From Communists to Foreign Capitalists

From Communists to Foreign Capitalists: The Social Foundations of Foreign Direct Investment in Postsocialist Europe

Nina Bandelj
Copyright Date: 2008
Pages: 324
https://www.jstor.org/stable/j.ctt7rn5s
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  • Book Info
    From Communists to Foreign Capitalists
    Book Description:

    From Communists to Foreign Capitalistsexplores the intersections of two momentous changes in the late twentieth century: the fall of Communism and the rise of globalization. Delving into the economic change that accompanied these shifts in central and Eastern Europe, Nina Bandelj presents a pioneering sociological treatment of the process of foreign direct investment (FDI). She demonstrates how both investors and hosts rely on social networks, institutions, politics, and cultural understandings to make decisions about investment, employing practical rather than rational economic strategies to deal with the true uncertainty that plagues the postsocialist environment.

    The book explores how eleven postsocialist countries address the very idea of FDI as an integral part of their market transition. The inflows of foreign capital after the collapse of Communism resulted not from the withdrawal of states from the economy, as is commonly expected, but rather from the active involvement of postsocialist states in institutionalizing and legitimizing FDI. Using a wide array of data sources, and combining a macro-level account of national variation in the liberalization to foreign capital with a micro-level account of FDI transactions in the decade following the collapse of Communism in 1989, the book reveals how social forces not only constrain economic transformations but also make them possible.

    From Communists to Foreign Capitalistsis a welcome addition to the growing literature on the social processes that shape economic life.

    eISBN: 978-1-4008-4125-7
    Subjects: Population Studies, Political Science, History

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Tables
    (pp. ix-x)
  4. List of Figures
    (pp. xi-xii)
  5. ACKNOWLEDGMENTS
    (pp. xiii-xvi)
  6. PROLOGUE
    (pp. xvii-xx)

    An engineer in his late fifties, a member of the top management of a middle-sized firm in Central Europe, told me the following story of his working life before and after the postsocialist transformation.

    Twenty-five years ago, I was an enthusiast, not only because I was younger. Everyone had work, no matter what. In our firm, we organized our activities based on a five-year plan of production issued by the central state authorities controlled by the Communist Party. We had no idea what a firm strategy is, and even less how to formulate one. We knew that if we wanted...

  7. Chapter 1 SOCIAL FOUNDATIONS OF THE ECONOMY
    (pp. 1-28)

    In 1985, the economic order of the day in socialist Central and Eastern Europe¹ was full employment and absence of private property, domestic or foreign. Only fifteen years later, in 2000, the economic systems were based on private ownership and market competitiveness. Numerous postsocialist firms were in the hands of foreign investors, absorbing some of the $1.4 trillion of that year’s world foreign direct investment, which itself has increased more than twentyfold since 1985. In only fifteen years, how did we get from there to here?

    This book is about the confluence of two grand processes of economic transformation that...

  8. Chapter 2 FROM SOCIALISM TO POSTSOCIALISM
    (pp. 29-64)

    The fall of the Berlin Wall on November 9, 1989, was a watershed in twentieth-century history. The destruction of the concrete fixture that separated the Eastern socialist part from the Western capitalist part of Berlin will forever remain a symbol of the collapse of Communism, the lifting of the Iron Curtain, and the end of the Cold War. The concrete(ness) of the Berlin Wall and its swift destruction promote the illusion that social change is about the efficient dismantling of the past in a few fervent days, leading to a bright borderless future. Although the events in 1989 and early...

  9. Chapter 3 INSTITUTIONALIZATION OF FDI IN POSTSOCIALISM
    (pp. 65-102)

    The changes in Central and Eastern Europe after the fall of the Communist regimes have provided social scientists with an unprecedented social laboratory. Analysts of economic changes in postsocialism have plunged into theorizing and examining the East European “emerging markets,” not only to produce voluminous scholarship but also to shape economic policy. The labelemerging markets, coined by the International Finance Corporation in 1981, as applied to Central and Eastern Europe, implies spontaneity, naturalness, or inevitability. In this sense, do markets “emerge”? The question is not only rhetorical. The labelemerging marketsepitomizes an understanding of market exchange as a...

  10. Chapter 4 CROSS-COUNTRY PATTERNS IN FDI FLOWS
    (pp. 103-130)

    Chicago’s Polonia is the largest local community of Polish Americans (Lopata 1994, xxi). Established in the late 1860s (Granacki 2004, 9), it is home for many of the almost 10 million Americans who report some Polish ancestry (Erdmans 1998, 16). At the end of 1970s and in the early 1980s, many of those who wished to escape the political turmoil of the last decade of the Communist rule in Poland emigrated to Polonia. Some of these immigrants were university-educated men and women who had been involved in the Solidarity movement. Even if their involvement had been minimal, they found little...

  11. Chapter 5 EMBEDDEDNESS OF ORGANIZATIONAL FDI ATTEMPTS
    (pp. 131-167)

    The macro-level evidence presented in the previous two chapters points to the inadequacy of traditional accounts of FDI, which emphasize economic efficiency. Standard economic and political risk indicators do not predict well which postsocialist countries receive more and which less investment. Rather, analyses of cross- and within-country variation in FDI bring to the fore the relevance of institutions, networks, politics, and culture for understanding FDI flows.

    Nevertheless, because they treat FDI in the aggregate, asflowsof foreign capital, those analyses cannot fully specify what shapes the realization of FDI attempts at thelevel of firmsthat participate in these...

  12. Chapter 6 UNCERTAINTY AND THE PRACTICE OF FDI TRANSACTIONS
    (pp. 168-195)

    “Uncertainty is one of the fundamental facts of life. It is as ineradicable from business decisions as from those in any other field” (Knight 2002, 347). What to do and how to do it are issues that an economic actor needs to address in any situation. Sometimes finding answers may be extremely difficult. Just imagine Mr. Investor, arriving at the airport in Sofia or Ljubljana, Budapest or Riga in the early 1990s, during “a very chaotic time,” venturing into a “loose environment [with] no infrastructure for investors,” trying to understand Lithuanian or Romanian, or the legal system, which “is changing...

  13. Chapter 7 EMBEDDED ECONOMIES
    (pp. 196-220)

    The end of the twentieth century was marked by two momentous processes of social change: the fall of Communism and the rise of globalization. Much has been written and speculated about the complexity and significance of these two transformations. It is surprising, however, that we know little about how they shape each other. How are places undergoing a fundamental social, economic, and political transformation affected by global flows of commodities, capital, and culture?

    The point of departure in this book was precisely the intersection of the global and local transformations. I examined the creation and operation of foreign investment markets...

  14. EPILOGUE
    (pp. 221-222)

    In 2006 my father retired. He couldn’t wait. Over the past fifteen years, he had run out of the energy needed to keep up with the fast pace of a global business world, the pressures on his firm to be competitive, and the hard decisions of a postsocialist manager’s everyday worklife. A possibility that he might be sent to set up a production facility in China was not a welcome challenge but a heavy burden.

    No wonder. In the thirty-five years of his professional life, all spent in one firm, my father experienced more than a lifetime of change: he...

  15. APPENDIX ON METHOD AND DATA SOURCES
    (pp. 223-242)
  16. NOTES
    (pp. 243-254)
  17. REFERENCES
    (pp. 255-290)
  18. INDEX
    (pp. 291-303)