What Makes Firms Competitive? States, Markets, and Organisational Embeddedness in Competitive Firm Restructuring in Postsocialist Economies

ABSTRACT

The prevailing transitions literature suggests that dynamic firms in postsocialist economies are the result of macroinstitutional reforms leading to the making of markets. This article builds on work in comparative political economy and economic sociology to show that the degree of competitive behaviour of postsocialist firms is determined not by the existence of general market institutions alone but by the kinds of organisational allies firms possess and the kinds of markets they compete in. Using firm survey data across 28 postsocialist economies, the article examines the determinants of competitive restructuring by firms, including product innovation, standards upgrade, financial transparency, and investments in research and development. The article confirms insights from comparative political economy which suggest that dynamic enterprise sectors emerge when governance is effective. However, at the firm level, the article finds that transnational ties and supportive policy environments are most significant in the making of dynamic postsocialist enterprises. The article also highlights important regional variation in firm behaviour and discusses the relationship between institutional frameworks, organisational embeddedness, and firm restructuring in postsocialist economies.

KEYWORDS:

• Firms
• transition economies
• institutions
• organizations, innovation
• postsocialism

Acknowledgements

This article has benefited tremendously from feedback received at the Economic Sociology Workshop at the Center for the Study of Social Organization at Princeton University, where the author was resident as a postdoctoral scholar during the academic years 2012–2014 under an American Sociological Association/National Science Foundation postdoctoral fellowship. The project has been enriched especially by the comments of Viviana Zelizer and the encouragement of Paul DiMaggio. The author has also benefited from consultations with Adam Slez and Jason P. Kelly in developing and improving the quantitative models. The author would also like to thank Cornel Ban, Magnus Feldmann and two anonymous reviewers for their comments. All errors, whether theoretical, methodological, and/or substantive, must be attributed solely to the author.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Besnik Pula holds a Ph.D. in Sociology from the University of Michigan and is Assistant Professor in the Department of Political Science and Program in International Studies at Virginia Tech. During 2012-14, he was a postdoctoral scholar at the Center for the Study of Social Organization at Princeton University. He is the author of Globalization Under and After Socialism: The Evolution of Transnational Capital in Central and Eastern Europe, forthcoming from Stanford University Press.

Notes

1 Eurasia in this article designates Russia and other former republics of the Soviet Union.

2 A ‘successful’ market transition in this particular case is defined in a limited and specific way: the relatively rapid restoration of economic growth after the initial shocks produced by liberalization reforms; successful (re-)integration with the international economy; and the preservation of the economy's productive assets from the effects of the value-destroying process unleashed by the opening up of socialist economies to global market forces.

3 As Khan theorised, under certain institutional conditions, the corrupt allocation of rights and resources can be ‘efficiency-enhancing because it favors the allocation of scarce resources to users who are most likely to maximize returns’ (1996: 694).

4 On recent uses of BEEPS data in comparative analysis of postsocialist transitions, see Frye (2010) and Hamm et al. (2012).

5 This dummy is obtained via a question which asks about the manager's years of experience. When this is longer than 18 years (the year 1990), the firm is considered to have a socialist-era manager.

6 The control variables show robust results in predicting firm restructuring, confirming the basic observation that larger firms located in capital cities and facing fewer infrastructural problems are more likely to engage in competitive restructuring. Being a manufacturing firm is also positively correlated with restructuring, indicating that the assumptions that firms in this sector are less likely to restructure than those in the service sector are incorrect.

7 For a more general examination of the relationship between economic development and an effective state, see Evans (1995), Evans and Rauch (1999), and Chibber (2002).

Additional information

Funding

The author received an American Sociological Association/National Science Foundation postdoctoral fellowship.