The Global Economy as Instituted Process: The Case of Central and Eastern Europe

Abstract

I argue that economic globalization, indicated by the tremendous rise in world foreign direct investment (FDI) in recent decades, is not driven simply by investor considerations of economic risk and return, but is significantly shaped by the construction of demand for foreign capital by receiving states. States signal this demand through the levels of formal and substantive legitimacy they grant to FDI. They institutionalize globalization in formal rule as a normatively desirable development strategy. States substantiate this commitment by providing domestic and foreign actors with ideational and organizational resources to facilitate FDI. To illustrate this argument, I use the case of Central and Eastern Europe, which was largely closed to global capital before the collapse of Communism. Analyses of quantitative and qualitative data show that substantive legitimacy granted to FDI by host states, more than formal regulations, determined the size of foreign capital flows into postsocialist countries in the first decade of market reform. These findings point to social foundations of macroeconomic trends beyond the instrumental considerations of risk and return privileged in previous research

How far do cultural differences explain the differences between nations? Implications for HRM

“…These countries face competing pressures from liberalization and the European social model, which generally reflects aspects of the CMEs. The more successful and wealthy countries may move towards the European social model, and the poorer ones to adopt more LME-type features (Bandelj 2009;Buchen 2007;Lane 2007).…”

Industrial relations in South-Eastern Europe: disaggregating the contexts

“…These findings suggest that transforming economies is, of course, complex, and clusters of organizations within a country will not change radically, consistently or quickly (Whitley 1999a). The emerging literature on comparative capitalism in the ex-communist states (Buchen 2007;Lane 2007;Bandelj 2009;Crowley and Stanojević 2011) suggests that most transitional economies are still far from any 'end stage', either in convergence with another variety of capitalism or as a fully formed model in their own right.…”

On postsocialist capitalism

“…Markets were not expected to Bspring up as soon as central planning bureaucrats vacate the field^Sachs (1993, p. xxi). States were expected to play a critical role in ensuring private property rights but also regulating enterprise restructuring (King and Sznajder 2006), providing institutional underpinning for consumer markets (Guseva 2008), and institutionalizing the demand for foreign direct investment (Bandelj 2009). …”

“…Even with formal institutions of capitalism put in place, the major challenge is to align them with practice. Formal institutions need their substantive legitimacy (Bandelj 2009) but widespread informality undermines the coupling of formal rules and behavior.…”