy and capitalist transformation are incompatible with each other (for a discussion and critique of this approach, see Stark and Bruszt 1998). Absent such a society with its ‘correct’ distribu- tion of preferences, democratization would only allow for politicizing the process of economic transformation and the predicted outcome would be the blocking of economic change. According to the optimistic and activist variant of the same approach, there was a way out of this impasse. Economic trans- formations could and should be depoliticized via ‘shock treatment’ and rapid economic change would subsequently bring about a stratified market society with the right distribution of preferences – and make capitalism compatible with democracy. As will be discussed below in detail, the outcome of interacting change in the two institutional domains in post-communist Eastern Europe was exactly the opposite of what was predicted or prescribed by the revived preconditions literature. In all the post-communist countries where decision-making on economic transformation happened primarily outside the framework of demo- cratic politics, the outcome was some form of corrupted market and the degen- eration of the democratic polity. The simultaneous consolidation of democratic institutions and the emergence of a regulated market economy occurred in those countries where institutional transformation in the economic domain was simultaneously politicized within the framework of emerging democratic institutions. These outcomes of the parallel changes in the fields of polity and economy are in line with the central claim of O’Donnell and Schmitter that compatibility is not the outcome of an apolitical process of development but, to the contrary, it is the outcome of successful politicization of development. How and to what degree economic change could become subject to demo- cratic political contestation and compromise was directly related to the outcomes of the respective regime transitions. In the countries where the tran- sition produced a polity in which the political authority to make binding deci- sions was concentrated and the former elite could impose institutional change in the economic domain, uncontested by newly emerging social and political forces, the outcome was oligarchic democracy combined with a corrupted market. In countries where broad-based political mobilization brought about the transformation of political institutions and the political authority to make binding decisions was broadly distributed, the balance of forces after the initi- ation of economic transformation remained relatively even. This prevented Crouch & Streeck Part 2 24/4/06 1:46 pm Page 152 152 Democratic transitions and consolidation either incumbents or any other economic or political actor from imposing the new rules of the game unilaterally and forced them to search for accommoda- tion and coordination among diverse interests. The second part of the paper will be devoted to conceptual exercises with the goal of making changes in the institutional domains of polity and economy in the East more comparable with those in the South. Both the starting points and the initial dynamics of these changes differed in the two regions. A conceptual frame is needed that allows for the simultaneous discussion of interacting change in the two domains. As a basis for this, I will use the conceptualization of economic transformation implicit in the work of O’Donnell and Schmitter as changes in the rules of the game in the economy that define the scope