Volume 9 Numbers 1/2

Winter/Spring 2000

 

Symposium on Postsocialist Pathways: Transforming Politics and Property in East Central Europe
By David Stark and Laszlo Bruszt
(Cambridge University Press, 1998)

Notes on Networking in Postcommunist Societies
Venelin I.Ganevt

The race to offer analytical frameworks that capture the peculiarities of the postcommunist period has enlivened academic writings on the former Soviet world. More often than not, the supply of explanatory schemes reflects well-known ideological biases. Marxists insist that postcommunism can be understood only in terms of the global expansion of capitalism and the cruel domination imposed by "unfet-tered commodification." Neoliberals routinely interpret scenarios of postcommunist development as the latest spin-off of a historically well-known drama: the clash between entrenched elites, on the one hand, privileged by an inefficient and unjust status quo, and, on the other, the productive forces of society, which stand to benefit from the rise of undistorted markets. Fortunately, every now and then some analytical innovation emerges. David Stark and Laszlo Bruszt's Postsocialist Pathways is nothing short of a radical recalibration of current perspectives on postcommunism. The authors aim to develop a new analytical framework for understanding the dynamic of multiple postcommunist restructurings, to suggest new strategies for comparing diverging trajec-tories of change in Eastern Europe, and to offer a set of normative prescriptions that should form the foundation of postcommunist democratic politics. But while they have undeniably made notable contributions to the study of postcommunism, their interpretations and conclu-sions suffer from serious shortcomings. Additional theoretical work and-more crucially-extensive empirical research is necessary if the heuristic potential of this project is to be fully realized. Network theory and the study of postcommunism The most intriguing claim defended in the book is that a "network perspective" will illuminate various unknown and exciting dimensions of postcommu-nism. The core assumption is that the dichotomy between markets and bureaucratic regulation does not exhaust the range of theoretically conceivable as well as observed relations between economic agents. A network-type relation may also be construed as an alternative medium of economic action. As a mecha-nism, networking is characterized by its distinct method of communication (not through prices or hierarchies but through personal relations); its mode of preference formation (neither independent, as in markets, nor dependent, as in bureaucracies, but inter-dependent); and its normative basis (grounded neither in contract nor in authority but in complementarity and mutual accommodation). By invoking the insights of network theory, Stark and Bruszt claim to have discovered a manner of analyzing transformative devel-opments in Eastern Europe that promises to shed light on an array of important questions. Specifically, the authors offer a novel interpreta-tion of the nature of the institutional legacy of state socialism, of the dynamic that has propelled organiza-tional changes after 1989, and of the dangers that may derail the process of economic recovery. Previously, in addressing these issues, most observers were likely to focus on the decayed economic structures left behind by bankrupt socialist regimes, the corrupt behavior of bureaucrats and managers of state-owned enterprises, and the destructive tactics of self-interested elites, which, by stalling much-needed reforms, have sought to preserve their privileges at the expense of society at large. This perspective is rather shallow and misleading, Stark and Bruszt aver. They assert that, from an alternate point of view, the same landscape may look dramatically different-the ostensibly failing institutional infrastructure, bequeathed by the disgraced communists, may emerge as a blessing in disguise. On the legacy of state socialism, the authors note that East European societies "have decades of experience with strong networks" that may easily be "restructured to perform efficiently and effectively." In fact, these networks are already engaged in "healing" many of the ills besetting postcommunist societies. The healthy potential hidden in inherited socioeco-nomic structures is "actualized" as multiple actors, linked by network-type bonds, cope with their everyday tasks. Actors blur the boundaries between public and private and reconcile conflicting claims over assets by inventing new types of property- "recombinant property." Freshly created organizational forms display an "organizational reflexivity and a social pragmatics" that allow networks to increase the "value of existing assets through their recombination." In other words, a hitherto undetected and yet fully oper-ative mechanism for coordinating economic activities is already in place in postcommunism. Consequently, the gravest danger threatening to disrupt this process of spontaneous self-healing in postcommunist economies is the misguided ambition of neoliberals to press forward with their reforms and impose new, market-oriented rules on the economic game. Unfortunately, the authors' attempt to turn their contentions into a theoretically compelling and empir-ically illuminating argument runs into problems. Both as an empirical claim and as a conceptual proposition the assertion that inherited networks necessarily play a positive role in postcommunism remains largely unsubstantiated. The book offers not a single example of "creation of value through recombination of assets" or of the positive effects of networking more generally. On the other hand, none of the evidence presented is either newly discovered or unexplored. In several relatively brief passages, the authors describe patterns of organizational change, namely, the emer-gence of cross-ownership and the formation of company satellites in Hungary. While they have certainly contributed to specifying the parameters of the phenomena they discuss, the phenomena them-selves have been the subject of extensive discussions in the literature on postcommunism. A cursory review of the relevant literature will yield ample evidence that the authors' upbeat interpretation is less than path-breaking. Virtually all others writing on the subject agree that networking is the strategy employed by nomenklatura cadres and privileged and self-interested managers who have exploited various strategic oppor-tunities to enrich themselves. Thus, for example, Erzsebet Szalai maintains that the transformation of state-owned enterprises' assets, which began several years prior to 1989, was driven by the desire of managers to engage in "spon-taneous privatization." This type of economic restructuring did not result in the creation of new resources. Rather, it allowed strategically positioned elites to derive enormous benefits from their transac-tions with other large companies and commercial banks while preventing all other strata of society from acquiring meaningful ownership rights. (See Erzsebet Szalai, "Integration of Special Interests in the Hungarian Economy: The Struggle Between Large Companies and the Party and State Bureaucracy," Journal of Comparative Economics 15 [1991], pp. 290-303.) Elemer Hankiss has observed that "managers . . . have been feverishly transforming their state companies into joint-stock companies . . . they act as quasi-owners, get exorbitantly high bonuses, buy shares in their own companies at low prices and may even lay the foundations of their own private business" (in his East European Alternatives [Oxford: Clarendon Press, 1990], p. 244). Others have made similarly pertinent points. Eva Vozska has shown that the reason behind the establish-ment of new "holdings"-one of the activities that Stark and Bruszt greet as a "recombining of resources"-is that the "concentration of all debts in the 'holding' is another method of easing the financial burden. If it goes bankrupt, its companies, having been formed without debts, may survive." These schemes allowed crafty cadres to siphon off assets and financial resources from the state and from their economic part-ners. (See Eva Vozska, "Centralization, Re-National-ization and Redistribution: Government's Role in Changing Hungary's Ownership Structure," in Strategic Choice and Path Dependency in Post-Socialism: Institutional Dynamics in the Transformation Process, ed. Klaus Nielsen, Jerzy Hausner, and Bob Jessop [Aldershot: Edward Elgar, 1995], p. 299.) And David Bartlett has demonstrated how new rules of ownership have allowed managers to reap private rents when fixed capital assets were transferred to subsidiaries and then sold off to foreign and domestic buyers, with the proceeds going into the pockets of managers (The Political Economy of Dual Transformations: Market Reform and Democratization in Hungary [Ann Arbor: The University of Michigan Press, 1997], p. 123). Stark and Bruszt's assumption that fuzzy property rights guarantee economic success is particularly striking. The first East European sociologist to analyze this phenomenon-Jadwiga Staniszkis-holds a diametrically opposed view. For her, the blurring of the boundaries between public and private is a process energized by "power and capital," not by the desire to "create new resources" or "negotiate over ambiguous assets." She considers the "dual-ownership status" of assets in the state sector-a term that anticipates Stark's "recombinant property"-as the key element of a strategy for transforming the "present political class into an economic class." The effect of this "dual status" is not the heightened "adaptability" of the economic system, however, but "increased predatori-ness." (See Jadwiga Staniszkis, The Dynamics of the Breakthrough in Eastern Europe [Berkeley: The University of California Press, 1991]). What sets Stark and Bruszt apart, then, is not their reliance on newly discovered facts but the unstated premise of their inquiry, that is, an assump-tion of managerial benevolence. Simply put, the authors assume that managers of state-owned enter-prises are fully satisfied with the gratification that the diligent performance of one's duties brings to honest workers and hence are not susceptible to the tempta-tions that accompany unchecked power. Perhaps the provenance of this assumption is to be found in Stark's earlier study of Hungarian "workers' partnerships" (VGMs). (See David Stark, "Coexisting Organizational Forms in Hungary's Emerging Mixed Economy," in Remaking the Economic Institutions of Socialism: China and Eastern Europe, ed. Victor Nee and David Stark [Stanford: Stanford University Press, 1989], pp. 137-68.) During the 1980s, these partner-ships, indeed, could be designated a progressive organizational form; even though they did not ensure the survival of the "socialist mixed economy," as Stark himself had predicted they would, these hybrid organizations did energize particular sectors of the economy. But the assumptions undergirding Stark's earlier project cannot be easily transplanted into a postcommunist context. It is worth remembering that the ultimate goal of the networks that clustered around the VGMs was to fulfill the state plan, not to compete on world markets. The challenges to which they responded were typical for a socialist, not a market-based, or even transitional, economy-short-ages; deadlines set by ministries; a rigid, socialist labor market. A network that made possible the rene-gotiation of plan assignments or the circumvention of central wage regulations is not necessarily a network that can sustain efficient production. But the most crucial difference is that, in the 1980s, managers were explicitly prohibited from establishing "workers' partnerships" (only workers were legally permitted to establish them). Managers and bureaucrats in post-communism enjoy a virtual monopoly over decisions regarding institutional changes and the creation of company satellites. Managerial benevolence, however Stark and Bruszt came to the idea, must be demonstrated not assumed. Countless studies from Eastern Europe have extensively documented the destructive role of corrupt managers of state-owned enterprises. Stark and Bruszt know that the very mention of the word "network" in postcommunist countries provokes suspicion and cynical remarks about the self-inter-ested shenanigans of powerful cadres. But they dismiss this attitude and attribute it to reading too much Adam Smith. The truth is, however, that the hostility toward networks is grounded in detailed empirical research and careful observations. Stark and Bruszt offer no compelling reason for rethinking this dominant attitude. In the absence of solid empirical data to substantiate their claims, the authors resort to deduc-tive reasoning. Even though the beneficial aspects of networking cannot be easily demonstrated, they seem to be arguing, such benefits can be inferred. from the analytical premises of network theory. The problem with this position is that it rests on a one-sided and narrow understanding of network theory. Network theory presents us with a more nuanced and cautious view on the potential effects of networking than the glorification offered by Stark and Bruszt. For example, Mark Granovetter argues that networking should be seen as a form of social mobilization. To the extent that networking creates propitious conditions for the emergence of novel forms of agency, it involves the "mobilization of resources for collective action" (in "Economic Institutions as Social Construction: A Framework for Analysis," Acta Sociologica 35 [1992], p. 6). In a postcommunist context, this means that the ascen-dance of networks will systematically benefit circles of cadres. Another aspect of networking is that it is an exclusionary arrangement. In particular social domains, some groups of individuals will engage in networking, while others will be denied access to the networks and will be excluded from this form of coordinated economic activity. In Walter Powell's words, "opportunities are foreclosed to newcomers, either internally or more subtly through such barriers as unwritten rules or informal codes of conduct" (in "Neither Market Nor Hierarchy: Network Forms of Organization," Research in Organizational Behavior 12 [1990], p. 305). Both the networks' mode of functioning and the distribution of benefits likely to accrue as a result of their activi-ties will be affected by the patterns of exclusion perpetuated through postcommunist networking. The creation of the new organizational forms that Stark and Bruszt discuss may be construed, possibly, as a manifestation of what DiMaggio and Powell call "coercive isomorphism." By this is meant the state of affairs that results from "both formal and informal pressures exerted on an organization," leading to the profusion of similar organizational forms as a result of "invitations to collusion" exchanged by powerful insiders. (See Paul DiMaggio and Walter Powell, "The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields," American Sociological Review 48 [1983], p. 150.) Likewise, where Stark and Bruszt hail the emergence of "recombinant property" as a sign of the increased adaptability of the economic system, a less enthusiastic observer may detect a form of "destructive entrepreneurship," one which thrives on "the discovery of . . . a legal gambit that is effective in directing rents to those who are first to exploit them." (See William J. Baumol, "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy 98 [1990], p. 897.) Network theory links networking to such ugly phenomena as the perpetuation of inequalities, concen-tration of profits, abuses of power, and chronic inefficiency. The theory corroborates rather than refutes the conventional wisdom about networks in postcom-munism, namely, that networking in the former socialist world is power-driven and nomenklatura-centered. In the future, the authors will have to address both the objections of those who study networking in postcommunism empirically and the theoretical objec-tions of those who argue that networking may generate "public bads" rather than "public goods." Their contention that dominant networks may be relied upon, in the restructuring of postcommunist economies, is like arguing that the network structures in which Al Capone operated could have been successfully used to enforce law and order in Chicago. The comparative dimension Stark and Bruszt advance two distinct comparative claims. First, they argue that variations in postcom-munist development are crucially determined by the ability (or inability) of economic and political agents to perform a specific operation described and defined as "recognizing the network properties of assets and liabilities" (hereafter, referred to as "recog-nition"). Second, postcommunist states are or will be more or less successful depending on whether they introduce a particular type of governance char-acterized by a constrained executive and a deliberative mode of policymaking. Both claims are problematic and leave the comparative dimension of the book somewhat underdeveloped. The recognition argument is rather straightfor-ward. Countries like the Czech Republic, where network properties are recognized, will perform better economically than countries like Hungary, where recognition did not occur. Unfortunately, the concept of recognition remains largely undefined. Even though the authors refer to it frequently (for example, in their definition of "deliberative associa-tions," p. 130), its exact meaning is left obscure. Only one example is given in the book-the decision of Klaus's government to "fund systematic research on interenterprise debt" (p. 155). The example is inter-esting, but can hardly make us forget the difference between specifying an event and defining a concept. What are the cognitive and institutional aspects of recognition? Is it oriented toward the creation of constitutive or regulative types of norms? What is the balance of substantive and procedural elements? In other words, is recognition defined in terms of the policy content of decisions reached through a variety of procedures or in terms of a particular procedure that may generate a variety of substantive decisions? Even if the concept were better defined, however, it is not immediately clear what significance Stark and Bruszt, in fact, attach to it. The argument that recognition matters a great deal squares uneasily with the authors' "path-dependent" approach. They assert that even though a sustained recognition effort was launched in the GDR, it failed because of the "weakness of preexisting social networks" (p. 141). Similarly, the difference between the Czech and Hungarian cases may be explained by invoking the authors' own argument that pre-1989 networks were tightly coupled at the enterprise level in Hungary and at a mesolevel in Czechoslovakia. In other words, the Czechs were more successful not because they recog-nized the properties of their networks but because they had better networks to begin with. One may add a third to these two objections: the authors never explain why recognition matters. How exactly would a country where network prop-erties were recognized differ from a country where this never occurred? What are the effects of recogni-tion? More concretely, in what sense was the Czech economy better off as a result of recognition? The evidence around which economic comparisons are usually structured (profitability, economic growth, and the like) cannot be-and in fact is not-invoked by Stark and Bruszt, because the criteria for economic success-the very basis for such compar-isons- are rooted in the neoliberal paradigm disparaged by the authors. They stress that money-losing enterprises should be allowed to continue with their creative experiments and that the diversity of profitable and nonprofitable organizational forms should be maintained regardless of the costs involved. At the same time, they never define their alternative yardstick for measuring the health of an economy. The trouble is that they do not specify the concrete ways in which recognition (as opposed to other factors, such as the growth of the private sector and foreign investment) provided a boost to the Czech economy during the period they examine. If the problem with the idea of recognition is a lack of evidence to substantiate an otherwise coherent argument, the problem with the notion of the "constrained executive" is one of copious but disparate evidence that cannot be compressed into a coherent claim. The broader view espoused by Stark and Bruszt is that constrained executives produce better policies than unrestrained ones. This comparison corroborates earlier findings by Joel Hellman, who established a correlation between the coherence of economic reforms and the structure of the executive branch (see his "Constitutions and Economic Reforms in Postcommunist Transitions," East European Constitutional Review 5, no. 1 [Winter 1996], pp. 46-56). Overall, Stark and Bruszt develop their argu-ment in a convincing manner, and their analysis of the role of constraints in democratic policymaking is illu-minating. But their claims regarding the sources of constraints on the executive lend themselves to multiple interpretations. On the one hand, they emphasize the role of institutional design-political institutions should be set up in such a way that mono-cratic executive decision making should be rendered impossible. In their account of the Czech success story, however, they accentuate the significance of other vari-ables, such as the pragmatic predisposition of Klaus or of elections that yield inconclusive results, thus compelling parties to form parliamentary coalitions. The former argument is a potentially generalizable statement about the sources of institutional restraint; the latter argument is a helpful reminder of the role of contingency in politics. Thus the authors' claims about the sources of restraint remain ambiguous. Should those willing to replicate the Czech success simply borrow the Czech constitutional model, or also ask Fortuna to send along many Klauses and make sure that parliaments are fragmented? The comparison between the executives in Hungary and the Czech Republic does not afford a good answer to this question. Writing about postcommunism: Is utopianism inevitable? Is it possible to write, with a normative purpose, about postcommunism without embracing utopianism? Theoretically, this may be possible; in practice, attempts to present normative blueprints for rejuve-nating democratic politics in Eastern Europe inevitably veer toward utopian theorizing. This is the impression created by the last chapter of the book, where Stark and Bruszt articulate their vision of "extended accountability" in postcommunism. Interestingly, they argue that this vision is somehow related to their empirical research. Rather than a flight of their imagination, the authors promise us a ride with the owl of Minerva. But this intention fades away as the authors proceed with their narrative. Simply put, the concept of "extended accountability" cannot be credibly presented as an analytical construct that somehow reflects actual practices in postcommu-nist states. The world envisioned by Stark and Bruszt is one governed by politicians who are "responsive and battle for continuing public support on an almost daily basis," motivated to "come up with diverse sets of 'proofs' of their ongoing creditworthiness," and "engaged in the producing of an ongoing account" of their behavior. It is populated by citizens fully equipped and prepared to perform "ongoing moni-toring" of elite behavior. It is dominated by "transformative politics," energized by "multiple leverage points throughout the political field," and undergirded by "binding agreements of extended deliberation" from which no one ever defects. It is hard to think of any society-postcommunist or otherwise-where conditions exist even remotely resembling the paradigm of "extended accountability." The absence of any indication of how "extended accountability" works-or may work-in postcom-munist conditions is striking. It is precisely at this juncture in the book where Stark and Bruszt should have been empirically grounded; in other words, they should have attempted to make manifest the relevance of their theorizing to postcommunist politics. In this context, it is worth noting that while the authors quote with approval the writings of Peter Evans, in fact, they depart radically from his model of presenting a normative vision. In the last chapter of Embedded Autonomy, Evans illustrates how the "embedded autonomy" he advocates actually functions in places like the Kerala region, in India, and Austria. There is no similar empirical referent attached to the concept of "extended accountability." Therefore, the claim that the normative ideas introduced by Stark and Bruszt are in some unspecified sense more "fitting" in a post-communist context than alternative "neoliberal" or "third-way" utopias is indefensible, or at least unde-fended. The promise to launch a nonutopian normative discourse on postcommunism is unfulfilled. Schumpeter, Aristotle, and Weber Stark and Bruszt should anticipate three kinds of objections to their project: Schumpeterian, Aristotelian, and Weberian. The Schumpeterian objection is that studying modes of entrepreneurship is more relevant to under-standing postcommunist transformations than specifying the properties of assets, fields, and types of relations. Since most structures in postcommunism resemble a magma rather than a sturdy scaffolding, identifying their "permanent features" is a shaky enterprise. Identifying groups of agents and their strategies, on the other hand, seems a more promising line of inquiry. A Schumpeterian perspective, more-over, is not irreconcilable with the insights of Stark and Bruszt. Schumpeter himself defined the entrepreneur as someone whose function is to carry out new combinations with existing resources. (See Joseph Schumpeter, The Theory of Economic Development [New York: Oxford University Press, 1961], p. 74.) But this perspective does entail paying more attention to individual-level variables, and, specifically, to the modes of employment of forms of capital, particularly social capital. A dialogue with Schumpeter, in fact, might help the authors cope with the difficult task of creating an analytical framework for understanding various issues related to structures and modes of agency in postcommunism. Once forms of entrepreneurship are analytically defined, then the Aristotelian task of distinguishing between the good and degenerate forms of networking, and entrepreneurship more generally, should be tackled. Since functionally similar patterns of action may have beneficial effects in one setting and a destructive impact in another, context-specific accounts should be favored over acontextual assertions regarding the inherently "good" character of certain types of activities. Constellations of factors that have a bearing upon networking should be studied and the implications of degenerate networking explored. Foremost among these factors, finally, are the distribution and effects of power. In a memorable passage, Weber argued that even seemingly innocuous institutionalized procedures bear the birthmarks of struggles that preceded their establishment, and he summarized in the following way his view of the rela-tion between organizational practices and political context: "Capital accounting presupposes the battle of man with man" (Max Weber, Economy and Society [Berkeley: The University of California Press, 1978], vol. I, p. 93; emphasis in the original). This insight seems to have eluded Stark and Bruszt. In a postcom-munist social milieu, which is still marked by the inequalities typical of one-party dictatorships, organi-zational forms will reflect the invisible structures of domination and control. Fixated on the behavior of democratically elected neoliberals, Stark and Bruszt seem to ignore the very existence of such structures. The network-centered perspective developed in Postsocialist Pathways overlooks significant insights about the meaning and importance of power. That is the main reason why this perspective fails to capture crucial dimensions of the processes and phenomena it purports to analyze. The commendable ambition of the authors is to defend a vision of postcommunist societies as democratic agoras bustling with the exuberance of productive and inspiring deliberations. Paradoxically, by drawing a veil of legitimacy over disconcerting practices, they wind up inadvertently endorsing the lesson of Thrasymachus: what the powerful do is necessary and justified.

Venelin Ganev is a contributing editor of the East European Constitutional Review. At present, he is a visiting fellow at the Helen Kellogg Institute of International Studies, the University of Notre Dame.

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