However, the relationship between economic development and political democracy is not as obvious as those scholars wanted to emphasize. Firstly, Jackson (1973, 621) argues that this relationship is rather curvilinear than linear, as Lipset suggested. Secondly, the apparent relationship between democracy and economic development was largely determined by either operationalization faults of the concept of democracy or by selection bias (for instance, some authors explicitly excluded the communist countries from their analysis when looking to the relationship between political democracy and economic development, see Bollen & Jackman: 1985). Especially in the ‘80s, scholars started to question the existence of any significant relationship between democracy and economic development, based on new empirical evidence from further studies. Arat (1988), for instance, showed that there is no substantial evidence that higher level of economic development will necessarily lead to higher level of democracy: “Only a few countries fit the models suggested by the modernization theories. It can be concluded that increasing level of economic development does not necessarily lead to higher level of democracy, even for the less developed countries” (Arat: 1998, 30). Furthermore, Gonick and Rosh argued that economic development is not the most important factor that affects the probability of securing democracy, and that Lipset’s hypothesis can be rejected on this basis (1988).
However, we shall go a little further away of this tradition in political science. Instead of looking to the relationship between economic development and political democracy, we try to uncover the political determinants of private sector development in Eastern Europe. The novelty of this research resides in this approach. While there is a vast literature on economical determinants of private sector growth, less attention has been paid to the influence of political factors to development of private sector. There are at least two major reasons why we should focus on such relationships. The first one is that in Eastern Europe the economic development is associated to the development of private sector, due to systemic changes that happened after 1989. All over Eastern Europe, economic prosperity is the result of the private sector expansion associated with the withdrawal of the state from the economy. The second reason derives from the first one: if economic prosperity is to be happened in Eastern Europe due to private sector expansion in the economy, then factors that affect its development (others than economic factors) are also becoming very important.
Hypotheses:
In order to reach the research goals, we developed some specific hypotheses that will be tested.
The first ones point to a possible relationship between democracy and individual freedom, on the one hand, and expansion of private sector in the new democracies, on the other hand. Our assumption is based on the fact that countries with higher levels of democratic performance and individual freedom (including economic freedom) develop more dynamic and effective institutions than countries that are not fully democratic polities or where individual rights and freedoms are not secured by effective laws. Thus, the institutions from countries that form the first group can shape a political and economic environment that is much more suitable for private enterprises, comparing with countries from the second group. Therefore, the first two hypotheses are:
H1. The enlargement of private sector is positively associated with the political freedom.
H.2 The enlargement of private sector positively associates with the economic freedom.
In the same time, some governments could be in better position to implement austere policies (economical or political), because of larger political support they enjoy. When governing parties are feeble political institutions, their capacity to implement effective policies decreases, especially when they act in a changing environment. Thus, the third hypothesis argues that:
H3. Larger the political support for governing parties, more probable to have larger private sectors.
However, we do not expect to have a significant difference between different types of political government from Eastern Europe. Coalition governments should be as effective as single party governments in this respect and we do not expect variation from in this particular aspect:
H4. There is no significant association between type of the government (coalition government vs. single-party government) and development of the private sector in Eastern Europe.
H5. There is no significant relationship between type of the government (presidentialism vs. parliamentarism) and the expansion of private sector.
Our final research hypothesis concerns the capability of young democracies to pass over the first ten years of democratic change without major political, economical or social shocks. When we refer to this aspect, we do not point to usual crises that happens in all political systems (strikes, demonstration, even small-scale violence), but to such events that are potentially disruptive for the continuity of democratic system.
H6. The presence of important political or economical crises negatively correlates with the development of private sector.
Private sector develops easier when decision making process is transparent and competition among firms is not affected by interference of state agencies, state officials or civil servants. In many respects, such type of intervention is equivalent with political or administrative corruption in Eastern Europe, where competition among private enterprises is set not on the bases of competitive advantages, but considering political connections or financial advantages of various officials. Foreign investors are less disposed to invest in countries which display high level of corruption and the development pace of private enterprises tend to be smaller in such cases. Thus, the seventh hypothesis stated that:
H7. The development of private sector negatively associates with the level of corruption in CEE countries.
Operationalization, Data, Methodology
In order to test empirically the hypotheses mentioned above, we have to decide about the empirical operationalization of some variables.
- The development of private sector is going to be operationalized as the private sector share in the GDP.
- Political freedom will be operationalized as Freedom House index.
- The Heritage Foundation index for economic freedom will be used in order to operationalize the level of economic freedom.
- The political support for governing parties is going to be operationalized as the total percentage of seats hold by governing party(ies) in the Parliament.
- A dummy variable will be created in order to differentiate the coalition government from the single party governments.
- Another dummy variable will be created to differentiate between the parliamentary systems and presidential systems.
- A dummy variable will be created in order to differentiate between countries who experienced a plain political and economic transition from those who experienced political, social or economic crises (like Albania in 1997, Bulgaria etc).
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Since we have no instrument to measure political and administrative corruption per se, we shall use the perception of corruption as an indicator of level of corruption in a particular state. In order to test the last of our hypotheses, we shall use the Transparency International index of corruption in order to operationalize this variable.
We shall use a comparative approach in order to test our hypotheses. The cases that will be the focus of our endeavor are the former communist countries of Central and Eastern Europe, including the former Soviet Republics that became independent states after the fall of Soviet Union. In order to increase the empirical evidence, the cases will be one respective country per year, starting from 1990 (for former communist states) or from the year they gained the independence (ex-Soviet countries and former republics of Yugoslavia). Most of the data on the variables we focus on is already available for research from different international institutions (World Bank, Freedom House, Heritage Foundation), while others can be easily computed, using information from national institutes, electoral results. In this respect, it should be no difficulty to collect all this data.
In order to analyze the data and to test the research hypotheses, we shall use linear regression analysis that will examine the impact of independent variables (such as degree of political and economic freedom, the political support for governing parties, a parliamentary institutional settings etc) on the dependent variable (the level of private sector share).
References and bibliography
Arat, Zehra. 1988. “Democracy and Economic Development: The Modernization Theory Revisited.” Comparative Politics, 21, 21-36.
Bollen, Kenneth A.; Robert W. Jackman. 1985. “Political Democracy and the Size Distribution of Income.” American Sociological Review 48, 468-79.
Burkhart, Ross; Michael Lewis-Back. 1994. “Comparative Democracy: The Economic Development Thesis.” The American Political Science Review, 88:4, 903-910.
Gonick, Lev S.; Robert M. Rosh. 1988. “The Structural Constrains of the World-Economy on National Political Development.” Comparative Political Studies, 21, 171-99.
Haggard, Stephan; Robert R. Kaufman. 1995. The Political Economy of Democratic Transitions (Princeton: Princeton University Press).
Jackman, Robert. 1973. “On the Relationship of Economic Development to Democratic Performance.” American Journal of Political Science, 17:3, 611-621.
Lipset, Seymour Martin. 1959. “Some Social Requisites of Democracy: Economic Development and Political Legitimacy.” The American Political Science Review, 53:1, 69-105.
Neubauer, Deane E. 1967. “Some Conditions of Democracy.” The American Political Science Review, 16, 1002-1009.
Przeworski, Adam. 1991. Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America (Cambridge: Cambridge University Press).
Przeworski, Adam; Michael E. Alvarez, Jose Antonio Cheibub, Fernando Limongi. 2000. Democracy and Development: Political Institutions and Well-Being in the World, 1950-1990 (Cambridge: Cambridge University Press).
