Scholars have advanced three main arguments to explain why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others: (1) successful countries rapidly implemented neoliberal policies; (2) failures were not due to policies but to poor institutional environments; and (3) policies were counterproductive because they damaged the state.
This very interesting and impressive (open access) paper “Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries” presents a state-centered theory and empirically demonstrates for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance: mass privatization programs, where implemented, created a massive fiscal shock for post-communist governments, thereby undermining the development of private-sector governance institutions and severely exacerbating the transformational recession. Hamm, King and Stuckler performed cross-national panel regressions for a sample of 25 post-communist countries between 1990 and 2000 and found that mass privatization programs negatively affected economic growth, state capacity, and property rights protection. They further tested these findings with firm-level data from a representative survey of managers in 3,550 companies operating in 24 post-communist countries. Within countries that implemented mass-privatized programs, newly privatized firms were substantially less likely to engage in industrial restructuring but considerably more likely to use barter and accumulate tax arrears than their state-owned counterparts. This is a valuable contribution to economic sociology!