| I propose the theory of evolutionary state retrenchment as a contribution to two debates central to economic reform in Central and Eastern Europe (CEE). The first pertains to the kind of capitalism emerging in CEE and asks whether it is of one or of several varieties. The second concerns the means of creating liberal capitalism and the role of the managers, the labor unions, and the state. I use empirical puzzles in the steel sector of most different CEE countries: the Czech Republic, Poland, Romania, and Slovakia to pursue an alternative explanation, which I derive from process-tracing the evolution of the pattern of ownership and restructuring in these countries.;The theory accounts for the initial divergence in the type of emerging capitalism and for its eventual convergence. The process is evolutionary because the outcomes vindicate teleological arguments about the evolution towards liberal capitalism and because, in line with the insights of the "legacies" literature, they are rooted in the domestic political conditions, which shape the converging trajectories.;The argument is that the countries started the transition process with diverse structures of political competition, i.e., coalitions differing in their ideological proclivities, cohesion, and strength of political opposition. Acting under sectoral pressures, the coalitions balanced ideological goals with reelection concerns and with rent-seeking opportunities. The initial policy decisions resulted in politically-convenient partial reform, i.e., in privatization to domestic owners or in continued state ownership, neither of which ensured viability on world markets. Policy feedback, mediated by varying levels of state technocratic capacity, triggered different external pressures in these countries, creating convergence on ownership by strategic foreign investors. Counterintuitively, states with higher level of technocratic capacity retained partial reform outcomes longer.;In contribution to the second debate, I argue that strong, autonomous sectoral union organizations are conducive to effective restructuring. This cannot be said of managerial networks since the managers are prestige-maximizers, engaging in myopic restructuring strategies. Finally, the state has an irreplaceable role to play, but it is not the developmental state version, in part because the goal of economic development is achieved through active state preparation of its subsequent retrenchment. |
