Institutional Change, Innovation and Growth: What Can We Learn from Czech Losses and Polish Gains in the 1990s?

The seminar was conducted by Professor Gerald A. McDermott (Wharton School, University of Pennsylvania).

ABSTRACT

This talk is aimed at creating a practical discussion about political, social and economic change among academics, business persons, and policymakers.

A central debate about the transformation of post-communists countries is how the process of institution building impacts firm restructuring and creation. This debate has largely been dominated by an approach that argues that there is one right way of organizing economies and that governments must centralize power to implement the proper reforms. By 1994, The Czech Republic was the hero of this view, and Poland was the loser.

By the end of the 1990s, the opposite was clearly true. Polish manufacturing grew tremendously while Czech industry and banking virtually collapsed. Why? Basically because Poland helped (1) promote public and private restructuring experiments by (2) allowing a variety of public institutional actors at the national and sub-national levels to participate in restructuring.

This talk will discuss these issues in very practical terms as well as present an alternative analytical approach for the study of institutional and economic change. My "embedded politics" approach views firm and institutional creation as intertwined experiments to reorganize existing public- private relationships. In this view, Czech attempts to implant a depoliticized model of reform impeded the necessary reorganization the socio-political networks, in which firms are embedded. In contrast, Poland facilitated institutional experiments not only in the ways it promoted negotiated solutions to restructuring, but also in the ways it empowered sub-national governments. My talk utilizes data on manufacturing networks, privatization, bankruptcy, and regional government reforms collected over the past eight years.