Constructing Capitalisms: Transforming Business Systems in Central and Eastern Europe

361 Pages·2013·1.562 MB·English

by  Roderick Martin

CONSTRUCTING CAPITALISMS
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Constructing
Capitalisms
Transforming Business Systems
in Central and Eastern Europe
RODERICK MARTIN
1
3
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Preface
Our street in Budapest, Podmaniczky utca in the sixth, Terézváros district,
runsfromBajcsy-ZsilinszkyútintheWest,ontheedgeofthecentralfinancial
district, to Dózsa György út in the East—the boundary of the Budapest Zoo
andtheedgeofthecity’solderEasternsuburbs.Itisalongstreetrunningfor
most of its length alongside the railway, mainly of large, five-storey, late
nineteenth century apartment houses, built in the ‘eclectic’ style, some more
monumental(andmorestylish)thanothers.ThestreetsymbolizesBudapest’s
recenthistoryandpost-socialistexperience.Thewesternendretainsitslong-
established petit-bourgeois ambience, with houses divided between look-out
basement and ground floor shops and small businesses and upper floor
apartments, owned mainly by established Budapest families and a small
number of foreigners. The apartment houses, solidly built for the late nine-
teenth-centurybourgeoisie,survivedthebattleforBudapestattheendofthe
Second World War, division and reallocation during the socialist period, the
transferfrompublictoprivateownershipintheearly1990s,andtheproperty
redevelopment of the early twenty-first century. Despite proximity to the
newlybuiltBankingCentre,theheadquartersofseveralbanks,amajorrailway
station,andtheproposednationalgovernmentadministrationcentre,thearea
hasnotyetbeenthoroughlygentrified.Theeasternend,beyondTerézkörút,
which forms part of the inner city’s geographical and social boundary, com-
prisesthesamelargeapartmenthouses,butmorerundownandconvertedinto
student accommodation and backpacker hostels, mixed with new budget
hotels under construction. Recession has led to stress, but not to disintegra-
tion. The turnover in small shops has increased—florists appearing and
disappearing; artisan shops, travel agencies, and corner stores closing down;
sex shops opening and closing; and apartments remaining for sale for long
periods—atthewesternend,whilstthenewhotelsunderconstructionremain
unfinished at the eastern end. The projected national government adminis-
tration centre nearby was finally abandoned in 2008 and transformed into a
private office development, with ground floor shops—including a TESCO
Expressz—and bars opening recently. Such changes in the sixth district city-
scape reflect the wider changes taking place in the Hungarian economy and
society.
Hungaryhasbeenincorporatedintotheinternationalcommunity,inpolit-
icsandculture,aswellasinbusinessandeconomics.Politicalincorporationis
institutionalized in membership of the European Union (EU). International
culture is evident in the films shown in Hungarian cinemas, the pop stars
vi Preface
performing at the Papp László Aréna in Budapest, and the dubbed serials
shownonHungariantelevision.Yetthepoliticalandculturalincorporationis
farfromcomplete.Hungary’spastispresenteverywhere,asBobDent’s2009
studyofBudapeststatues,EveryStatueTellsaStory,illustrates.(Thepastdoes
not stand still. In March 2011, the mayor of Budapest announced that he
would review all statues in public places, to ensure that no enemies of
democracy were commemorated (HATC, 03.03.2011).) Hungary’s relations
with its neighbours Romania, Slovakia, and Ukraine remain centred on the
problems of ethnic Hungarians, separated from Hungary at the end of the
First World War. Culturally, a still vibrant Hungarian language theatre and
classicalmusictradition,aswellaspopulartraditionalfestivities,coexistwith
international popular culture. But the focus of this book is the Central- and
Eastern-European (CEE) economy, specifically the business system. As else-
where in the global economy, foreign capital inflows provided for rapid
increases in living standards during the economic expansion of the late
1990sandearly2000s,butledtomajorstressesduringthefollowingrecession,
withHungaryrequiringaUS$15.7billionInternationalMonetaryFund(IMF)
loaninNovember2008(NYT,2008).
Poland,theCzechRepublic,andRomania,aswellasHungary,experienced
similar processes of incorporation into the international community. In all
fourcountries,theinteractionbetweeninternationalincorporationandreten-
tion of national identity remained the dominant theme. As the following
chapters show in detail, after 1989 the four countries developed in different
ways. Poland was the first country to experience the ‘exceptional politics’ of
the breakdown of communist control, and the economic crises of Balcero-
wicz’s‘shocktherapy’andthetransitionrecession.AspartofCzechoslovakia,
the Czech Republic’s experience of the surprisingly swift and peaceful ‘velvet
revolution’ led to a gradual economic transformation, aiming to build a
national capitalism. The Romanian transformation proved more violent,
and less profound, in the short run, both politically and economically,
than the transformation elsewhere, and its incorporation into the EU more
controversial.
Constructing Capitalisms is not a travelogue; it is a work of social science.
Butitisinformedbytheexperienceoflivingandworkingformostofthelast
six years in Budapest, with teaching excursions to Bucharest. Budapest pro-
vides only a partial perspective on CEE. As the metropolitan centre of a
politically and culturally, as well as economically, highly centralized country,
with over ten times the population of the next largest city and the country’s
onlysignificantinternationalairport,itisverydifferentfromotherHungarian
cities. Moreover, Hungary, Poland, the Czech Republic, and Romania differ
in political history and economic interests, accentuated by competition
following the fall of communism. The experience of expatriate life working
in the internationalmilieu ofthe CentralEuropeanUniversity (CEU)is very
Preface vii
differentfromtheexperienceof‘ordinary’EasternEuropeans,withexpatriates
separated by language differences and insulated by higher incomes. But the
experience of extended expatriate living hopefully increases sensitivity in
interpreting the results of social science research, even if sometimes at the
expenseoffosteringprejudices.
TheexperienceofworkingwithcolleaguesfrombothCEEandtheWestin
the CEU Business School (BS) for four years, before joining the CEU Centre
forPolicyStudies,providedfurtherinsightintotransformation.Management
of CEU BS combined US and Hungarian styles. US management style was
evident in extensive formal structures and procedures for decision-making,
andrhetoricoftransparencyandparticipation,accompanyingtheUScurricu-
lum and informal classroom teaching practice. Alongside US management
vocabulary, Hungarian management style and practice was evident in a
preference for one-man management, top-down communication processes,
andarhetoricofgrouployaltyalliedtopronouncedindividualisminpractice.
Procedural formalism was combined with personalized decision-making.
InteractionwithpractisingHungarianmanagers,insideandoutsidetheclass-
room, provided additional insight into the experiences and perspectives of
youngerHungarianmanagers.
ConstructingCapitalismsresultsfromaninterestintheCEEregionstretch-
ing back to the mid-1980s, the period of reforming socialism. Since then,
I have been engaged in organizing and carrying out research in and on the
region, including developing the Economic and Social Research Council’s
(ESRC) East–West Research Initiative 1988–94, alongside research, teaching,
andadministrationinBritain.FollowingretirementfromSouthamptonatthe
endof2005,IbecameaprofessoratCEUBS.Theinterpretationsdevelopedin
this book reflect long experience, including discussions with hundreds of
managers taking management programmes, as well as academic research
andscholarship.Atthetimeofwriting,2010–12,massivechangesaretaking
place in capitalism in the West, as in CEE, undermining the confidence in
‘Western standards’ that characterized the early 1990s on both sides of the
former iron curtain. Analysing the construction of capitalisms in the four
countriesisamovingtargetintwoways—inthebusinesssystemsthemselves
andintheintellectualperspectivestointerpretthem.Businesssystemchanges
occurredmorerapidlythanchangesinintellectualparadigms.Muchacademic
researchwascarriedoutwiththeintellectualparadigmsofthe1990s,whenthe
fourcountriesreceivedwidespreadinternationalattention:the2000spresenta
differentagenda.Thebookseekstoreflectbothchangingeconomicconditions
andchangingacademicperspectives.
IamverygratefultotheLeverhulmeTrustforelectingmetoaLeverhulme
Emeritus Fellowship for 2009–11: without the Trust’s generous support, this
project would not have been completed, and perhaps not even begun. This
bookwaswrittenlargelyinBudapestandWinchester.InBudapest,Iamvery
viii Preface
grateful to the Center for Policy Studies at the Central European University,
for their hospitality in 2011–12, and especially to Dr Violetta Zentai, Dr
Andrew Cartwright, and Ms Lilla Jakobs for their warm welcome. David
Musson at Oxford University Press has piloted this book through the Press’
procedureswithhiscustomarycareandconsideration.
My majordebtis toAnamaria, as always,forher strong support, personal
nolessthaneditorial.
RoderickMartin
Contents
ListofTables xii
ListofAbbreviations xiv
Introduction 1
1. Roadstocapitalism:alternativeapproachesto
post-socialistcapitalisms 8
1.1 Introduction 8
1.2 Alternativemodelsofcapitalism 9
1.3 Neo-institutionaltheory 19
1.4 Post-socialistcapitalisms 25
1.5 Pathdependence 32
1.6 Conclusion 36
2. Poland,theCzechRepublic,Hungary,andRomania:political
andeconomiccontexts 38
2.1 Introduction 38
2.2 Politicalcontexts 40
2.2.1 Poland 45
2.2.2 TheCzechRepublic 47
2.2.3 Hungary 48
2.2.4 Romania 50
2.3 Economiccontexts 52
2.3.1 Economicperformance 52
2.3.2 Economicstructure 54
2.3.3 Employment 55
2.3.4 Unemployment 56
2.3.5 Incomeinequality 58
2.3.6 Education 59
2.3.7 Innovation 59
2.3.8 Thefinancialcrisis2008–11 61
2.4 Summaryandconclusion 63
3. Ownershiptransformation 66
3.1 Introduction 66
3.2 Changesinpropertyownershipregimesundersocialism 69
3.2.1 Stateandcollectiveownership 70
3.2.2 Privateownership 75
3.3 Transformingpropertyownershipregimes 79