External Influences on Postcommunist Transformations: a review Essay

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External Influences on Postcommunist Transformations: A Review Essay*
*Please note that this essay was originally written as a review for World Politics, where it is now undergoing review. I am submitting it as background reading for my talk at the Syracuse meeting, which will further develop the idea of “minority traditions.”

-Thomas Carothers, Critical Mission: Essays on Democracy Promotion. (Washington DC: Carnegie, 2004). 299 pages.

-Judith Kelley, Ethnic Politics in Europe: The Power of Norms and Incentives. (Princeton: Princeton UP, 2004). 264 pages.
-James Hughes, Gwendolyn Sasse, and Claire Gordon, Europeanization and Regionalization in the EU’s Enlargement to Central and Eastern Europe: The Myth of Conditionality. (London: Palgrave, 2004). 248 pages.
-Randall Stone, Lending Credibility: The International Monetary Fund and the Post Communist Transition. (Princeton: Princeton UP, 2002). 304 pages.
-Janine Wedel, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe. Revised edition. (New York: St. Martin's, 2001). 304 pages.
-Ann Phillips, Power and Influence After the Cold War: Germany in East Central Europe. (Lanham MD: Rowman and Littlefield, 2000). 219 pages.

I. Introduction: Outsiders and Insiders

Fifteen years after the collapse of communist regimes, the time is ripe to reappraise the sources of institutional change in the postcommunist world. In particular, the books under review all consider what role outsiders, mostly from the United States or Western Europe, have played in encouraging postcommunist institutional change. The question has enormous relevance for political science theory and for policy debates about marketization and democratization. Moreover, given the sustained efforts of a variety of different kinds of outside actors, the postcommunist region is the ideal location to develop and test better explanations for external influences.

Early in the postcommunist transformation, social scientists focused almost exclusively on forces internal to the region. Yet this indigenous bias has now been augmented by a steadily growing interest in the external influences on the various political and economic transformations of the region.1 This literature describes a range of Western actions to promote change, though much of it still leaves unexplained how, if at all, the postcommunist states take up these Western policies. These problems are understandable. Much of this work was written too early to gauge whether policies adopted by postcommunist governments were also being implemented.2 Moreover, initial research was busy just cataloging the various modes of external influence and produced no clear consensus on a conceptual framework.3

In the past few years – in part due to the books reviewed here – such a framework is emerging, and it emphasizes the factors of external leverage and the attractiveness of external norms. Such externally-influenced reforms have occasionally been constitutional (e.g., electoral formulas or constitutional court designs), but more often they have prompted policy changes that sought to promote either better economic performance (e.g., privatization programs, fiscal controls, or tax laws) or better democracies (e.g., minority protection laws, rule of law programs, or better civilian control of the military).

  We presently lack a literature that can both explain external influences on institutions and connect these influences to broader debates in international relations and comparative politics. I argue here that a focus on external influences is a growth area for good conceptual work only if it addresses the union of foreign and domestic influences. Setting up external influences as an alternative explanation to domestic considerations is less promising for two reasons. First, empirically, these books show that external influences can almost never have any real purchase unless they are joined together with domestic influences.4 Second, conceptually, if we cast external influences as an exotic alternative form of policy change, we might produce ad hoc theories with no clear relationship to the broader literature, especially in comparative politics.5

International relations does have a heuristic in the diffusion concept that nominally includes both external and internal variables. In diffusion processes, the “prior adoption of a trait or practice in a population alters the probability of adoption for remaining non-adopters.”6 In general, this literature is far better at rejecting the null hypotheses – that the sources of institutional change are indigenous to each location – than it is in actually explaining how that change occurs or whether it leads to better outcomes. In particular, the approach gets much of its power from two assumptions: that institutions remain much the same as they spread from place to place and that that the key dependent variable is the elite decision to adopt (or not) a particular innovation. The first assumption blends out diversity and adaptation; the second blends out politics. These features are bred in the bone – they are so deep in the diffusion approach that it makes little sense to adapt it for the problem at hand.

To be sure, the diffusion approach is good at what it does. It demonstrates that the institutional choices of political units often affect the choices of their neighbors and peers. An excellent recent example is Simmons and Elkins (2004), which tracks the spread of liberal economic policies over the past thirty years. The authors note that their aim is to model the “major policy shifts” of a “wide range of countries around the world” (176). To do so, they use binary measures of dependent variables in the areas of current account, capital controls, and exchange rate mechanisms. But to have this broad coverage, the approach generally flies at far too high an altitude to help us see clearly how external influences work on the ground.7 Though they take significant steps beyond most diffusion literature in showing causal pathways – emphasizing in particular the way that policy diffusion alters payoffs for non-adopters – they end with a call for research that helps us see “how and why this takes place” (187).8

I argue that a necessary complement to diffusion studies is a “coalitional approach” to external influence. In this approach, outside actors strive to influence the choices of existing domestic actors with whom they can be seen to form a kind of informal coalition. In order to persuade or induce postcommunist reformers (PCRs) to undertake the reforms outsiders favor, outsiders must often seek to bolster minority traditions. Minority traditions are domestic movements, parties, or sub-sets of state officials who have pursued, but never achieved a particular institutional solution to an important political problem. For example, US advocates of a public single payer health care system and advocates of a privatized social security system both remain, as of this writing, minority traditions in the United States. Outsiders may be able to provide material or intellectual resources that allow such minorities to finally get their way. As will be clear, it matters greatly whether such minority traditions already occupy powerful positions inside the state, such as the Finance Ministry, or are buried deep in civil society.9

The coalition approach thus emphasizes how outsiders could help minorities gain power.10 But Westerners concerned with the staying power of reforms worry that PCRs may “backslide” after receiving inducements to modify their institutions or policies.11 Rather than merely subsidizing specific reforms, they may also try to strengthen like-minded reformers and thus increase the chance that the reforms will endure over time. The coalitional approach thus emphasizes that outsiders may lengthen PCRs’ time horizons such that they are willing to trade off short term benefits against longer term benefits that may flow from better policies. Alternatively, by providing a larger audience for PCR policies, connections to outsiders may underscore the normative value of reforms or threaten to “shame” PCRs who violate norms they had previously signed on to.12 In short, the coalitional approach is intuitive, explicitly political, and avoids the either-or approach to external influence noted above. All the books under review attend to these questions, though many do so implicitly. A central purpose of this review is to make explicit those linkages.
II. Three Modes of External Influence: Inspiration, Subsidy, and Substitution

There are a large number of ways in which the West could influence postcommunist transformations.13 In addition to the coalitional approach just introduced, I stress three other “modes” of help that Western outsiders have offered. I call these modes inspiration, subsidy, and substitution. Like the coalitional approach, I treat these modes as procedural – independent of the substantive goals external actors seek to achieve. As will become clear, outsiders often use several modes at once. At bottom, though, the partnerships in the coalition approach are potentially complementary to the inspiration and subsidy modes. The coalition approach is an alternative to substitution, which emerges on the evidence below as substantially less than a promising full-blown alternative to indigenous change.

The first mode of external help is “inspiration,” in which from outside to inside flow ideas about either the end state of particular institutional or policy reforms or ideas on how to execute such reforms. This is an age-old impetus for institutional change. According to Plato, “It is always right for one who dwells in a well-ordered state to go forth on a voyage of enquiry by land and sea so as to confirm thereby such of his native laws as are rightly enacted and to amend any that are deficient.”14 In this mode, external actors may self-consciously attempt to promote their own ideas to PCRs, or they may simply be passive exemplars that PCRs may choose to emulate.15 As is true of all the modes, ideas can function through either material or normative mechanisms; thus, by this reading, ideas can capture the potential for realizing more efficient strategies or specific normative goals. Each mode involves different policy tools. Common tools here include studies by national experts of foreign models or reports or visits by officials from IOs, Western states, or private foundations that express concern over prevailing practices and give explicit advice about desirable reforms.16

The second mode is “subsidy.” Subsidy covers a range of western efforts to provide support to PCRs for specific institutional reforms. Subsidies often come on condition that particular reforms are enacted, but in some cases there may be no explicit or implicit conditionality involved.17 While most subsidies are explicitly material, external actors can sometimes bestow less tangible but very real legitimacy benefits on insiders, as several authors demonstrate.18 Tools here include tranches of aid, access to markets, and various forms of technical assistance, but also expressions of approval that run from the merely hortatory to creating new partnerships with postcommunist states or granting them membership benefits in an IO.

A third mode, “substitution,” occurs when external actors promote specific reforms for which there is little constituency already in place. The coalitional approach followed in this review emphasizes the fact that this mode largely eschews linkages with minority traditions. But external actors are often tempted to try it, sometimes because no plausible minority traditions exist. By trying to substitute for the lack of like-minded insiders, external actors may provide favored reforms with more staying power than mere “paper changes” would have. The most aggressive form of substitution – military occupation – is uncommon. But we will see several examples of substitution in which outsiders seek to implement reforms directly but without compromising the formal sovereignty of postcommunist states. Tools used include those needed for the direct provision of services by Western organizations with no (or very little) indigenous cooperation: the physical presence of outsiders and their bureaucratic apparatus.

Though all the books under review take as a point of departure the efforts of Westerners to influence state structures and policies during the postcommunist transformations, they focus on different instruments (e.g. NGOs, IOs, and state-based programs).19 Sections 3-5 take up each of these instruments by looking specifically at their effects on postcommunist state structures and policies. The books chosen for review reflect the relative prominence of these different instruments. Thus, three books (Kelley, Stone, and Hughes et al) look at the effect of international organizations on the reform of state institutions because this topic has spawned a rapidly growing literature with a wide range of findings. Where Kelley looks at democratic reforms, Stone looks at macroeconomic reforms, and Hughes et al look at microeconomic reforms.

Fewer books cover bilateral efforts of Western states to shape the postcommunist transformation, but section four reviews two books that do. Both focus on USAID, but Carothers looks more at democracy building programs while Wedel focuses much more on promoting economic reform. Section five reviews literature on the efforts of private Western foundations to shape postcommunist states. Here, some of the most extensive efforts were made by German foundations, and Phillips’ book covers these efforts. Section six concludes with pragmatic dilemmas that challenge externally-situated reformers and with three challenges for future research.
III. Vetoes and Vehicles: IO External Influences

The central issue in this essay is the extent to which reform projects promoted by outsiders resonate (or not) with domestic interest groups or clusters of state actors. This theme is not formulated explicitly in all of the books under review, but it is always at least an implicit concern. Broadly, two perspectives stand out. First, domestic interests can play the role of veto players that block (or at least hinder) externally induced transformation plans. Second and much to the contrary, domestic interests could be vehicles for the promotion of externally induced changes. Rather than block externally-advocated reforms, domestic interests might actually sponsor them, which might, in turn, be enormously helpful in cases where initial designs required adjustment to new settings.

In Stone’s book, the coalition approach is central. Stone sees inflation control as the key task for PCRs, who often have short-term incentives to stimulate the economy or subsidize sectors even if they damage the country’s long-term fiscal health. According to Stone, the fear of inflation and currency collapse can sometimes sustain PCRs’ focus on macroeconomic reforms. But if those feedback mechanisms don’t work properly in a given country, the IMF sometimes can serve as a support or even a proxy for indigenous mechanisms (165). Stone shows that the IMF was able to act credibly against Poland and Bulgaria, but not against Russia and Ukraine, which had much more latitude since the Clinton Administration pushed the IMF to soften its conditions. Thus, the IMF’s own credibility problem stems from the proclivity of member states like the US to intervene and means that the degree to which the IMF can “lend credibility” to domestic actors in reforming countries varies widely from case to case (234).

Stone covers four cases in detail, and all the modes eventually come into play. In Poland and Bulgaria, the IMF did lend credibility because it functioned as the glue for fractious and weak governments. Though a number of the central Polish reform ideas came from Polish reformers themselves, others came from the IMF, as of course did critical tranches of aid, especially in 1991, 1993, and 1994.20 But in addition to inspiration and subsidies, informal coalitions were crucial. According to Stone, the “IMF bolstered the position of the [Polish] reformers” and helped them stay the reform course in the face of substantial domestic opposition (115).21 The Bulgarian case is broadly similar, but not until much later in the 1990s could the IMF use subsidies to bolster Bulgarian reformers and create another external-internal partnership (esp. 227-31).

In Russia, external assistance was much less effective. Stone describes Russia as the site of a brief (four-month) experiment with shock therapy but the site of a ruinous six-year bout of fiscal irresponsibility under successive Yeltsin governments. This irresponsibility was punctuated by the collapse of the ruble in 1998, which swept away the government and lowered Russian purchasing power by 46% between 1998 and 2000 (116). During this lost decade, the country also exported over $150 billion worth of badly needed capital, for which Stone does hold the IMF partially accountable. On balance, however, Stone calls the IMF advice to Russia “sound” and lays the blame for profligate spending at the doorstep of Russian politicians. The IMF constantly faced Russian backsliding on prior commitments and struggled within constraints of US policy to credibly insist that Russia meet its commitments. Only when Russia declined in importance to the US, was the IMF allowed to defend its conditions. By then, it was too little, too late. In a period when more than ideas were needed, US policies blunted IMF efforts to enforce agreements and meant that subsidies were swallowed up without making an appreciable long-term difference.

Ukraine is Stone’s disaster case. Noting that Ukraine became, for a time, the third largest recipient of US aid, Stone suggests that successive Ukrainian governments’ go-slow approach really meant no reform at all and economic misery for the Ukrainian people. As in Russia, external subsidies were easily pocketed without any real obligation to change Ukraine’s economic policies. The IMF explicitly tried to strengthen the hand of what, for it, was the most promising segment of the Ukrainian state, the Ministry of Finance (MoF). For years, the MoF struggled in vain to develop checks against the runaway spending of other ministries (196-99). But until the MoF made a partial breakthrough in 1998, Stone portrays the IMF as the only consistent voice of reason in Ukrainian politics – a position consistent with the substitution mode, albeit in a thoroughly ineffective way (208).

Stone’s book careful specifies the external-internal partnerships that lead to the variance just observed.22 Sometimes, the IMF was a substitute for an internal reform coalition (Ukraine), but usually it had to act in concert – to tip the balance – with internal forces with which it was in close contact (in Poland and Bulgaria, successfully; in Russia, unsuccessfully). More specifically, the Fund was sometimes able to stretch politician’s time horizons, making them more aware of and responsive to the long term interest in anti-inflationary policies, rather than exclusively the short-term pull of electoral constituencies (234). Stone’s single-minded focus on inflation control helps account for such well-contextualized insights into the possibilities of transnational coalitions, though he tends to ignore other areas where IMF policy advice was arguably less appropriate to postcommunist settings.23

Where Stone’s book focuses on economic reform, Kelley’s book on ethnic politics in Europe looks at the democratic side of the transformation. Her key concern is civil protection of ethnic minority rights. Like Stone, Kelley identifies IOs with the task of confronting politicians whose short term incentives may lead to populist policies that damage the country in the longer run. She looks at the universe of legislation on ethnic minorities from 1990-99 in Latvia, Estonia, Slovakia, and Romania (64 cases in total). Like Stone, Kelley uses formal theory, large-N regressions, and detailed case studies that justify her book-length approach. When compared to the IMF case, a major difference is that while the EU can supply inspiration, subsidies, and political backing to non-members, it ultimately reserves its strongest support for its own members. As CEE states began seeking membership, the EU gained significant leverage. Kelley shows that the Council of Europe (CE) and the Organization for Security and Cooperation in Europe (OSCE) both used fairly light membership criteria, but the EU was much more demanding and effective. Thus, even though the EU had remarkably thin precedents for intervening in minority rights issues, its high credibility allowed it to be effective (indeed, it often borrowed substantive suggestions from both the CE and OSCE).24

For Kelley, domestic actors are not potential vehicles to be cultivated by IOs but potential veto players whose size and strength must be carefully measured. Like Stone, Kelley posits variance in resistance to external pressure; unlike Stone, she emphasizes both material and normative pressures and thus generates a more complex range of outcomes on her dependent variable. To simplify, domestic opposition to minority protection rules favored by the IOs can be high or low. The IOs can use normative pressure alone or normative pressure plus conditionality. Where normative pressure alone meets high domestic opposition, her prediction is that no change occurs. Where normative pressure meets low opposition, Kelley expects that longer durations of pressure increase the probability of IO success. Where IO conditionality meets low domestic opposition, the theory predicts that change will occur. Finally, where conditionality meets high domestic opposition, the theory is indeterminate.25 Overall, the basic model suggests that CEE states prefer to be admitted to IOs without paying the costs of compliance but prefer admission with the costs to no admission at all (42-44). The model has prominent roles for the inspiration and subsidy modes and is also squarely in what I am calling the coalitional approach to institutional change.

In Latvia, nationalist forces sustained discriminatory practices much less in policy areas where the IOs used membership conditionality (e.g. citizenship laws), than in areas where the IOs used normative pressure alone (e.g, education laws) or no conditionality at all (e.g., electoral laws). In Estonia, the EU membership incentives were similarly effective, particularly on the issues of citizenship laws and laws regarding stateless children. In Slovakia, even against determined nationalist leadership under Meciar, the EU was able to prevail in two of the five key cases (the Treaty with Hungary and a draconian penal code), though it failed in the other three (laws on elections, school certificates, and minority languages). Finally, in Romania, aside from the Treaty with Hungary, all three IOs had little positive effect on Romanian policies.

Analogous to Stone’s focus on IMF aid disbursement in tranches, Kelley emphasizes the virtues of a “tiered admission process” that increases credibility at each successive stage (46). This process helped in Estonia – which initially acted as if was a shoo-in for EU membership even if it did not comply with EU demands on language laws – and seems to have hurt with Slovakia – where the CE had no gradual process and took Slovakia on as a member on the basis of an easily-broken promise to improve its language laws (114, 138). Romania, on the other hand, long seemed so far from membership that the EU struggled to credibly assert that improvements in minority rights might make a positive difference in the country’s aspirations for membership (158-9). Moreover, just as Stone shows the US undercut IMF credibility, Kelley reminds us that Tony Blair traded Romanian support for European actions in Bosnia for a positive EU report on Romania’s progress in preparing for accession, which diminished EU credibility vis-à-vis Romanian politicians (41).

One implication of Kelley’s and Stone’s work is that IOs have two kinds of credibility problems: they must convince reluctant reformers that they will achieve membership or aid if they do comply, but also that they will not achieve it if they do not comply. Kelley adds that poor states that judge themselves a potential liability to the IO may require extra IO assurances to believe their compliance on ethnic matters will translate into membership progress (45). In her evocative personification, the recalcitrant Slovakian and Romanian governments “mostly shrugged at institutional pressure” (183), though Slovakians because they were overconfident and Romanians because they seemed too far away.26 And both books provide implicit evidence that the coalition approach is a difficult but potentially fruitful route for external assistance that can accentuate the importance of inspiration and subsidy.

Where Kelley concludes that IO pressure – in both normative and material modes – was “surprisingly effective” (174), Hughes, Sasse, and Gordon take a more skeptical view of external actors. Focusing on regionalization in Poland, Hungary, Slovenia, and Estonia, the authors attend both to politics – the administrative structure of the state – and to microeconomics – regional development in poor areas. Their thesis is that “domestic institutional choices made during the early transition period outweigh and actually constrain the importance of external factors during enlargement” (8). The authors present this finding as a corrective to the “myth” of Europeanization. Here, the EU relied on two primary modes, inspiration and subsidies. The authors argue, however, that the ideas were diffuse, poorly anchored in existing legal authority, and that the subsidies came well after crucial domestic choices had already set the main contours of regional reforms.

The book’s two strongest contributions are its data on the dynamism-cum-confusion and elite orientation of the EU programs, at least in this policy domain. The authors show how the EU Commission’s “nebulous and oscillating” reports on the CEE states could also be logically inconsistent, and therefore that the EU actually had few clear and formal conditions that all states had to meet (115). They thus reaffirm earlier literature on the relative ineffectiveness of the EU in shaping choices of a “constitutional” nature – here the borders and duties of administrative or political regions.27 They also show that EU policies to prepare CEE states for the Structural Funds – the largest category of EU spending outside agriculture – were overly focused on capital cities, with relatively little knowledge filtering down to the regional elites the authors surveyed.

That said, the authors’ broader dismissal of Europeanization is hard to square not only with many of the works in footnote 1, but also with some of their own evidence. In particular, three of the authors’ rhetorical strategies overstate the either-or nature of external and domestic politics.28 First, they argue that EU policy inconsistency belies the “myth” of the “Europeanization” thesis (c.f. 3, 19, 25-29). Yet the Commission’s policy zig-zags hardly falsify the Europeanization or conditionality arguments. Kelley also notes many instances where the EU changed its policies, yet does not find this undercut its ability to affect CEE policies. And while the EU Council and Commission did have different preferences on regional policy, Stone has plenty of room for intra-IO gamesmanship – indeed more – without rejecting the conditionality hypothesis. Second, the authors often imply that if domestic politics are demonstrably important – and they are – this too undermines the Europeanization hypothesis. But why should external influences only count where domestic politics does not? Indeed, the opposite is more plausible: that external influences matter precisely where they best connect with domestic processes, not where they act independently.29 Third, they imply that Europeanization predicts convergence, so that evidence of cross-national diversity equals disconfirmation (140, 168-69). Yet the best recent work on Europeanization in CEE explicitly disavows the claim that the process must lead to identical outcomes.30

In short, all three rhetorical frames – dynamism, domestic politics, and divergence – stretch the external-internal dichotomy beyond reason. If we expect external influence to consist only of clear external commands, clear domestic responses unanticipated by domestic precursors, and convergent cross-national outcomes (2-3), we will always conclude that external influences do not exist. Here the diffusion literature makes a major contribution by showing so clearly that policies and practices often do spread.

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