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Frye Chapter3 - Oligarchs and Markets Chapter Three Chapter...

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Oligarchs and Markets 01/23/05 Chapter Three 1 Chapter 3 The Pace and Partialness of Economic Reform Why have some countries in the postcommunist region made great progress in economic reform, while others have not? Does progress in one area of economic reform impede or foster progress in other areas of economic reform? Why are social groups able to reap great benefits by subverting economic reform in some countries, but have much less success in others? These questions have been the subject of much debate in the postcommunist world, but many analyses focus on a relatively small number of years or countries, examine a limited number of reforms, or fail to account for the dynamics of reform. In the analyses that follow, I focus on the determinants of the level of economic reform across 25 postcommunist countries between 1990 and 2002. In addition, I examine the partialness of economic reform, that is, the extent to which different types of economic reforms have moved in lock step or been more “partial” (Murphy, Shleifer and Vishny 1992; Fischer, Sahay, and Veigh 1996; Hellman 1998; Sonin 2002; Hoff and Stiglitz 2002). Several results emerge from this analysis. Political polarization is associated with lower levels of economic reform. 1 In addition, it also associated with a particularly nefarious type of partial reform in which large industrial enterprises are privatized to powerful groups under conditions of weak corporate governance. Finally, political
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Oligarchs and Markets 01/23/05 Chapter Three 2 polarization is associated with great increases in income inequality, a possible indication that powerful groups have hijacked the reform process (Hellman 1998; Hoff and Stiglitz 2002). More specifically, the results indicate that the partisanship of the executive and political polarization interact to influence both the level and partialness of economic reform. In particular, political polarization hinders the attempts of liberal executives to pursue economic reforms. While liberal executives who meet little resistance from neocommunist parties pursue reforms with great pace, their counterparts in more polarized settings struggle to advance their preferred policies and often conduct partial reforms. As expected, neocommunist executives who face little opposition pursue little economic reform, as do neocommunist executives facing strident liberal opposition. Progress in liberalizing the economy depends not only who controls the executive, but also on the level of polarized opposition in the parliament. These results contribute to several debates on the politics of economic reform. They illustrate the importance of political constraints on the conduct of economic reform. Most importantly, where liberal executives hold power, they point to the political power of groups threatened by economic reform as a potent brake on economic liberalization.
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