Review by Ellen Comisso

Trustees of Princeton University
Crisis in Socialism or Crisis of Socialism?

The Grand Failure by Zbigniew Brzezinski; Marxism and the French Left by Tony Judt;
Political Authority and Party Secretaries in Poland, 1976-1986 by Paul Lewis; Yugoslavia in
Crisis by Harold Lydall; Socialist Entrepreneurs by Ivan Szelenyi; The Promise of Privatization
by Raymond Vernon
Review by: Ellen Comisso
World Politics, Vol. 42, No. 4 (Jul., 1990), pp. 563-596
Published by: Cambridge University Press
Stable URL: http://www.jstor.org/stable/2010514 .
Accessed: 01/08/2013 01:08
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
Cambridge University Press and Trustees of Princeton University are collaborating with JSTOR to digitize,
preserve and extend access to World Politics.
http://www.jstor.org
This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

All use subject to JSTOR Terms and Conditions
ReviewArticle
CRISIS IN SOCIALISM
OR CRISIS OF SOCIALISM?
By ELLEN COMISSO*
Zbigniew Brzezinski, The Grand Failure. New York: Charles Scribner, i989,
278 pp.
Tony Judt, Marxism and the French Left. Oxford: Clarendon Press, I986,
338 pp.
Paul Lewis, Political Authority
and PartySecretariesin Poland, 1976-1986. Cam-
bridge:CambridgeUniversity
Press,i989, 340 pp.
Harold Lydall,Yugoslaviain Crisis.Oxford:ClarendonPress,i989,
255
pp.
Madison: Universityof Wisconsin Press,

Ivan Szelenyi, SocialistEntrepreneurs.
i988, 254 ppRaymond Vernon, ed., The Promiseof Privatization.New York: Council on
Foreign Relations, I988, 295 pp.
INan insightfulessaydealing withdemocratic"transitions"in Europe
and Latin America, Adam Przeworski concludes that "we cannot

avoid the possibilitythata transitionto democracycan be made only at
the cost of leaving economic relationsintact,not only the structureof
productionbut even the distributionof income."' Many East Europeans,
in contrast,appear nowadays to be coming to quite a differentconclusion: a transitionto democracyin the contextof "actually existing" soof ecocialism can only be made togetherwith a radical transformation
nomic relations,one that would involve not only a dramatic reformof
allocation mechanismsbut also a major change in ownershipstructures.
Whetherthe full scope of such a transitionwill ever be realized in practice remains uncertain;nevertheless,its mere existence,increasinglyac*
This essay was completedin September i989, a time when changes that subsequently
occurredin East Germany,Bulgaria,Czechoslovakia,and Romania had notbeen considered
or even conceivedof in publishedworksof nonfiction.In revisingthe articleforpublication
in Januaryi99o, I made some attemptto take account of recentdevelopmentsin the area.
However, sincetheanalysisof Poland, Hungary,and Yugoslavia,as well as thecentralthrust
of the paper remainedvalid, I thoughtit bestnot to interruptthe flowof the argumentwith
new material.Hence, I have confinedmy remarkson the situationthatemerged in the fall
and winterof i989 to the footnotes.
' Przeworski,"Some Problemsin theStudyoftheTransitionto Democracy,"in Guillermo
Authoritarian
O'Donnell, PhilippeSchmitter,and Laurence Whitehead,eds., Transitionsfrom
Rule: ComparativePerspectives
(Baltimore:The JohnsHopkins UniversityPress,i986), 63.

564
WORLD
POLITICS
tivearticulation,and the abilityto generatewidespread public supportat

both elite and mass levels is a highlysignificantpoliticalphenomenon in
itself.
A view thatconsidersdemocracy(or more precisely,polyarchy),markets,and privateownershipas necessaryconditionsof each other is not
new; philosophically,its originsprecede by at least a hundred years the
philosophy"conceived in the public reading room of
nineteenth-century
the British museum by an emigre German-Jewishintellectual"(P. 5)
that Zbigniew Brzezinski findsso dated.2What is new is the degree to
which, and the quarters in which, the liberal democratic package has
become accepted not only as one whose elementsare essentiallyin harmony with each other,but also as one that,to many,representsthe best
of all possible worlds.
The foregoingby no means implies thateven the most avid "liberals"
in contemporaryHungary, Yugoslavia, or Poland are closet Thatcherites,no matterhow much partyconservativeshave sought to attach this
label to them.3Nor did the covertadmirationmany activistsin East European peace movementsguardedly expressedfor Ronald Reagan's denunciationsof the "Evil Empire" in the early i98os typicallyextend to
an endorsementof supply-sideeconomicsor the highlyregressiveredistributionof income thattook place duringhis administration.And, even
as The Road to Serfdomreplaces Critiqueof the Gotha Programmeas required reading for informedEast European intellectuals,the societies
that constitutethe Europe theyare so anxious to rejoin-Austria, Scandinavia, France, Italy,and even West Germany-are all societieswhose
postwar experienceshave run directlycounter to Hayek's dire predictions.
The currentfermentin Eastern Europe thus does not lend itselfto
being easily pigeonholed into traditionalcold war categories or even
spectrum.This is particsmoothlyassimilatedalong the classicleft-right
ularlythe case because distinctlyculturaland national concernsunderlie
many of the debates withinEastern Europe today-as suggestedin Ivan
and demonstratedin Harold Lydall's
Szelenyi's SocialistEntrepreneurs
descriptionof the conflictsover the status of Kosovo in contemporary
Yugoslavia. Indeed, it is preciselythe packaging of a substantialdose of
JamesMadison found"property"to be "the mostenduringsourceof faction"long before
Marx made his observations.See Federalist no. io, in Alexander Hamilton, JohnJay,and
JamesMadison, The Federalist(New York: Modern Library,1938), 47-53.
3See Dennison Rusinow,"NationalitiesPolicyand the National Question," in Pedro RaCharles
met, ed., Yugoslaviain the 198o5 (Boulder, CO: Westview Press, i985), 143-44;
Bukowski, "Politics and the ProspectsforEconomic Reformin Yugoslavia," EasternEuropean Politicsand Societies2 (Winter i988), 104. See also Szelenyi,p. 13.
2

CRISIS IN OR OF SOCIALISM?
565
anti-Enlightenmentsentimentwithin the terminologyof Locke and

Kant thatmakes Brzezinski's attemptto draw greatmoral-historicallessons from a fundamentallyambiguous historicalmoment seem oddly
forcedand premature.4
At the same time,if we choose to interpretBrzezinski's message figurativelyratherthan literally,The GrandFailure does indeed point to an
importantand quite new phenomenon: the existenceof a rathersignificant and politicallystrategicelement in the East European (and also, if
we are to believe Tony Judt,the West European) politicaluniversethat
has chosen to turn away fromeven a radicallyreformedversion of socialismand toward somethingapproximatingthe "democraticclass compromise" of social democracy.The causes forthe emergenceof what can
only be described,in Gramsci's terms,as a social-historicalbloc of forces
ranged around this objective are multiple; several are explored by the
volumes under review. The question,however,is whetherthe (actually
existing)socialiststatesof Eastern Europe are embracingthe democratic
class compromise at the same time that the bases for its existence on
eitherside of the Elbe are being undermined.
The question I will address in thisessay is thus whetherwhat we are
witnessingtoday in Eastern Europe and even the Soviet Union is solely
a domestic crisisin actuallyexistingsocialism or whetherit is, in addition,a much broadercrisisof socialismin general,includingeven potentiallymore democraticvariants.I will proceed,first,by examining analyses of the domestic determinantsof changes withinthe socialiststates,
focusingon Hungary, Poland, and Yugoslavia. I will also attemptto put
the East European situationwithina larger internationalcontext,arguing that in many ways the political and economic changes within the
socialistbloc are simplyextremecases of a more general challenge to the
economic viabilityof socialistinstitutionswherevertheyare found and,
in particular,to the publiclyowned enterprisethat has always been at
the core of socialism.
That is, economistshave traditionallydefined socialism primarilyas
an ownership system,regardless of the mechanism (plan, market, or
some mixture)used forthe allocation of resources.5As such, socialism's
4See Tony Judt,"The Dilemmas of Dissidence: The Politicsof Oppositionin East-Central
Europe," EasternEuropeanPoliticsand Societies2 (Spring i988), i85-241.
5See Egon Neubergerand William Duffy,ComparativeEconomicSystems(Boston: Allyn
& Bacon, 1976), 114-17;
Michael Montias, "Types of Communist Economic Systems,"in
Chaimers Johnson,ed., Change in CommunistSystems(Stanford,CA: StanfordUniversity
Press, 1970), 117-35; Peter Wiles, PoliticalEconomyof Communism(Cambridge: Harvard
UniversityPress, i962); Alec Nove, Economicsof Feasible Socialism (New York: Allen &
Unwin, i983); and Wlodzimierz Brus, SocialistOwnershipand Political Systems(London:
Routledge& Kegan Paul, 1975).

566
WORLD POLITICS
distinguishingfeatureis neithercentralplanning nor a ruling communist party,but the fact that a political community,ratherthan private
individuals, owns the means of production.In the modern world, the
most extensive form of political communityis, for the most part, the
nation-state.In that context,public, state,or social ownership is a rational strategyfornational ends to the degree thatstatescan reap comparative advantages fromcontrollingcapital allocationwithintheirborders.
These advantages are particularlypronounced in a world characterized
by technicaland politicalbarriersto capital mobility,in which it is both
riskyand relativelycostlyforinvestorsto acquire equity outside the jurisdictionof theirown state. In this internationalcontext,state investment can be an importantmeans formobilizing domestic resourcesfor
economic developmentas is attestedto by examples as varied as France,
Yugoslavia, Brazil, India, and Singapore.
Nevertheless,as markets in factorsof productionas well as in commodityand creditbecome globalized, the advantages of the state-owned
enterprisebegin to decline, and so does the appeal of socialism as traditionallyunderstood.From the perspectiveof the enterprise,the stateappears as merelyone of a numberof possibleinvestmentsources-and not
necessarilythe most desirable one at that. From the perspectiveof the
public investor,to the degree it is committedto increasingthe value of
its assetsand capturinga financialreturnon public investment,the rationale forconfiningstateholdings to entitiesoperatingexclusivelywithin
its bordersis weakened.
Meanwhile, if the internationalizationof financialmarketsis a factor
in the apparent inabilityof socialiststatesto find an economically efficient,democratic,and yetdistinctivelysocialistmodel that would allow
them to participatein the internationaleconomyon a competitivebasis,
the consequences for social democracyare not necessarilysanguine either.
CRISIS IN SOCIALISM?
On one level, East Europeans are not so much abandoning socialism

as theyare simplyrejectingits Leninistvariant.Insofaras the acceptance
of Leninism in Eastern Europe has always been rathertenuous (to put it
mildly), it hardly comes as a surprisethat,in a countrylike Poland, it
would be a popular project to abandon it. In this sense, all we are witnessing today is the collapse of a (non)traditionalauthoritarianismthat
was imposed by a regional hegemon in its own interest,and which
should never have been labeled socialistto startwith. Consequently,the

567
only question that needs to be addressed is the strictlyempirical one of

how the dissolutionprocessunfoldsand how far it progresses.
In their respective studies of the Polish United Workers' Party
(PUWP) and the Hungarian privateagriculturalsector,Paul Lewis and
Ivan Szelenyi approach this question in verydifferentways. From their
perspectives,what is at stake is simplya long overdue crisis in actually
existingsocialism-a crisis whose origins are primarilydomestic or at
most regional, reflectingthe political bankruptcyof the ruling elite
(Lewis) and/ora spontaneousand basicallyhealthyresistanceon the part
of societyto attemptsto transformit fromabove (Szelenyi). The demise
of Marxist-Leninistregimesand the breakdown of the centrallyplanned
economies underlyingthem not only indicate littleabout the possibility
of less repressiveand unpleasant formsof socialism arising in Eastern
Europe and elsewhere,but may be preciselythe conditionsthatopen the
door to such a development.In short,the benefitsand costsof the introduction of politicaland economic pluralismwithinEastern Europe will
fall primarilyupon the local populations,much as democratizationprocesses in Latin America did. Moreover,should this processgenerate externalitiesrelevantto socialisttheoryand practiceoutside East European
borders,theywill be largelypositive,in thatdemocraticsocialistswill no
longer findthemselvesforcedto apologize forfundamentallyrepressive
regimes claiming to share theirpolitical space and to define theirideological purity.
Echoes of this view are also found in Tony Judt'ssuperb account of
the causes and consequences of the longstanding romance between
Marxism and the French Left. In an ironic twist,the causes of Socialist
(PSF) success in the i98os stand revealed as the mirror image of the
causes of the French Communist Party's(PCF) rapid decline withinthe
same period. Whereas thefluidorganizationand doctrinalheterogeneity
of the PSF allowed it to appeal to and capturean electoratethat"reflects
with surprisingaccuracy the French electorateas a whole, in age, education,location,and operation" (p. 295), the PCF's "enduringStalinism"
caused it to remain "historicallyattached to just those parts of France
and French societywhich are most archaic and troubled" (p. 292). The
PSF's abilityto distance itselffromtraditionalMarxism, with its "firm
commitmentto certainpropositionsabout the life-spanand self-destructive propertiesof capitalism" (p. 298), allowed the PCF to validate its
historicalclaim to be Marxism's oracle in France; at the same time, it
was the key factorthatpermittedthe formerto govern and condemned
the latterto politicalirrelevance.
Judt'sobservationsabout the dead-end streeton which French com-

568
WORLD
POLITICS
munism appears to be are quite relevantto Lewis's descriptionof events

withinthe PUWP in the last decade, and shed a great deal of lighton a
central ambiguityin the latter'sanalysis. In tracing the origins of the
Polish crisisto a "chronicauthoritydeficit"in Polish politics,Lewis suggests that "this authoritydeficitwas closelyrelated to the formand capacity of partyleadership embodied particularlyin the operation of its
intermediateorgans" (p. 284). The implicationof such an argument is
that,if the movementto democratize the PUWP that surfacedin i980
had been successful,martial law could have been avoided. At the same
time, however, Lewis argues that it was preciselythe victoriesof the
partyreformmovementat the i98i ExtraordinaryCongress that paved
the way forthe declarationof a stateof war a few monthslater.
Lewis explains thisparadox by pointingout that the nonelectedparts
of the apparatus remained relativelyintactdespite major changes in the
elected leadership at national and provinciallevels. Yet the enigma remains unanswered: how could the apparatus be too weak to control
partyelections but strongenough to control the party,and how could
erstwhile"democratizers"be strongenough to replace a substantialportion of the partyleadershipbut too weak to controlthe organization? In
short,in the conflictbetweentwo wings of the PUWP, each with its own
claim to controlthe partyand with internalbases of support,why did
the struggleend with the triumphof the apparat?
In one sense, the answer seems to lie in the verydifferentsources of
externalsupporton which the two opposing currentswere based. While
the apparat could turn to the Soviet Union, whose support was readily
forthcomingin i98i, the reformwing counted upon "society"to rallyto
its cause. But once Solidaritywashed its hands of the internalpartyconflict,and disagreementsand increasingmilitancywithinSolidarity'sown
ranks dimmed the possibilityof compromise, the reformists'claim that
they could carry on a dialogue lost credibility,and the advantages of
governingthe countrythrougha democratizedPUWP over ruling it by
a bureaucraticcentralizedpartyrapidlydiminished.7
6 See
esp. Alain Touraine's account in Solidarity:Poland ig80-8i (Cambridge: Cambridge
UniversityPress, i983), and Neal Ascherson,The PolishAugust(Baltimore:Penguin Books,
I982).
7Certainly, the availabilityof Soviet supportforthe traditionalapparat in Poland in i98i

and its unavailabilityin i989 is a key factorthat explains why events in East Germany,
denoueCzechoslovakia, and to some degree even Romania had such dramaticallydifferent
was an importantelementin the Polish
ments.That is, the possibilityof Soviet intervention
declarationof martiallaw: one reason whyJaruzelskicould relyon the loyaltyof the Polish
armywas, presumably,the veryreal threatthattheSovietswould otherwisedo the job. Such
a threatcould not be made in Czechoslovakia in i989, withthe resultthatthe Czechoslovak
armed forcescould notbe countedupon bythe regime;as fortheDDR, the Soviet-controlled
command structureof thearmymeantHonecker could noteven issue ordersto it over Soviet

569
More profoundly,however, if the dilemma of "liberal" communists

withinthe PUWP is compared with the dilemma of partyreformersin
the PCF, it would appear to be insoluble, even if the reformershad
emerged fullyvictorious.In both cases, partyreformaimed to converta
top-downcadre partyinto a bottom-upmass organization,to weaken its
international(i.e., Soviet) tiesin orderto strengthenitsnational base, and
to dilute its capacityforcontrolin order to enhance its abilityto represent.8As such, the logic of party reformis essentiallyone that would
greatlydiminishand even potentiallyerase the traditionaldistinctionbetween the partiesof the Second and Third Internationals.
Such a processmay stand a chance of succeedingin a politicalcontext
marked by the absence of a socialistpartyor a popular movementcrediblycompetingforthe Communist Party'straditionaland potentialconstituency.Such was the case in Italy,9and even in Yugoslavia during its
periods of partyreform;Io as late as October i989, it appeared to be the
case in Hungary as well. There, the Social Democratic Party that had
surfacedin i988 was littlemore than a resurrectedversionof what was
leftof the Social Democratic Partyin 1948, includingitsaging leadership
and program. Unlike Solidarity,it proved notablyreluctantto accommodate eitherrenegade communistsor newer adherents.The resultwas
to strengthenreformistforceswithinthe communistpartyitselfby cuttingoffa potentialexit,and to encourage a proliferationof othergroups
and proto-partiesas all maneuvered to capture what was anticipatedto
be a substantialsocial democraticsegmentof the electorate.
In contrast,when a real and credible social democraticcompetitoris
present,attemptsto reforma communistpartyseem to be counterproductive. Such was the situationin both France and Poland. In the former, attemptsto reformthe PCF alienated partystalwartswhile failing
objections.In Romania, where Ceausescu, withouta Warsaw Pact backup, did call out the
the resultwas militarydesertion.
armyagainstdemonstrators,
8
Compare also JaneJensonand George Ross, The ViewfromInside(Berkeley:University
of CaliforniaPress, i984) withWernerHahn, Democracyin a Communist
Party(New York:
Columbia UniversityPress,i987).
9Sidney Tarrow, Peasant Communismin SouthernItaly (New Haven: Yale University
Press,i969); Sergio Turone, Storiadel sindicatoin Italia, i943-69 [Historyof the Italian labor
movement,1943-69] (Bari: Laterza, 1974).
'?See April Carter,DemocraticReformin Yugoslavia(Princeton: Princeton University
Press,i982); Dennison Rusinow,The YugoslavExperiment
(Berkeley:Universityof California
Press, 1977).
" The "dissolution"of the Hungarian SocialistWorkers' Partyand the formationof the
ashes was, of course,a predictablepart of
Hungarian Socialist Partyfromits reform-wing
the strategyaimed at positioningthe partyon the center-left.
So, too, was the (unsuccessful)
withinthe partyto expel itsmore conservativeelementsopenly,
demand of radical reformists
an action that would have made the new party'sclaim to the centermore credible by, in
effect,creatinga partyon itsleft.

570
WORLD
POLITICS
to stem the tide of votersand adherents flowingto the PSF; in the latter,
partyreformthreatenedthe organization'sbackbone, its apparat, while
enhancing the appeal of Solidarityamong its own rank and file.In such
a context,the partyas an identifiableorganization in a real sense is the
apparat,as Lewis carefullyexplains.Consequently,to quote Judt,"it can
only change by riddingitselfof thoseveryparticularfeatureswhich gave
it its special characterand position-and yetwithoutthem,it is nothing"
(p. 292).
In short,it may be possible fora Leninist partyto become a socialist

party,but not if it is simultaneouslycompetingwith one thatalready has
an established political base and profile.It is this that perhaps explains
why the PUWP stood firmfor so long in the face of mass opposition
while the Hungarian party,confrontedwith the demands of a few thousand intellectuals,conceded virtuallyeverything.12
In part reflectingthe fact that the situationin Hungary has evolved
fromthat in neighboringPoland, Ivan Szelenyi's fascinating
differently
studyof small-scaleagricultural"entrepreneurship"in Hungary takes a
very differentapproach to analyzing the sources of currentchanges in
"actually existing" socialism. Where Lewis concentrateson the "high
politics" of the Polish crisisand the watershedcharacterof the past decade, Szelenyi explores "a silentrevolution,"structuralchange frombelow .... being carried out by the everydaypracticesof Hungarian semiproletarians"(p. 22), and stressesincrementalsocial change and historical
continuity.
is importantforitsempiricalfindings
Szelenyi'sSocialistEntrepreneurs
and rigorous methodology,but perhaps its theoreticalimplicationsare
what is most intriguing.First,in a socialistanalogue to the work done
by Sabel and Piore on capitalisteconomies,13 Szelenyi argues that there
It is importantto noteherethatsuccessin becominga socialistpartyin termsof internal
organizationand programmaticcommitmentsis by no means equivalentto achievingelectoral victoryas one. In fact,the "new" Hungarian SocialistPartyis likelyto be forcedinto
opposition,followingthe springtimeparliamentaryelections,forseveral reasons: (i) If the
reemergenceof the Hungarian Socialist Workers' Partyon its leftin late i989 has had the
benefitof giving some credibilityto the HSP's claim to be in the center,it has also meant
thatthe latter'scontrolof ex-HSWP organizationalresourcesis subjectto challengeat preciselythe momentit needs to mobilize these resourcesforthe election.(2) It is difficultto
imagine an electorallysuccessfulsocialistpartyanywherewithouta workingclass constituency at its core, no matterhow eclecticand moderateits programmay be. Yet one of the
peculiaritiesof the currentpolitical climate in Hungary is the illegitimacyof attemptsto
mobilize voterson the basis of class-particularly fora partyseekingto disassociateitselfin
voters'minds fromitscommunistpast. (3) Finally,althoughthe HSP is campaigningagainst
communismas hard as everyother partyis, the politicalhistoryof its leaders makes that
claim sorhewhatunconvincing.Equally important,it makes the HSP uniquelyunacceptable
as a coalitionpartnerto its rivalsand hence unlikelyto be included in a futuregovernment.
'3 See Charles Sabel and Michael Piore, The Second Industrial
Divide (New York: Basic
Books,
i984).

571
is no unilinear or inevitable trend to proletarianizationin the modern

economy,even when it is governedbya highlybureaucratizedallocation
mechanism. On the contrary,he suggests,it is preciselythe hegemonic
position of hierarchicand monopolisticstructuresthat create opportunities for individuals to escape from them via self-employment.These
opportunitiesare not equally or even equitably distributed;the bulk of
Szelenyi's studyis devoted to explainingwho takes advantage of them.
Nevertheless, incomplete proletarianizationindicates how people can
manage "to live their lives basically the way they wanted to anyway,
regardlessof what theirrulerswant" (p. 22), and even thatpeasants "can
teach theirmastersa lesson."'4
Second, Szelenyi quite correctlyrejects interpretationsof Western
Marxists who would characterizesuch pettycommodityproduction as
"creepingcapitalism."On the contrary,Szelenyi pointsto the many synergies and complementaritiesthatderive frommixinga small-scale private sector with a large-scale state sector,suggestingthat the performance and survival of each benefitsfrom the presence of the other.
Economically, the state sector shelterssmall-scale agriculturefrom the
rigorsof open competitionwhile partlysubsidizing its inputs and labor
costs.In return,the second economyimpartsa degree of flexibility
to the
both
it
state sector,
by furnishing with goods in short supply and by
allowing it to economize on labor costs throughthe provisionof an additionalsource of earnings(and, in the case of peasant workers,housing)
forless strategicand less skilled employees.
The small-scaleprivatesectordoes not signifyverymuch of a political
challenge to the monopoly of the Hungarian Socialist Workers' Party
(HSWP) either.Rather,it is created by individual "exit" fromthe state
sector(and even then,only afterworking hours in many cases), in contrastwith the kind of collective"voice" Solidaritysought to articulate.
Indeed, one of the main differencesbetween Szelenyi's rural entrepreneurs and the classic bourgeoisie is the former'sapparent lack of civic/
politicalinvolvement.At most,theywould limitthe reach of statepower
ratherthan aspire to controlit or to take responsibility
forits exercise.
orderresultingfromrural"embourgeoiseMoreover,the stratification
ment" does not challenge the dominantsocial structurearisingfromadcoordination. Rather, it complementsthat strucministrative-political
ture: the cadre's "hobby farm" with its lawn and vineyard can
comfortably,if not aesthetically,coexist with the peasant's "square
Towarda
'4See Szelenyi'sfollow-up
piece,"EasternEuropein an EpochofTransition:
SocialistMixedEconomy?"in David Starkand VictorNee, eds.,Remaking
the Economic
Institutions
ofSocialism:Chinaand EasternEurope (Stanford,CA: StanfordUniversityPress,
i989), 208-33,
at 222.

572
WORLD POLITICS
house" and minifarmwith its pigs and vegetable garden. The game is
thus a positive,not a zero-sum one; although an additional avenue of
social mobilitymay lead to nothing but a systemwith "two masters
ratherthan one" (p. 2i8), even thatwould createa possibilityforsubordinates to play offone against the other.
Finally, Szelenyi concludes,thispeculiar mix of statismand small enterprisecould constitutea genuine "Third Road": a substantialdeviation
fromSoviet-typestatesocialism,but also somethingthatis a farcryfrom
Western capitalism.In effect,it suggestsan alternativemodel of socialism, a "socialist mixed economy" made possible to the degree Eastern
Europe returnsto "its own organic evolutionarypath" afterthe fortyyear detour forcedon it by the Soviet Union.
Szelenyi's careful analysis,with its stresson domestic particularities
and the possibilityof creatingunorthodoxmixturesthat defyeasy categorization into one or anotherof the great "isms," is a refreshingrelief
fromBrzezinski's view, which considersany evolution away from Stalinism to be a symptomof imminentdisintegration.Indeed, precisely
because Szelenyi's predictionsare so contingenton the one hand, and so
deeply rooted in local conditions on the other,one runs some risk of
doing violence to the integrityof his study by including it in an essay
devoted to a concept that,in Szelenyi's view, is too abstractand general
to capture the realityit is supposed to enlighten.Where the outsiderssee
a crisis in socialism, the insidersexperiencemerely a domesticationof
externallyimposed structures;the categories(socialism,capitalism,Leninism, democracy) may come and go, but Eastern (or Central) Europe,
with its long accumulationof historicalexperiences,remains,and retains
its own identity.
Yet, even a volume that was breathtakinglyradical when it appeared
in I988 seemed, by the summer of i989, to be extraordinarilyconservative. The main reason, of course, is that no one-including the direct
participants-could have anticipatedhow rapidlythe political situation
in Hungary would change: a mere twelvemonthsafterJanos Kaidairwas
replaced as General Secretaryof the HSWP, discussionshad begun over
when (and not whether)competitiveelectionswould be held.
Nevertheless,such developmentsdid not so much arise out of "structural change frombelow" as fromincreasinglyopen conflictsamong political actors above, suggestingthat Szelenyi's emphasis on the spontaneous and grass-rootsquality of "silent revolution" may be somewhat
one-sided and, indeed, is not entirelysupportedby the evidence he himselfpresents.In fact,the changes Szelenyi describesin the economic operationof familyfarmsdo not appear to be veryspontaneousat all. They

573
reflect,instead, the entirelyrational responsesof peasants to an opportunitystructurecreatedthrougha seriesof changingagriculturalpolicies

enacted by the regime.What differentiates
the various life-history
trajectoriesSzelenyi so carefullydocumentsis not simplytheparticularchoices
made by individualsat different
times,but alternatingconstraintson the
choices that individuals were able to make-constraints laid down by
agriculturalpolicy,investmentdecisions,pricingarrangements,marketing facilities,hiringpracticesin the statesector,and the like. These constraintswere determinedfromabove and followed no unilinear course
of liberalizationin responseto peasants' preferencesforincreasedautonomy.'5Likewise, the theoriesSzelenyi testsand rejectsin favorof "interrupted embourgeoisement"seem not to be theoriesso much as projections of what would happen if policies in effectat the time the theories
were proposed remained in force;it is not the theoriesthat are rightor
wrong,but the policies thathave changed. Meanwhile, it is preciselythe
importanceof the "supply side" of governmentpolicies forthe "demand
side" of grass-rootspreferencesand "everydaypractices" that accounts
forthe factthat the "re-emergenceof familyentrepreneurshipseems to
be limited in Eastern Europe to Hungary" (p. 23), whereas resistanceto
collectivizationwas virtuallya universalphenomenonin the region.
If the problem were solelyone of emphasis,it would not be veryserious, and we could simply discount claims of "people-living-the-wayas minor exaggerations
they-always-wanted-regardless-of-their-rulers"
permittedby poetic license. The less sanguine resultof viewing the silent revolution from below" as the primarydynamic factor in social
change is its corollary:to see policymakers' preferencesas uniformand
static,and their intentionsand actions as irrelevant.In effect,the elite
labors with the constantand single-mindedobjectiveof reproducingand
expanding the sphere of bureaucraticdomination in which it is master,
while the restof us discoverin our own inherentlypluralisticvarietyof
ways that "life begins after working hours anyway" (p. 217). Consequently,the state sector,basking in the warm glow of political and bureaucratic favoritism,can continue willy-nillyto reproduce itselfwith
perhapsa few minormodifications,and the primaryimpactof economic
reformswill continue to be feltin the sphere where "society" can take
advantage of them thatis, the privateand small cooperativesectors.
Such a scenario would indeed describe a socialist mixed economy
whose socialistcontentis guaranteed by the dominant economic role of
the bureaucraticallycoordinatedstatesectorand the continued rule of a
'5The impactof governmentpolicieson privateentrepreneurship
is carefullyoutlined in
Kalman Rupp, The Red Entrepreneurs
(Albany: State Universityof New York Press, I983).

574
WORLD
POLITICS
perhaps somewhat more benevolentand legally restrainedcommunist

party.It is thus a scenario based on the persistentstrengthof the state
sector and the absence of change among political elites,who may continue to accommodate change from below, but have not and will not
initiateit. In effect,the socialistmixed economy so describedlooks very
much like the Soviet NEP in a more advanced economic setting:a mellower but unmistakablyBolshevik-mindedleadership retainscontrolof
the "commanding heights,"which are now no longer isolated in a handful of urban centersand surroundedby a sea of hostilepeasants. Instead,
the partiallycontrolledstatefirmsnow employ the bulk of the population, but toleratean ever increasingnumber of islands devoted to complementaryformsof pettycommodityproduction.It is not a particularly
liberal or democratic,or even an emancipatory,form of socialism, as
Szelenyi is the firstto point out; it would, however,in his eyes,represent
a possible and even probable formin view of the peculiar developmental
historyof Eastern Europe, and of Hungary in particular.
Nevertheless,the assumptioncentralto this vision-that of a monolithicand staticrulingclass presidingover a pluralisticand evolving society-was not reallyaccurate in Hungary even prior to the i98os, and
certainlynot by the springof i989.16 Significantly,
pressuresforpolitical
pluralismand competitiveelectionswere not,forthe most part,initiated
by socialistentrepreneursin Hungary; even where therewas no love lost
between them and communism on the ideological plane, congenial understandingswere oftenworked out between the local elitesand the entrepreneurson the practicallevel. Instead,proposalsforinstitutionalized
political competitionoriginated within the alleged ruling class itself:
while even the "Social Compact" proposed by a leading dissidentpragmatically retained an institutionalposition for the HSWP,'7 the draft
constitutiondrawn up by the Ministerof Justicelimiteditselfto a purely
procedural set of prescriptions,with no explicitmentionof any political
partyor socioeconomicorder.
Divisions within the Hungarian partyover the pacing, extent,and
contentof economic reformmeasuresare nothingnew; althoughcurrent
events are hardly business as usual, they do not constitutea complete
break with past practices.'8As we know, thereis nothinglike competi.6 See Ellen Comisso and Paul Marer, "The Economics and Politicsof Reformin Hungary,"International
Organization40 (Spring I986), 42I-54; also Comisso, "Introduction:State
Structures,Political Processes,and CollectiveChoice in CMEA States,"InternationalOrganization40 (Spring I986), I95-238.
'7 See JanosKis, "Tdrsadalmi Szerzodds" [Social compact],samizdat ms., I986.
.8 Ivan Berend,"Continuityand Changes of Industrialization
in Hungary afterthe Turn
of I956-7," Acta Oeconomica27, nos. 3-4 (i98i), 22I-5I; Ldszl6 Antal, "Historical Develop-

575
tion for enlarging the size of the market; just as economic competition
lowers the cost of commodities,politicalcompetitionmay be expected to
reduce the cost of political involvement.In fact,the secular trend even
in highly oligarchic polities-from Kaidair'sHungary to Brezhnev's
USSR-was to widen the circle of political consultation,with experts,
bureaucracies,territorialofficials,and the like being deployed as political
resourcesamong rivals.'9
In this context,the increasinglysharp distributionalconsequences of
economic reformin the countrywith the highestper capita debt in Eastern Europe rapidly came to have an extraordinarilydivisive impact
withinthe partyitself,such thatitsleaders began castingabout forwider
constituenciesto supporttheirown solutions.The imminentdeparture
of Kaidairmeant that by i988 potentialsuccessorswere willing to take
biggerrisksin view of the prize at stake.Moreover,Soviet neutralityvisa-vis a replacementmeant that, to the degree the strategicvalue and
availabilityof supportgeneratedabroad had declined,the importanceof
attractingdomestic political resourcesand support had increased. The
consequence, of course,was thatbroad groups previouslyexcluded from
politicallife suddenly found themselvesacquiring real strategicvalue.20
mentof the Hungarian Systemof Economic Controland Management,"ibid.,25i-67; LMszl6
Acta QecoSzamuely, "The FirstWave of the MechanismDebate in Hungary (1954-I957),"
nomica29, nos. I-2 (I982), I-24.
19See JerryHough and Merle Fainsod, How theSovietUnionis Ruled (Cambridge: HarRevolution(Princevard UniversityPress, i989); JadwigaStaniszkis,Poland'sSelf-Limiting
in EasternEurope:
Gdbor Revesz, Perestroika
ton: PrincetonUniversityPress, I984), I50-7I;
1945-1988 (Boulder,CO: WestviewPress, i989).
Hungary'sEconomicTransformation,
The dynamicsof the political opening outside Hungary and Poland were somewhat
different
and, with the exceptionof Romania, were cases of "externalpush" ratherthan of
"domesticpull." That is, in East Germany,Czechoslovakia,and Bulgaria,the economic situation was not nearlyso seriousas in heavilyindebtedHungary and Poland; economic reformwas on the agenda only to the degree the Soviet Union had been able to put it there.
Nor was the top leadershipof the communistpartiesin those statesseriouslydivided about
of liberalization.Consequently,ifa splitin the elitewas to come, it had to
the undesirability
be engineeredfromoutside,and it was herethatMikhail Gorbachevand theCPSU provided
the spark-whether by supporting(and possiblyeven encouragingand eliciting)the Hungariandecisionto allow East Germansto crosstheborderintoAustria,by (one mustassume)
denyinghard-linersin the DDR access to the kind of forcea "Chinese solution"mighthave
required,or by reprimandingthe Czech partyfor its intransigenceto the point where its
thatstartedtheoppositionball rollingand, once
leaderspermittedthe studentdemonstration
it was in motion,by publishingSovietapologies forthe I968 invasion.The resultwas indeed
internalpartystrife,but it was less withinthe top leadershipthanbetweenit and lower-level
elitesbased in local partyorganizations.Thus, while thereis clearlyno denyingthe importanceof broad social forcesin sweepingaway theancien regime,one mustalso acknowledge
the role that forceswithinthe communistpartiesthemselvesplayed in elicitingand channelingthose pressures.Bulgaria was perhapsthe extremecase: there,the CommunistParty
literallyabandoned itsleading role beforetheoppositionrequestedit to do so. Even in Hungary,it can be argued that the militantreformistwing of the HSWP-with the implicit
supportof Moscow-did more to destroythe partythan did all the oppositiongroups together.
20

576
WORLD
POLITICS
Thus, the connectionbetween economic reformand politicalopening

does not appear to be a necessaryone: markets and private property
rightsrequire competitiveelectionsand universalsuffragefortheirefficient operation,as Brzezinski would have it. On the contrary,markets,
privateownership,and authoritarianismhave oftencoexistedin the past,
and thereis no logical or institutionalreason why theycannot continue
to do so. As Szelenyi pointsout, the contentionthatonly "pure" systems
surviveand reproducethemselvesis empiricallyuntrue.2'
At the same time,the conjuncturaltie between economic reformand
political reformin Eastern Europe todayis undeniable. But, as indicated
in the discussionof the Hungarian case, the primarycause of thattie was
not societyin itspre-Yalta incarnation,but Hungary's politicaland social
evolution under fortyyearsof statesocialism.
Meanwhile, once one grantsthe existenceof a divided and changing
political leadership in Hungary (or anywhereelse, for that matter),the
implicationsfor the futurestatusof the state sectorof the economy are
not necessarilythose envisioned in the socialistmixed economy model
outlined above. That is, the proverbialstrengthand domination of the
state sectorturnsout to depend as much on politicalconsensusabout its
role and importanceas on its economic contributions.In Hungary, that
consensus eroded as rapidly as the willingnessand abilityof leaders to
furnishit with inputsforexpansion (and often,even forits restructuring
or rationalization).
In this regard,Szelenyi is entirelycorrectin insistingthatthe kind of
familyenterpriseshe describesin agriculturedo not and cannot constitutea replacementforthe socialistsector.Not onlyare theyno "breeding
ground forcapitalism,"but the pettycommodityproductionof the second economyhas not been a major threatto the economic viabilityof the
first.Instead, the most profoundattackson the socialistsectorin Hungary have come fromwithinthe socialist/communist
politicalelite itself,
as an increasinglywide segment of it became convinced that socialist
propertyforms,as traditionallydefined,were simplyinappropriateto a
modern economy. Accordingly,whereas ownershipreformin the early
i980s meant the each-to-his-own-sector
approach of the socialistmixed
economydescribedabove, ownershipreformin I989 entailed puttingup
a significantportionof stateassets forsale to privatebidders-that is, a
pluralizationof propertyformswithinthe statesectoritself.
It may,however,be correctto say thatonce a rulingLeninistpartyabandons itsleading
role, a centrallyplanned economycannot be maintained.Such a propositionneed not assume-as does Brzezinski-that authoritarianism
is limitedto Leninistforms,nor thateconomic alternativesare limitedto centralplanningand freeenterprise.
21

577
The resultwill not necessarilybe the apocalypticvision of a "pluralisticand freeenterprisedemocracy"thatBrzezinski predicts,but it could
well be a mixed economynested withina relativelycompetitivepolitical
order, not very differentin its basic economic and political lines from
France, Italy, Finland, or Austria. Such an outcome might well be peculiarly Hungarian, Polish, or East/CentralEuropean; what about it
would be distinctively
socialist,however,remainselusive. Or is it simply,
as Mario Nuti queries, that Harold Wilson was the ne plus ultra of socialistachievement?22
CRISIS OF SOCIALISM?
Like most studentsof communistpolitics,Lewis, Szelenyi, and even

Judtin the French context,tend, with considerable justification,to see
the causes of politicaland economic liberalizationas being domestic/internal in origin. Nevertheless,a glimpse around the world in I989 suggests that what we seem to be witnessingin the socialistcases is actually
a part of a much wider global phenomenon. From the price of bread
being decontrolledin France forthe firsttime since the French Revolution to the selling offof public assets to privateowners in areas as unrelated as Great Britain,Turkey, Mexico, and Bangladesh, the popularity
of markets and private ownership has clearly become an international
movement.
We have very littlesense, however,why marketsand private enterpriseare suddenlythe universalsolution(althoughwe can be quite skeptical about that)when but a few yearsago theywere widelyconstruedas
the universalproblem. Surelyit is not enough to attributesuch a change
in the zeitgeistpurely to the efficiencyadvantages of markets.For one
is desirable,so are a whole hostof othervalues, and it
thing,if efficiency
is difficultto understand why those values have lost their preeminent
position in the public eye. For another,the level of efficiencyachieved
throughmarketsrestsheavilyon how competitivetheyare; as observers
fromAdam Smith to JosephSchumpeterhave noted, barriersto entry
can arise throughthe operationof marketsas well as in contraventionto
them. If the perfectmarket is about as utopian as the classless society,
why has the formerso fullycaptured the public imaginationto the detrimentof the latter?
Zbigniew Brzezinski, with an impressivetalentforleaping historical
22 Nuti, "Perestroika:The Economicsof TransitionbetweenCentralPlanningand Market
Socialism,"paper presentedat the 7th Panel meetingof EconomicPolicy,London, April 2i22, I988, p. 28.

578
WORLD
POLITICS
controversiesand even factsin a single bound, finds the answer to be

self-evident:spurred by "the political and socioeconomic failure of the
Soviet system"(p. i), the world has simplycome to its senses. Historically, he argues, the appeal of Marxism was always based on "a grand
oversimplificationof what can be achieved throughdirect political action" (p. 3). Its emphasis "on political action to promote a redemptive
'revolution,'and on all-embracingstate control to achieve a rationally
planned just society"(p. 2) was a primaryfactorin usheringin "the centuryof the State."
The result was not only the spread of communism,but "even more
importantwas the indirectspread of the essence of the communistidea.
Over the past fourdecades, almost everywherethe inclinationto relyon
state action to cope with economic or social ills had become quite prevalent ... even in highlydemocraticsocieties.. ." (p. 9).
Fortunately,however,communisms
of the
could notencompassall thecomplexities
grandoversimplification
advanced society's social structure.The structuredid not correspond to

Marx's antiquated view of the centralityof the industrialproletariat.Nor
could the doctrine provide any meaningfulguide for social policies that
had to assimilate ... ultra-scienceand high tech. Moreover,the perversion
of Marxism by . .. Lenin and Stalin reduced the doctrineto a sterilejustificationfor arbitraryand dictatorialpower. ... In the West ... communism could not withstandthe exposure of its manifestirrelevanceto modernity... (p. 20i).
In the East, states are rushing to experimentwith reformsthat, in

Brzezinski's eyes,are "tantamountto a repudiationof theentireMarxistLeninist experience"(p. i2). Underlyingsuch action is a trulyworldwide
rejectionof the fundamentalphilosophicalpremisesof communism: the
"Grand Failure" has taught us, at enormous human cost, to abandon
absolutism forrelativism,dogma foropinion, exaltationof the State for
respect for the individual, and collectivism for personal initiative."Ultimately,communism'sfailureis thus intellectual"(p. 242).
It is relativelyeasy to caricatureBrzezinski (in his own words,no less);
stripped of its rhetoric,however, his message is not all that dissimilar
fromthe far more nuanced and carefulconclusionsarrived at by Judt.
Both see the fateof the Left-communist and socialistalike-as closely
connected with Marxism and thus,forbetteror forworse, with the establishedorders that professto be based on Marxistprinciples.Both see
the declining appeal of Marxism as essentiallyintellectualin character:
itspropositionsabout capitalism,theworkingclass,thenatureof conflict,
and the desirable social order are anachronismsincapable of being sal-

579
vaged by even the most erudite disciples. The differenceis simple: for
Brzezinski, the rise of pragmatismrepresentsthe solution; for Judt,it
representsthe problem.
Raymond Vernon's edited volume, The PromiseofPrivatization,takes
a much crasserview of the changingbalance between public and private
enterprisein the internationaleconomy,suggestingthat its origins lie
more in simple economic exigencythanin complex philosophicalconsiderations.In this regard,the cases examined in thisvolume-Britain, the
Philippines,Venezuela, Brazil, Turkey, sub-Saharan Africa,and the oil
industry-are a dramatic reminder that communist countries had no
monopoly on economic difficultiesin the i98os. In addition, Vernon's
excellentintroductoryessay provides importantinsightsinto why what
is billed as economic pragmatismseems to take the same form everywhere, despite widely differing levels of development, political
traditions,demographic composition,trade patternsand factorendowments-in short,despite all the variationsthatwould normallylead one
to expect trulypragmaticpolicy makers to pursue highlydifferentiated
approaches to economic development.
Here, the common denominatorprecedingvirtuallyall the privatization effortscovered in the volume (to which we could add those of Poland,-Hungary,and Yugoslavia) is shortand simple: governmentdebt,a
large proportionof it caused by the borrowing in which state-owned
enterprisesengaged in the 1970S. That is not a coincidence:governments
thathad thegreatestamount of controlover thedomesticeconomywere,
preciselyforthat reason, consideredhighlycreditworthya decade or so
ago. But risinginterestrates and slow growth in the early i98os meant
that "the financialresourcesof the public sector dried up at the same
time that the private sector in many countriesfound itselfin a much
easier cash position." According,"the acute needs forcash on the public
side suggested an obvious solution: to sell salable public assets to the
privatesector" (Vernon, 5).
The debt-drivencharacterof the privatizationprocess can be illustratedby contrastingthe case studies of the Philippines (Stephan Haggard) and Brazil (Ethan Kapstein) with those of Venezuela (JanetKelly
de Escobar) and Turkey (Roger Leeds). The Philippinesand Brazil were
both plagued by heavy foreignindebtednessand criticalbalance-of-payments problemsin the mid-ig8os. In both countries,stateholdings consistednot only of enterprisesexplicitlycreated by governmentsfor purposes of economic development,but also of assetsacquired in the course
of rescuingfailingprivatefirms.In this context,attemptsto sell offthe
latterwere a rationalresponseto the liquiditycrisis.

580
WORLD
POLITICS
The debt problemsof Venezuela and Turkey proved to be more manageable (or at least appeared to be at the time these studies were completed); nationalizationsby defaultconstituteda less prominentportion
of the government'sportfolio.Not only were there fewer clear candidates fordivestiture,but therewas also substantiallyless economic pressure to cover governmentdeficitsthrough sales. Consequently, while
both statestook major steps to enlarge the scope of the market and expose stateand privatefirmsalike to greatercompetition,liberalizationof
the economic order had, as of i987, not been accompanied by a substantial degree of privatization.Even in Turkey, where pure ideological
commitmentto privatizingstatefirmswas much more pronounced than
in Brazil, "seven years afterthe militarygovernmentdesignated Ozal
the nation's authorityon economic policy,and four years afterhe was
elected prime ministerin his own right,no major state-ownedenterprise
had been privatized" (Leeds in Vernon, 174).23
By itself,thisaccount of the factorsleading to privatizationprograms

looks much less like "communism'sgrand failure"than like a theoryof
the conspiracyof internationalfinancecapital. Such a theorywould look
as follows: having encouraged governmentsto expand the state sector
beyond theircapacitiesto supportit,the forcesof internationalfinancial
capital then precipitateda global recession in order to pick up newly
created assets at bargain basement prices in areas of the globe to which
they had previouslybeen denied access. Accordingly,it is no accident
that the technocratsengineeringthe asset sales are, for the most part,
trained in American and Britishuniversities.It would thus follow that
the new intellectualhegemonyof marketsand privateenterpriseis neither a sign of pragmatismor of theirintrinsicsuperiority,but merelya
manifestationof the power of internationalcapitalism,while arguments
for "human rights"are littlemore than a cloak for a platformwhose
fundamentalconcernis with "propertyrights."Thus, what we are witnessing is not the emergence of a new world order based on freedom,
democracy,prosperity,and all thoseothervalues we prize so highly,but
rathera new stage in the age-old strugglebetweenthe richand the poor;
its predominantcharacteristicis a major redistributionof income-domestic and international-in favor of the rich. One must mention this
vulgar Marxistthesisin a respectablesocial science journal because there
is a remarkable amount of evidence that can be marshaled to support
such a Grand Oversimplification.
Althoughwe lack the grounds fordis23Analogously, plans to sell stateassets to privateinvestorsare much less pronounced in
Czechoslovakia, East Germany,Bulgaria, and even Romania-states where debt levels remain manageable (forhow long,of course,is an open question).

581
missing it, there are several factsthat suggest that,in its pure form,it
overstatesits own case.
First,to the degree thatany good conspiracyrequiresa conspiratorial
group, one would want to look at how seriouslythose archetypalagents
of financecapital,theWorld Bank and the InternationalMonetaryFund
(IMF), are peddling privatization.Here, Don Babai's contributionreveals, "whatever the Bank's and IMF's public musingsabout the advantages of minimalistgovernment,their agendas for state-owned enterprises do not support the conclusion that theyare helping to roll back
the frontiersof the state" (Babai in Vernon, 255). Although the Bank's
reportselaboratelydocument the weak economic performanceof stateowned firmsin developing countries,theydo not imply that it intends
to make privatizationa centerpieceof its lending activities.Instead, "the
preponderanceof prescriptionssuggestedby the Bank in its statements
on state-ownedenterprisesfocuson internalreform,ratherthan on measuressuch as divestitureor liquidation.... The Bank places itsdominant
emphasis on rehabilitation"(pp. 265-66).
For its part,the IMF may insiston balanced budgets,but its officials
have soughtto debunkthewidelyheld notionthatdivestiture
will autoon thegovernment's
maticallyproducea benigneffect
budgetary
position.
At stakeis theconsideration
thatwhilein theshortrunassetsalesindeed
... theymaydo so at theexpenseof worsalleviateliquidityconstraints
eningitsdeficitin thefuture(Babai in Vernon,276).
Second, Vernon and his contributorsstress that the breadth of the
privatizationwave is by no means matched by a correspondingdepth:
the few actual sales that have taken place have revealed a network of
economic,technical,and politicalobstacles.Even in Great Britain,where
such obstaclesare considerablyreduced,and where Mrs. Thatcher's determinationto create a nation of privatestockholdersis unflagging,new
EEC rules barring governmentsfrom writing off loans to their own
companies are likelyto slow down themostaggressiveprivatizationprogram of all. In the Philippines,the clear tie betweenearlierstatebailouts
of privatefirmsand Marcos-eracorruptionmay in principlehave created
a broad constituencyin favorof divestiture,but in practice,the financial
chaos Marcos created in public and privatesectorsalike has meant that
"the effortto recover crony wealth has involved the governmentin a
programthatis sequesteringprivateassetsfasterthan the public ones are
being privatized" (Haggard in Vernon, i i8).
The technical,economic, and political obstacles to privatizationthat
are common in statesthat have never considered themselves"socialist"
are likelyto be even more pronouncedin Eastern Europe, where meth-

582
WORLD
POLITICS
ods to evaluate the book value-let alone the market value-of stateowned assetsmust be inventedafterfortyyearsof state-controlledprices.
And Kapstein's observationsabout Brazil are entirelyapplicable to contemporaryPoland: "... privatizationpolicy was developed during bad
times economically; but ... successfulpolicy execution require[s] good
times"(Kapsteinin Vernon,133).
Sales of public enterprisesto foreignbuyers-literally the only entities

with the capital resourcesable to make such purchases in the East European context-are likely to be no less controversialin Hungary than
the politicallymost potentobjections to
in Latin America. Significantly,
the communist government's recent sale of a controlling interest in
Tungsram to an Austrian Bank (and subsequentlyto General Electric)
were raised not by the hard-linerMUnnichFerenc Tarsasag, but by the
populist Hungarian Democratic Forum. Moreover,a recentproposal in
Hungary to sell offpart of a shipyardby its director(simultaneouslythe
districtpartysecretary)was stronglyopposed by the firm'snewly created
workers' council, elected in I986 in accordance with legislation passed
forthe purposeof making enterprisesmore independentof the industrial
ministry.This is comparable to the situation in Brazil, where similar
attempted sales were "hampered by the relative independence of the
state-ownedcompanies" (Kapstein in Vernon, 131). In short,even if Szelenyi overestimatedthe political and economic strengthof the state sector, his prediction that a mixed economy was more likely to evolve
throughan expansion of an artificially
represseddomesticprivatesector
than througha wholesale dismantlingof the statesectorremainsvalid.24
Finally and most importantly,while the thesisof the machinationsof
internationalcapital correctlydraws attentionto the push that international creditorsgave to overexpansionof the state sector,it completely
ignores the "pull" factorin the debt crisis: namely,the weak economic
performanceof state-ownedfirmsin capitalistand socialiststatesalike.
In fact,the economic power of financecapital is not a sufficientexplanation forthe economic weakness and deterioratingcapital-outputratios
of socialized enterprises.In thesocialistcases, it was not Hungarian creditorswho allocated investmentin the i970s in a manner inverselycorreand directlyrelatedto enterprisesize;25
lated with enterpriseprofitability
it was the Hungarian government.It was not ManufacturersHanover
See Szelenyi (fn. 14)See Maria Csanadin6, "A vdllalatnagysig,a j6vedelmez6seg,es a preferenci6knehany
and special govbetweenenterprisesize, profitability,
6sszefuggese[Some interdependencies
ernmentpreferences],
Pinzugy Szemle 23 (February 1970), 105-21; Andrea D1ak, "On the
Possibilityof EnterpriseDecisions on Investment,"EasternEuropeanEconomics14 (Winter
24
25
1975-76),
14-2-5.

583
Trust that amalgamated enterprisesin Poland to a size where neither

the marketnor the partywas able to controlor monitortheiroperations;
And the idea of constructingan enit was the Gierek administration.26
ergy-intensivealuminum refineryin 1974 (!) to supply employmentin
an area that turned out to have inadequate supplies of bauxite did not
originate in the City of London but in the cityof Zagreb (Lydall, 84).
Thus, even if financecapital provided the rope, someone else had to act
as hangman.
the argumentforsocialism (or socialization,as the case
Significantly,
may be) was never as simple as Brzezinski maintains.Far fromexalting
the state in order to crush the individual, the argument advanced by
Marx was that,by replacingprivatecontrolof economic structureswith
democraticand collectivecontrol,the sphereof individualchoices would
widen.27Public ownershipwas neveran end in itself,but simplya means,
based on the assumption that the protectionof private propertyrights
would ultimately conflictwith effectiveguarantees to other human
rights,and even withcontinuedeconomicgrowthitself.28As a result,not
only would socialism correctthe distributionalconsequences of capitalism ("under which the laborer lives merely to increase capital")29by
making personal income solelya returnto labor (the proverbial"distribution according to work"), but it would accomplish this adjustment
throughan extensionof society'sproductionpossibilitiesfrontier.The
new system,in Branko Horvat's words, would thus not only be classless-it would also be more efficient.30
Although empirical support for the economic side of the argument
does exist,the experienceof the past two decades is not encouraging.As
Vernon notes (p. 4), if "the simple stereotypeof the public enterpriseas
a perennial wastrel" is doubtful,"the evidence that state-ownedenterprises contributedheavilyto the cash deficitsof governmentsin the late
The causes are multiple;they
and i98os has been incontrovertible."
1970s
and Technocratic
Power (Cambridge: CamSee JeanWoodall, The SocialistCorporation
bridge UniversityPress, I982); Mario Nuti, "Large Corporationsand the Reformof Polish
Osteuropas7 (1977), 346-405; Nuti, "IndustrialEnterprises
Industry,"jahrbuchder Wirtschaft
in Poland, 1973-80: Economic Policies and Reforms,"in Ian Jeffries,
ed., The IndustrialEnin EasternEurope (New York: Praeger,i981), 39-62.
terprise
27 See David McClellan, ed., Karl Marx: SelectedWritings
(OxfordUniversityPress, 1977).
See also Oscar Wilde, "The Soul of Man Under Socialism," in Irving Howe, ed., Essential
WorksofSocialism(New Haven: Yale UniversityPress,1970), 41 I-28.
28 See Oskar Lange, "The Economist'sCase forSocialism" and "Marxian Economics and
Modern Economic Theory," in Howe (fn. 27), 699-736; Brus (fn. 5); Branko Horvat, The
PoliticalEconomyofSocialism(Armonk,NY: M.E. Sharpe, I982).
Karl Marx, "The CommunistManifesto,"in David McClellan, ed., Marxism:Essential
Writings
(New York: OxfordUniversityPress,i980), 33.
30 Horvat,An Essayon Yugoslav
Society(White Plains,NY: InternationalArtsand Sciences
Press,i969), 22.
26
29

584
WORLD
POLITICS
varyfromthe use of firmsas conduitsforsubsidiesto consumersand/or

employeesto poor choices of managerialpersonnelbecause of patronage,
fromoverregulationthatimpedes marketadaptation to underregulation
that facilitatescorruption.
In some cases, Vernon points out, the financialdrain is justifiableon
grounds of social utilityand positiveexternalities-for example, where
"an
statefirmswere charged with building up a modern infrastructure,
activitythatis, as a rule,highlycapital intensive"(p. 4). Even here,however,the positiveexternalitiescreatedin some cases may well be balanced
by the negativeexternalitiesin others,as ecological horrortales emanating out of the public sectorfromRocky Flats to Silesia suggest.In addition, the economic drain created by states' "productive" activitieshas
hampered the abilityof governmentsto fundneeded but "unproductive"
activities,such as health care, education, housing, and other social services.
Politically,too, the contributionof public ownershipto democratization inside or outside the workplace is highlyambiguous. Here, the key
variablesseem to be thenatureand objectivesof the regimethatexercises
the ownershipright,and not the ownershipsystemitself,as Marxisttheory would imply.Thus, in France, nationalized firmsprovided the core
membershipfor opposition-basedunions; in Brazil, state-ownedenterprisesallowed governmentunions to controlthe labor force.
Theoretically,two hypotheseswould explain theseoutcomes.The first
would place the blame on the allocation system within which stateowned firmsnormallyoperate.Applied to thesocialistcases, the problem
is rooted in central planning; applied to the developing and advanced
capitalist countries,the problem is the monopolistic position of state
is related to the
firms.In both cases, then, microeconomicinefficiency
absence of or insulationfrommarketforces,and particularlyto the absence of competition.
From thispoint of view, the antidoteis liberalizationof the economy,
not privatizationof propertyrights;indeed, advocates of thishypothesis
stressthe fact that there is no reason to expect that privatemonopolies
will be more efficientthan public ones. Liberalization thus entails dropping barriersto entry,be it by opening up domesticmarketsto foreign
competitorsor by pushing(or,in the socialistcases,simplyallowing) state
enterprisesto compete on internationalmarketsunder the same conditions as privatefirms(that is, withoutstate-specifiedsupply obligations
or domesticallyregulatedpricesand rationedaccess to foreigncurrency).
It also means that governmentsshould continue to create new stateowned firmsin the interestof stimulatingcompetition,but withoutguar-

585
anteeing them the eternal life that socialist firmshave had to date. In
short,with active entryand exit,marketsocialism is a viable and desirable option.
Such a hypothesisnecessarilyemphasizes the divorce between ownership and controlthat is said to characterizethe modern capitalistcorporation.The fateof enterpriseshere is said to reston the abilityof their
managements,and the main role of owners-be theyprivateindividuals
or governments-is (simplifying
onlyslightly)to sitback and collectdividends. The economic environment,not theownershipsystem,is the key
to performance;ifsocialistpoliticianswould simplysitback and let management manage (or, betteryet,let a management elected by and accountable to the enterpriseworkforcemanage), the publiclyowned firm
would economize just as rationallyas the privatelyowned enterprise
does, but withoutthe inequalities of income and political power generated under capitalism.
The alternativetheory,in contrast,is one that argues that ownership
formsand allocation systemsare systematically
as well as historicallyinterconnected,and thattheycannot be mixed and matched in an infinite
number of combinations.Or, as von Mises put it years ago, the choice,
comrades, "is still eitherSocialism or a market economy." Von Mises
explained at length:
of ... the"artificial
A fundamental
market"[is thatit rests]on
deficiency
the beliefthatthe marketforfactorsof productionis affectedonly by
It is notpossibleto eliminate
producersbuyingand sellingcommodities.
ofthesupplyofcapitalfromthecapitalfromsuchmarketstheinfluence
withoutdestroying
istsand thedemandforcapitalby theentrepreneurs,
themechanismitself.
thesocialistis likelyto proposethatthe soFaced withthisdifficulty,
cialiststate. .. simplydirectcapitaltothoseundertakings
thatpromisethe
highestrateof return.... But [then]thosemanagerswho wereless cauwould receivecapitalwhilemorecautiousand
tiousand moreoptimistic
morescepticalmanagerswould go away empty-handed.
Under Capitalism,the capitalistdecidesto whomhe will entrusthis own capital.The
beliefsof the managers ... are not in any way decisive.
... It is essentialto realize thatthe capitalistdoes not just investhis

whichofferhighinterest
or highprofit;he
capitalin thoseundertakings
ratherto balancebetweenhisdesireforprofit
and hisestimateof
attempts
If he does not,so thenhe
the riskof loss. He mustexerciseforesight.
suffers
losses... .3'
Harold Lydall applies von Mises' insightsto createan utterlydamning
3' Ludwig von Mises, "Economic Calculation in Socialism,"in M. Bornstein,
ed., ComparativeEconomicSystems,
3rd ed. (Homewood, IL: Irwin, 1974), i26, 125.

586
WORLD POLITICS
critique and explanation of the economic and political disasterthat has

come to be the hallmarkof Yugoslavia in the past decade. In thisrespect,
the differencesthathave separated postwar Yugoslavia fromits CMEA
counterpartssuggest that Yugoslavia is where the real tragedyof economic reformand socialism has unfolded.It is relativelyeasy to ascribe
economic problems and political discontentin Poland and Hungary to
the hierarchicalrigiditiesand authoritarianismof the Soviet-typecentrallyplanned economy; but when the far more open and market-oriented Yugoslav self-managementmodel falls victim to the same problems, one cannot help but suspectthatsocialism itselfmay be at fault.
In Hungary and Poland, communism was always an externallyimposed order; Yugoslav socialism,by contrast,was a home-grownvariant,
evolving much more in response to domesticproblemsthan in reaction
to Kremlin intrigues.Both politicallyand economically,the Yugoslav
model was distinctfrom the bureaucraticrigidityof Soviet-typestate
socialism as well as fromthe mass mobilizationsof Maoism. Politically,
it was based on the principlethatpeoples of differentnationalitiescould
live within a single state,united by common political and economic institutionsratherthan by a uniformculturalheritage.If one of those institutionswas a single party,the justificationof its monopoly was not so
much thatof a unique claim to socialistwisdom, but simplyYugoslavia's
historyof internecinenational conflictswhich,it was feared,could easily
be ignitedagain under a multipartysystem.Moreover,themany conflicts
and debates within the League of Communists itself,togetherwith a
level of partydisciplinewithinit thatmade democraticcentralismseem
more of a slogan than a reality,signifiedthan thiswas hardlya partythat
was closed or unresponsiveto the social forcesit was leading.
Economically, the combinationof workers' self-managementin the
firms,"social" ownership,the use of market mechanismsfor allocation
purposes, and a commitmentto even out regional disparities in the
course of economic developmentwas an attractiveone. Hungary's New
Economic Mechanism (NEM) of i968 was a set of cautious modifications
designed to reconcileeconomizing at the microlevelwith centralcontrol
fromabove, and Poland's reformsremained stillborndespite numerous
pronouncementsto the contrary,but Yugoslavia's reformof the i96os
amounted to the abolitionof centralplanningaltogether.Poorly thought
out and erraticallyadministeredas theyappear in retrospect,these reformmeasures at the time were distinguishedby theirbroad range and
depth, which went well beyond any reformsundertaken by socialist
countries until the late ig8os.32
32
See, forexample,Deborah Milenkovitch,Plan and Marketin YugoslavEconomicThought

587
By i985, however, Yugoslavia had moved from being the country

other East European stateswould have liked to imitateto being an example of what they wished to avoid. It is temptingto argue that the
principleswere sound but the countrywas wrong (i.e., that it was too
underdeveloped,that regional disparatieswere too pronounced and national differencestoo profound); and it is easy to find evidence that localistic national claims were a criticalfactorin micro- and macro-economic mismanagement. Yet there are also plentiful indications that
barriersto labor and capital mobilitycreated by self-managementcontributedto regional disparities;in addition,many of the economic contradictionsLydall describesappear to be rooted in the economic system
itself,and as such, likelyto arise even in nationallyhomogeneous states
at higherlevels of development.Likewise, although the political system
was supposedly designed to ameliorate national antagonisms,its actual
operationhas made it virtuallyimpossibleto articulateinterestson other
than national lines. As Lydall pointsout, the argumentthata multiparty
systemwould produce ethnicanimositiesseems oddly out of place when
the League of Communists itselfhas become the primaryvehicle for
nationalistclaims (p. 234).
Alternatively,it could be argued that the principles behind the reforms of the i96os were basically correct,and that the real problems
began with the modificationsmade by the 1974 constitutionand the subsequent Law of Associated Labor.33In thisview, the autonomygranted
to the enterprisesin the i96os was erased by breakingtheminto divisions
that were then required to operate through "self-managementagreements" and "social compacts" whose effectwas to bring local political
elitesrightback intomanagementdecisions.The banking reformsof the
same era had similarconsequences forcapital allocation; both were combined with a campaign against "technocratic-managerialism"that removed many of the most competentmanagerial cadres fromtheirposts
and put politicallymore malleable personsin theirplace. Again, thereis
evidence to supportthisview: even as growthratesslowed in the i96os,
indicatorsimproved; theywere distinctlybetterthan the indiefficiency
cators that characterizedthe 1970s.34Further,the superiorperformance
(New Haven: Yale UniversityPress, 1971); Ellen Comisso, Workers'ControlUnderPlan and
Market(New Haven: Yale UniversityPress, 1979); JohnBurkett,The Effectsof Economic
Reformin Yugoslavia(Berkeley,CA: Instituteof InternationalStudies, I983); Saul Estrin,
EconomicTheoryand YugoslavPractice(Cambridge: Cambridge University
Self-management:
Press, I983).
33 See Ellen Comisso,"Self-Management
and Bargaining,"journalofComparative
Economics 4 (Junei980), I92-208; Laura Tyson, YugoslavEconomicPerformance
in the I970s (Berkeley,CA: Instituteof InternationalStudies,i98i).
34 See Alexander Bajt, "Efikasnostsamoupravnogprivredjivanja"[Efficiencyin a selfno. 147 (1977), 29-49.
managed economy],PrivrednakretanjaJugoslavije,

588
WORLD
POLITICS
of self-managementin Slovenia (as compared to, say, Croatia or Serbia)

may be attributableto the factthatthe "purges" of the 1970s in Slovenia
were, by and large, confinedto social science researchinstitutes,leaving
managementin the enterprisesrelativelyunscathed.35
Nevertheless,the factremainsthatmany of the changes introducedin
the 1970s were a reaction to economic problems that occurred in the
wake of the reformsof the i96os. The question, of course, is whether
while social ownerthese problemscould have been resolveddifferently
ship, self-management,and a decentralized one party-system
were retained. Lydall argues thattheycould not.
Although Lydall concentrateshis fire on a so-called "all-pervasive
Party" (p. 3), his analysis reveals an economic systemso dependent on
politicalinterventionin the allocationprocessthatthe "freeelections"he
proposes as a solution(p. 23i) hardlypromisemuch of an improvement.
For example, ifleaders who are not subjectto replacementthroughelections are fearfulof the political consequences of implementinga policy
can one reasonablyexpectleaders who are
of macroeconomicrestriction,
subject to electoral ouster, and-most likely in the current circumstances-heading a minoritygovernment,to be much more determined?
The colorfulanecdotal evidence thatpunctuatesLydall's studyshows
plentyof examples of politicalleaders' barrelingtheirway into economic
decisions for reasons of narrow politicalinterestand ideological preference. That the consequences were economicallydisastrous,with losses
amounting to millions of dollars, is also incontrovertible.
Nevertheless,
to the degree Lydall exhortsus to judge Yugoslav socialism on the basis
of Agrokomerc and Smederevo, it is ratherlike asking us to judge the
American financialsystemon the basis of Texas savings and loan institutionsand the utilitiesindustryon the basis of Seabrook.
In this regard,the key question is whetherpoliticalelites unilaterally
and arbitrarilypreventedthe economyfromoperating(in which case the
solution is to throwthem out of office)or whetherthe economic system
itselfliterallypulled them into the allocation process even against their
will, much in the way that market failureshave led to governmentinterventionin Western economies.36If the latteris the case, political interventionmay have been as responsiblefordesirableeconomic outcomes
in Yugoslavia as it was forthe many irrationalitiesLydall describes.
Although Lydall seems to preferthe politicalarbitrarinesstheory,his
35Alexander Bajt, personalcommunicationto the author.See also Lydall, p.
I i2.
This thesisis elaboratedat lengthin Ellen Comisso, "Market Failures and Market Socialism: Economic Problemsof the Transition,"EasternEuropeanPoliticsand Societies2 (Fall
I988), 433-6536

589
analysissuggeststhatthe equivalent of marketfailureswas in facta major cause of the problem.Thus, he notesthe "conflictbetweenownership
and management rights... embedded in the foundationsof the Yugoslav systemof self-management"and explains:
Such a systemopens the door to conflictsof interest.For workers have
been told that it is theirright(and theirduty) to maximize the income of
theirenterprises,and hence theirown personal incomes. ... At the same
time, [they]are given a general responsibilityto maintain and increase the
equity of theirenterprise.There are, inevitably,many situationsin which
these two objectives ... conflict.Capital can be convertedinto income as
readilyas income can be added to capital (p. 77).
Consequently, he concludes, governmentalbodies literallymust intervene in investmentdecisions-whether byinformalunderstandingswith

social compactsand self-managementagreements,direct
management,37
commands, or whatever-in order to "prevent the erosion of capital
which such a systempermits"(p. 77). And, we might add, theywould
have to do so regardlessof which partycontrolsthe government.
The second problem to which Lydall draws attentionis the degree of
competitionlikely to arise in a self-managedsocialisteconomy. Again,
he pointsthe finger,not withoutjustification,
at politicalleaders' tendencies to create regional monopolies and then to protectthem at all costs.
Again, however,his economic analysissuggeststhat entryof new competitorsin an economyof labor-managedcooperativeswould be a serious
problemeven withoutthe erectionof politicalbarriers.
Lydall would solve the problem by allowing the private sector (domesticand foreign)to be a source of new competitorsto a much greater
extent than at present; it is true that dropping many of the arbitrary
restrictionson private activity,combined with suitable macroeconomic
policies, would indeed be helpful. Opening the economy to unlimited
privateenterpriseis not a particularlysocialistsolution; a socialistcompetitivemarket,in contrast,would require new entrantsto be generated
fromwithinthe socialistsectoritself.Hence, even if one can understand
why Yugoslav leaders rejectedthe firstoption,theirfailureto make virtually any provision for the second was a major factorin the excessive
concentrationthatmarked the postreformsocialistsector.
The reformsof the i96os were enacted with the expectationthat existingenterpriseswould found new ventures,thus taking up on an economic basis what local governmentshad been doing forpoliticalreasons
in the I950s. But although enterprisesdiversifiedtheirproduct lines to
37See Laura Tyson,"A PermanentIncome HypothesisfortheYugoslav Firm,"Economica
44 (November 1977), 393-408.

WORLD
590
POLITICS
enter new markets, "almost two-thirdsof Yugoslav sectors contained

fewerproducersin 1970 than in i964."38 Lydall (p. 75) attributesthis to
the propertyrightsstructureof the labor-managed economy (i.e., "that
all plants can, or must, become independentcooperatives,"greatlydiminishingincentivesto the risk-takingfounders)and to regional protectionism(p. 8i). If these were the only causes of the problem,theycould,
at least in principle,be correctedthroughpolicy changes that are perfectlyconsistentwith the theoryof self-managedsocialism.
But the high concentrationratesmay be due to causes quite independent of regional politicsand Yugoslavia's idiosyncraticownership structure. That is, theycan also be explained by the perfectlyrational reluctance of existingenterprisesto incur the transactioncosts of working
throughcompletelyindependentsuppliersor distributors;significantly,
existingfirmsrarelyfoundentirelynew ventureseven in capitalistcountries. If the dearth of new competitorsis due to the rational economic
behavior of existingenterprises,the sheer economic dynamicsof the socialist market economy do not sufficeto produce new entrants.Consequently,new firmsmust be initiatedpolitically-simply because thereis
no other mechanism for theircreation.The paradoxical result is "that
statismis the basic problem of Yugoslavia" (p. 98) because statismis simultaneouslythe basic solutionin Yugoslavia-that is,governmentalinterventionis required because market incentivesalone do not generate
In addition,if we bear in mind
competitionwithinthe socialistsector.39
the absence of economic mechanismsforentryto the socialistsector,the
resistanceof politicalelitesto exit is understandable:ifa local firmcloses
down, thereis literallynothingto take itsplace under currentconditions.
That brings us to the third,and most important,economic problem
that has been the source of extensivepolitical intervention-the failure,
despite fortyyears of continual experimentation,to create an adequate
economic mechanismforefficiently
allocatingcapital/investment
among
competing claimants. This problem is not unique to Yugoslavia: it appears to be endemic to all the socialiststates,extendingeven to the nationalized sectors of Western economies.40Unfortunately,Lydall does
not explicitlydiscussit at length,althoughhe suppliescountlessexamples
of how serious it is.
Lydall attributesthe failureto solve the problem to the narrow polit38
Estrin(fn.32),
91.
39See Comisso (fn.36), 445.
dilemmas
40 See, forexample, Yair Aharoni's discussion,in Vernon,p. 131, of investment
in Britishnationalized firms.The problemis also examined in Raymond Vernon and Yair
in Western
Economies(New York: St. Martin's Press,
Aharoni,eds., State-OwnedEnterprises
i98i).

591
ical and bureaucraticinterestsof partyleaders determinedto keep their

own white elephants afloat regardless of cost. But since even economists-who presumably have no such commitments-have not been
able to devise a satisfactory
set of institutionalarrangementsthat would
ensure an efficientallocation of publicly-ownedcapital compatible with
social ownershipof the means of production,one can hardlyberate politiciansforpreventingthe implementationof a solutionthatdid not exist.
As Marton Tardos has shown in an analysisof the Hungarian reforms
of I968, it was not a politicallymotivatedpreservationof "soft" budget
constraintsof socialistfirmsthat distortedinvestmentflows,but the reverse: the absence of a market for assessing the capital value of enterprises prevented the hardening of enterprisebudget constraints.4'The
same was true in Yugoslavia, where politicalinterventionin investment
processes was as much a responseto nonoptimaleconomic outcomes as
a cause of them.
The problem appears to be insoluble withoutthe creationof a capital
market; this conclusion has become fairlywidespread among East European economists in the past decade. How to create one, however,
within the constraintsprescribed by a socialist economy, is far from
clear.42The difficulty
can be statedas follows:If the essence of a market
in any good or serviceis the presenceof numerousbuyersand sellersand
the inabilityof any one of them to set the price, can a genuine capital
market exist in an economy in which (a) a single entity(the public, the
state,or society)owns all assets by definition;and (b) personal income is
a returnon labor, not property?
Various schemes have been advanced to square this particularcircle.
Yugoslav variants typicallycall for issuing equity shares to workers in
theirenterprises(Lydall, 98); a Hungarian proposal would set up a socialist stock exchange of institutionalinvestors.43
Although it is beyond
the scope of thisreviewand the technicalexpertiseof theauthor to assess
such proposals and their many variations,it is worth commentingon
theircommon denominators.
First, all proposals for a capital market reject as eitheroverstatedor
erroneousthe contentionthat ownershipand controlare divorced; they
41 See Marton Tardos, "The Conditionsof Developing a Regulated Market,"Acta Oeconomica36, no. I-2 (i986), 67-89.
42 Readers should bear in mind, of course, that the political constraint
of maintaininga
socialisteconomy,under which most of these schemes were originallyfloated,no longer
existsin mostcases. Nevertheless,the discussionretainsits theoreticalinterestand relevance
to the debate on the viabilityof marketsocialismoutlinedabove.
43See Marton Tardos, "PropertyRightsin Hungary,"paper presentedto the conference
on "Plan and/orMarket,"Institutfurdie Wissenschaften
vom Menschen,Vienna, December
15-I8, I988 (mimeo).

592
WORLD
POLITICS
point to the important"signaling"effectof risesand declines in the price

of equityon managerial performanceand enterprisedecisions.44Without
the rightto buy and sell shares in its own companies, the state is thus
deprived of a critical,nonadministrativemeans of controllingits own
management.Instead, it is forcedto relyon measures such as dismissals,
ornomenklatura
intervention,
bureaucratic
regulation,
screening-with
effects
on managerialinitiative
and efficiency.
predictable
Second,althoughsuchproposalsdo notdenythattheeconomicenviofmanagement
are criticalfortheperforronmentand thecompetence
mance of an enterprise,
theyalso arguethatneitheris a variablethat
ofthecapitalallocationprocessitself.For examoperatesindependently
may well
ple, openingup the domesticmarketto foreigncompetitors
prohave the salutaryeffectof improvingthe qualityof domestically
comesat the costof continual
duced goods; but,if thatimprovement
of
injectionsof state-subsidized
capital,anyincreasein theprofitability
theenterprise
maybe illusory.
to theeffect
Finally,all suchproposalsagreewithvonMises'assertion
thata rationalinvestment
processrequiresownerswho decideto whom
theywillentrusttheirown capitalon whateverbasistheychoose.What
is criticalhereis notthattheownersbe publicor private,butthatthey
be numerous,so thatinvestmentactivitywill reflecta varietyof riskpreferences able to utilize a varietyof financialinstrumentssuitable to a va-
riety
ofventures.
The stepis clearlya veryshortone fromthiscontention
ofa mixedeconomy.
to an argumentforthedesirability
to pluralizingthe state
Thus, even proposalsthatlimitthemselves
ownersuggestthatwhathas been traditionally
regardedas the prime
advantageofsocialism-thepublicmonopolyofinvestment-isactually
sourceof its difficulties.
the fundamental
Meanwhile,once one grants
in
the
owner
order
tocreatea competitive
theneed to pluralize state
and
diversified
battery
capitalmarketequippedwitha highlydifferentiated
offinancialinstruments,
therationaleforlimiting
theagentsable to raise
and/orprovidecapitalon thatmarketto entitieslicensedbythestateis
all proposalsfora capitalmarketwouldallow
unclear;in fact,virtually
and agenciesto
privateindividualsas well as government
enterprises
in it.We mightadd that,ifincreasedcapitalmobility
makes
participate
allocationofinvestment,
fora moreefficient
whyit shouldbe restricted
withinnationalboundaries-especiallywithina small country-becomesunclearas well.
44 See Michael Jensenand William Meckling,"Theory of the Firm: Managerial Behavior,
AgencyCosts, and OwnershipStructure,"in Louis Putterman,ed., The EconomicNatureof
theFirm (Cambridge: Cambridge UniversityPress,I986), 209-30.

593
For example, if Hungarian pension funds are to balance alternative

possibilitiesof risk against alternativepossibilitiesof gain, why should
theybe restrictedto the possibilitiesofferedby Hungarian firms?Why
not investin Poland? Or in France, forthatmatter?If assetsowned and
operated by the Polish governmentare worth more to an Italian firm
that can integratethem into its own operations,why not sell them? If a
Yugoslav company wishes to open up a market for its products in Vienna, why not raise the capital forthe venturein Austria?
In short,ifliberalization(thatis, loweringbarriersto entry)of domestic commoditymarkets requires liberalizationof domestic markets for
factorsof production,the same propositionpresumablyholds for international markets;to the degree a global securitiesmarketexists,Eastern
Europe ought to participatein it. Nevertheless,it is importantto note
that,although barriersto commodityflows have been reduced around
the world, political barriersto trade in assets and securityhave only
barely begun to be lowered even in the West. The development of an
internationalcapital marketat a level of sophisticationsimilarto thatof
domesticcapital marketscurrentlyoperatingwithinsome OECD states
is stillverymuch in its infancy,and thereare a vast number of obstacles
that would have to be overcome for it to reach adolescence, let alone
maturity.Moreover,to the degree thatvarious transactioncostsinvolved
on an internationalcapital marketare in many cases likelyto be significantlyhigherthan thoseon domesticmarkets,thephenomenonmay well
have its own inherentlimits.45Hence, the objective of this discussion is
to draw attentionnotto what is likelyto happen in the foreseeablefuture,
but simplyto the logic lyingbehind,and implied by,reformswhose explicitpurpose is to expand Eastern Europe's abilityto participatein the
internationaleconomy.
That logic (and recognitionof the logic of eventswithhindsightby no
means precludes that futureevents may follow a very differentlogic)
reveals a major reason why discussionsof socialism in individual countries-from Poland to Italy-seem so peculiarlyanachronisticin i990.
Public (or social) ownershipmay have made (and may stillmake) sense
in marketsthatare bounded by the statethatacts as owner, but its purported advantages in markets that are internationalin scope are more
questionable.In effect,state-ownedenterprisesthatare restrictedto rais45 A New YorkTimesreportdiscussingthe effects
ofglobal linkagesbetweennationalstock
exchangesrevealsthat"since i980, foreigntradingin United Statessecuritieshas increased
by i9 percentannually. ... Americanpurchasesof foreignequities have increasedby about
30 percentannually...." Nevertheless,internationaltrade in equity shares still remains a
relativelysmall proportionof totalequityexchanges.See "The Realitiesof 'Friday the i3th',"
New YorkTimes,October 22, i989.

594
WORLD
POLITICS
ing equity frompublic investorswithinnationalboundariesare deprived

of opportunitiesto raise capital at lower cost elsewhere,potentiallyputtingthem at a disadvantage with foreignor privatecompetitorswho are
not under similarconstraints.
Such a restrictionneed not be a problem where the enterprise'sdomestic market is a protectedone, since monopoly rentscan oftencover
highercapital costs.Nevertheless,if tariffand nontariffbarriersto entry
drop, such a situationmay well become the exceptionalone. Likewise, it
need not be a problem when the statein factsupplies capital at a lower
price than is available abroad. Typically,stateshave done so forpolitical
reasons, but we should not be blind to the fact that there are perfectly
reasonable economic justificationsfor such acts as well: since national
governmentsmay have greaterknowledge of local conditionsand entrepreneurialtalentsthan do distantinvestors,and since theremay be less
moral hazard involved in a government'sdecision to lend to its own
firms,such situationsmay arise relativelyfrequently.But again, in an
open economy,thereare real risksto overindulgingin thisformof governmentinvestment.As the earlyMitterrandyearsdemonstrated,extensive investmentin one's own enterprisesat a time when other statesare
deflatingtheireconomies can lead to a flood of importsand balance-ofpaymentsproblems.Hence, even argumentsforsocialismon thegrounds
thatstateinvestmentis needed "to filla possibleex-antegap between the
level of savings and the level of actual investmentactivity"46
may have
limitedapplicability.
In sum, if public ownership is, as socialist theoryhas traditionally
maintained, a necessaryrequirementfor democraticcontrolof the national economy,that rightwould have to be purchased in the contemporaryworld as the cost of forgoingmany of the benefitsderived from
participatingin the internationaleconomy.If my analysisis correct,the
prospectsof democraticsocialism are hardly much rosierthan those of
authoritarianLeninism.
CONCLUSION
The presentstudyof socialism,actual and potential,suggeststhat the

factorsunderlyingthe reformsin Eastern Europe are internationalas
much as national in character,economic as much as intellectual.Communism's "grand failure" is thus by no means socialism's great opportunity:the same economic opportunitystructurethat militatesin favor
46 Wlodzimierz Brus,"Evolutionof theCommunistEconomic System:Scope and
Limits,"
in Stark and Nee (fn. I4), 276.

595
of a mixed economy in Eastern Europe makes it difficultto envision

anythingmore "socialistic"than a mixed economyin Western Europe.
The implicationsforsocial democracyare not veryencouragingeither.
A democraticclass "compromise" is not verymuch of a compromise if
the vision that shapes it is illusoryand even undesirable: compromises,
by theirverynature,presume somethingis being given up; in turn,this
implies thatthereis more to be attained.If theyare the best one can get,
theyare easilyrolledback: movementsthatlack politicalmomentumare,
forthatveryreason,on the defensive,and thereforeinherentlyweak.
Likewise, a democratic"class" compromiseis only possible if classes
exist that can negotiate with each other. But, as political constructs,
classes are very much the creation of parties,and the centralityof the
"working class" on the Left has always been linked to the assumption
thatsome formof socialism-Marxist or generic-was possible (even in
an increasinglydistant future).47If it is not, the rationale for granting
workersand labor unions a privilegedstatusin one's constituencyis lacking; parties then have more of an incentiveto recruitvoters from all
strata of the population alike, and simply hire professionalorganizers
instead of relyingon the ideological dedication of militants.If, as Judt
argues (p. 298), "to be a socialisttodayis to ... be in favorof a generalized
moral projectwhich assetsitselfin consciousdefianceof capitalist(interest-related)premises,"it is hardlysurprisingthatthe PSF attractsvoters
not fromamong those who feel themselvesto be disadvantaged,but on
the basis of "'ideas and values' ... an altogethermore volatile affair,
liable to change in many ways,forall sortsof reasonsand in a veryshort
time" (p. 285).
Whether there can be a Left withoutan identifiableand stable constituencyto mobilize-and especiallywhen there "no longer exists any
very credible language in which to be 'Left'" (Judt,300; emphasis in
original)-raises additional questions about the "democratic" class compromise.Mass democracyis firstand foremostthe democracyof electoral
choice, in which politicalpartiesplay key roles in lowering information
costs forvotersand, equally important,gettingthem to the polls to start
with. The unidimensionalLeft-Rightspectrumwas an importantcomponent in this simplification/mobilization
process,as were partiesbased
on ascribed collectiveidentities(from worker to Catholic). But, to the
degree political space becomes multidimensionaland parties become
electoral-professionalcatchalls, "the voter becomes more independent
and autonomous, less controlledand blackmailed by the oligarchiesde47 See Adam Przeworski and JohnSprague, Paper Stones(Chicago: Chicago University
Press, i986).

596
WORLD
POLITICS
scribed by Michels. He also becomes, however,more isolated and puzzled."48The resultis not necessarilypoliticalinstability,but it may well
be politicalapathyand decliningturnout-to a pointat which the muchvaunted claim of modern polyarchiesto be governed by majorities becomes a ratherhollow one. Thus, Brzezinski's resounding declaration
that"democracy-and not communism-will dominate the twenty-first
century"(p. 258) may turnout to be premature.
At the same time,it is importantnot to exaggeratesuch possibilities.
Electoral volatilityin Western Europe is a relativelymarginal phenomenon; voters continue to perceive even the "new'' issues of the i98os
along a left-rightspectrum, as parties with respectively left-right
traditionshave marketed them along customarylines. And, although
labor unions have lost membersin Britain,France and, most notably,the
United States, theyappear to be holding theirown elsewhere. Even if
there is no intellectualrationale for workers' privilegedposition in the
socialist/socialdemocratic constituency,the pragmatic rationale for retainingthe loyaltyof a segmentof the electoratein which one has a great
comparativeorganizational advantage remains intact.And, if socialism
as an ownership systemmakes sense only in areas where nation-states
derive comparativeadvantages fromcontrolof the economy,it does not
follow that the concept is totallymeaningless.Indeed, if one considers
Marxism as a theoryof human capital, it can provide an altogetherappropriateguide to stateinvestmentin the future,as the changes in international economic linkages that limit the utilityof public ownership
make it clear thatthe real wealth of nationslies exactlywhere any good
socialistwould want it to lie: in thetalentsand abilitiesof the population.
48 Angelo Panebianco, Political Parties:Organization
and Power (Cambridge: Cambridge
UniversityPress, i989), 273.


Review by Ellen Comisso

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Review by Ellen Comisso

Uploaded by

Copyright:

Available Formats

Trustees of Princeton University

Crisis in Socialism or Crisis of Socialism?

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Madison: Universityof Wisconsin Press,

INan insightfulessaydealing withdemocratic"transitions"in Europe

and Latin America, Adam Przeworski concludes that "we cannot

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

tivearticulation,and the abilityto generatewidespread public supportat

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

anti-Enlightenmentsentimentwithin the terminologyof Locke and

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

On one level, East Europeans are not so much abandoning socialism

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

only question that needs to be addressed is the strictlyempirical one of

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

munism appears to be are quite relevantto Lewis's descriptionof events

7Certainly, the availabilityof Soviet supportforthe traditionalapparat in Poland in i98i

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

More profoundly,however, if the dilemma of "liberal" communists

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

In short,it may be possible fora Leninist partyto become a socialist

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

is no unilinear or inevitable trend to proletarianizationin the modern

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

reflect,instead, the entirelyrational responsesof peasants to an opportunitystructurecreatedthrougha seriesof changingagriculturalpolicies

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

perhaps somewhat more benevolentand legally restrainedcommunist

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Thus, the connectionbetween economic reformand politicalopening

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Like most studentsof communistpolitics,Lewis, Szelenyi, and even

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

controversiesand even factsin a single bound, finds the answer to be

advanced society's social structure.The structuredid not correspond to

In the East, states are rushing to experimentwith reformsthat, in

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

By itself,thisaccount of the factorsleading to privatizationprograms

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Sales of public enterprisesto foreignbuyers-literally the only entities

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Trust that amalgamated enterprisesin Poland to a size where neither

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

varyfromthe use of firmsas conduitsforsubsidiesto consumersand/or

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

... It is essentialto realize thatthe capitalistdoes not just investhis

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

critique and explanation of the economic and political disasterthat has

See, forexample,Deborah Milenkovitch,Plan and Marketin YugoslavEconomicThought

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

By i985, however, Yugoslavia had moved from being the country

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

of self-managementin Slovenia (as compared to, say, Croatia or Serbia)

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

Consequently, he concludes, governmentalbodies literallymust intervene in investmentdecisions-whether byinformalunderstandingswith

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

enter new markets, "almost two-thirdsof Yugoslav sectors contained

39See Comisso (fn.36), 445.

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM

ical and bureaucraticinterestsof partyleaders determinedto keep their

This content downloaded from 79.175.88.212 on Thu, 1 Aug 2013 01:08:05 AM