Post-communist Transition As a Critical Juncture: Political Origins of Institutional and Cultural Bifurcation
Abstract: Quarter of a century after market reforms, countries of the former Eastern Bloc exhibit vastly different economic and political institutions — from successful market democracies to autocracies with oligarchy-dominated economies. We trace these differences in institutional quality to the political environments at the time of reforms. Insulation of reformers from the society was considered instrumental to expediting unpopular transformations and protecting the reforms from populist backlash. However, the representation vacuum at the critical juncture of post-communist transition was filled by narrow interests, which established extractive institutions serving the elites, instead of inclusive institutions, which are in broad societal interests. Choices made at critical junctures were pivotal for subsequent institutional trajectories, and extractive and inclusive regimes sustained themselves over long periods of time. We use the number of political veto players in the early 1990s as a measure of plurality of post-communist transition, and show that it is a consistently strong predictor of the institutional quality over the next twenty-five years period. We also demonstrate that the same transition plurality measure explains cross-country differences in economic inequality across the post-communist world, and uneven social support of market and democracy, indicating ongoing “institutional learning”. In a placebo test where post-communist countries are replaced by the sample of Latin American and Caribbean nations, we find that the number of veto players in the early 1990s was either statistically insignificant, or, for some institutional indexes, negatively correlated with subsequent institutional performance.