One
The Quiet Revolution from Within: Economic Reform as a Source of Political Decline
Andrew G. Walder
Leninist party organization and the command economy have been the two pillars of communist rule through much of this century. Although modified in the histories of regimes as disparate as those of Prague and Pyongyang, Budapest and Beijing, these two institutions nonetheless came to define, more clearly than anything else, precisely what set communist regimes apart from other modern forms of authoritarian rule. The party organization, with its hierarchy of status and command, its demands for loyalty and discipline among members, its commanding presence in workplaces and institutions of higher education, and its legendary hostility to alternative forms of political expression and activity, served for decades to weave together these polities. The command economy, at the same time, gave these parties effective control of most, if not all, significant productive assets—most important, over the right to decide how to use these assets and how income from them was to be allocated. Ruling parties turned their asset ownership to political ends when they fashioned a distinctive system of material privilege according to political rank, and of career rewards for political loyalty. By providing resources for fostering discipline and loyalty within the party organization, the command economy therefore served as the economic foundation for party rule. Departures from the practices of the command economy, by altering control over property and opportunity, brought political change in their wake. This book is a collective effort to identify those changes and to clarify why and how they occur.
Our subject is but one piece of the larger historical puzzle of the decline
I am grateful to David Bartlett, Daniel Chirot, Anna Seleny, Jon Unger, David Wank, and Yun-xiang Yan for providing me with critiques of earlier drafts, and to audiences who endured various oral presentations of these arguments at the University of Copenhagen; Harvard University; the University of California, Los Angeles; and Texas A&M University. — AGW.
and fall of communist regimes. It has often been noted that the process of decline and transformation has not been the same everywhere; indeed, some argue that in no two places has it been the same (e.g., Bruszt and Stark 1992). One evident difference among regimes is in the pace and extent of change in the two institutions that I have just called the pillars of communist rule. Some regimes experienced more striking changes earlier in political, rather than economic, institutions. The Polish United Workers' party lost its political monopoly in 1980 and suffered a dramatic drop in membership in the wake of Solidarity—something from which it never recovered. Under Gorbachev's glasnost and rising challenges from the republics, the Communist party of the Soviet Union rapidly lost its internal discipline and cohesion in the late 1980s. In both countries, the rapid deterioration of the party's internal cohesion served subsequently to accelerate the deterioration of the command economy.
In other countries, however, relatively far-reaching reforms of the command economy, coupled with significant concessions to enterprise outside of its boundaries, proceeded long before such deterioration of the party organization. Hungary under János Kádár and China under Deng Xiaoping are well-documented examples of the latter pattern. Reforms of the system of central planning, accompanied by escalating concessions to a second economy and private enterprise, led eventually in Hungary to a negotiated transition to multiparty democracy, one already under way well before ruling parties in Berlin, Prague, Sofia, and Bucharest collapsed in such spectacular fashion in late 1989. In China, more far-reaching and sustained economic reforms have led to an equally striking process of political decline, of which the massive wave of street protests in 1989, the largest independent challenge in the regime's history, were but one symptom.
The latter historical pattern, in which changes in economic institutions bring forth a steady political decline, is the subject of this book. It is not our purpose simply to point out the importance of economic variables in bringing about the transformation of communist regimes. Few will dispute the fact that the political changes of recent years are rooted in the long-term failure of Soviet-style economic institutions. Several impressive analyses of the flaws of these economic institutions are already in print (Kornai 1992; Nove 1983; Murrell and Olson 1991; Kaminski 1991), and more are no doubt on the way. Nor is our purpose to explain why leaders in some communist regimes chose to reform their public enterprises and give concessions to private economic activity, while others temporized, resisted, or turned instead to political reform (see, e.g., Shirk 1993). Our piece of the puzzle is a different one: once a communist regime chooses the path of reform and concessions as a response to declining economic performance, what have been the political consequences? What political changes are attributable to change in economic organization, and what processes bring them about?
These questions are more easily stated than answered, because they require a sharper definition of the process of change, and impose a heavier burden of evidence about the actual workings of economic and political institutions, than many purported explanations of the decline of communism. It is relatively easy, especially in retrospect, to identify obvious macro-historical trends that have been connected with this decline: global military and economic competition, the rigidities and inefficiencies of central planning, declining consumer living standards, a decline in the legitimacy of the party and its ideology, and the gradual emergence of oppositional movements. It is not so very obvious, however, how (or whether) economic difficulties weaken party cohesion, or how oppositional movements are finally able to establish themselves, and it is not easy to specify and document (as opposed to assuming or asserting) the processes whereby such changes occur. The task is made more complicated by the possibility that different processes may lead to the same outcome: the ruling party may lose its internal discipline and cohesion under the pressures of sustained and well-organized opposition (e.g., in Poland); in the face of large, but relatively unorganized, street demonstrations of limited duration (e.g., in East Germany, Czechoslovakia, and Romania); or in the relative absence of both kinds of opposition (e.g., in Hungary and the Soviet Union). To complicate matters still further, the decline of some regimes may be attributed to the failure to implement long-needed economic reforms (e.g., in the Soviet Union), while in others political decline may be an unexpected result of economic reform (e.g., in China and Hungary).
Regime changes of such historic proportions take place through a wide variety of interconnected processes, and one must make a choice at the outset that simplifies the problem and clarifies the process of interest. Such a choice inevitably narrows one's vision, but we hope it may afford us a more thorough understanding of one of the several processes thought to be at work. The choice made in this volume can be stated simply. It starts with the observation that all communist regimes have departed in some way from the defining features of central planning in an effort to compensate for shortcomings in the performance of these institutions. Whether such departures are planned or unplanned, the result of elite or popular initiatives, they are of equal interest. This volume's premise is that such departures set in motion a chain of consequences, usually unintended, and if the departures are extensive enough, they eventually alter political institutions and relationships to the point where Communist party rule can no longer be sustained.
In defining the problem in this fashion, we designate departures from central planning as a historical "master process" analogous to the ones Charles Tilly (1984, 1992) has identified for the rise of the modern state in Europe. We are by no means the first to point to the transformative potential of departures from central planning; this has long been a distinguishing
feature of social-science scholarship on Hungary, and it has more recently become common in research on China. In many ways this volume was inspired by, and is the successor to, an earlier volume edited by Victor Nee and David Stark (see Stark and Nee 1989), also about China and Hungary, which called explicit attention to the broader political implications of often-obscure changes in the economic institutions of these regimes.
To agree that economic reform leads to political change is not necessarily to agree about how it does so. This book extends this tradition of scholarship while departing from its past emphases. Earlier research has worked primarily with an implicit model that posits a subterranean contest between state and society. Research on economic institutions (and on political dissent) has sought to discover how citizens obtain greater autonomy through hidden acts of resistance and push back the boundaries, and the power, of the party state. While this depiction of change is certainly reflected in some of the papers collected here — especially in Yun-xiang Yan's portrayal of the decline of dictatorial cadre rule in a Chinese village and in Dru Gladney's study of the rise of ethnic identity and assertiveness among Chinese Muslims — our research also emphasizes a different process and a different set of causes. Instead of the relationship between state and society, and the oft-noted contest between the two, this book highlights changes wrought within political institutions themselves without the agency of citizen resistance: changes in the relationship of higher to lower levels of government, in the relations between superior and subordinate within the party and government, and in the interests and orientations of officials within the party-state apparatus, especially in its lower reaches. In the cases of China and Hungary, we find these to be the primary causes of the decline of the party state, a decline that is itself a precondition of citizen resistance so widely heralded in other writings.
Our analysis also differs from the tradition of policy-oriented studies of socialist economic reform: we argue that political decline occurs independently of the relative success of reform or of reigning macroeconomic trends. As David Bartlett's chapter emphasizes, and as the other chapters on Hungary make clear, the 1980s there were a period of economic recession, falling real incomes, growing foreign debt, and retrenchment in government spending, and the party declined there in part because of its narrowing economic and political options. As the chapters on China make clear, however, the period after 1980 has been one of extraordinary economic growth, rising incomes, and the opening of new opportunities in the foreign and private sectors. Despite a strikingly different economic environment, China's party-state organizations have nonetheless experienced changes that parallel, and in many ways go much further than, those observed during the last decade of communist rule in Hungary. Our analysis of regime change does not therefore center on trends in economic growth and income,
or on levels of satisfaction among citizens, although we recognize that these may be important factors. The political consequences that we emphasize flow directly from innovations in economic institutions, regardless of their success or failure in stimulating the economy.
We therefore substitute a more organizational and regime-centered focus for the prevalent concern with state-society relations. Communist regimes have owed their existence to the discipline and cohesion of the party apparatus and to that apparatus's ability to avert organized political opposition. If we can uncover the processes that weaken the discipline and cohesion of the party-state apparatus, we shall have illuminated one of the main causes of the decline of communist rule, and perhaps also have helped to explain the rise of citizen resistance and changes in state-society relations.
Each of the chapters in this book examines the ways in which a certain kind of departure from central planning reallocates resources and opportunities and ushers in a process of political change. The chapters are grouped into four parts, each of which highlights a different dimension of the process of change. Part 1 is about the process of political decline, and contains two retrospective interpretations of the decline of party rule in Hungary. Anna Seleny portrays a political system that was evolving from its very inception. She emphasizes the ways in which the second economy and then economic reform, by subtly altering the property rights on which the regime was founded, led to a reallocation of political rights and capacities, as well as to progressive changes in political discourse and political mentalities within the party elite. Ákos Róna-Tas examines the ways in which the Hungarian party's progressive concessions to the second economy irreversibly eroded the party's internal cohesion and commitment to a planned economy, as the party itself came to depend upon the new sources of income generated and lost the political will to return to the status quo ante, even as its regime deteriorated visibly.
Part 2 examines the eclipse of the party center and of the central state. Shaoguang Wang documents the massive transfer of fiscal resources from the center to the regions brought about by tax reforms, which many have argued are an important cause of China's recent economic dynamism (Oi 1992, 1996). He argues carefully that this shift in fiscal resources is a good measure of the declining capacity of China's central state, and attributes a number of other symptoms of political decline to this redistribution of resources. David Bartlett's chapter illustrates the decline of the center from another angle; he shows how enterprise reform and fiscal liberalization led in an unintended way to the center's loss of political initiative. These reforms activated party-state organizations at lower levels of the hierarchy — especially state enterprises and the official trade unions — endowed them with greater political leverage, and, in the context of economic retrenchment, led to an intensified pattern of bargaining, in which the center came
increasingly to react to initiatives from below instead of setting the political agenda. Bartlett portrays the decline of the party center and the rise of its former subordinate organizations as influential political actors.
Part 3 documents the ways in which the growth of a lucrative private sector in urban China transformed the local party state. David Wank shows how municipal party officials and the larger private businessmen in the coastal port of Xiamen have forged new alliances and cooperative partnerships that have drastically altered the interests, incomes, and political networks of party officials. Ole Bruun examines a parallel process on a smaller scale in one neighborhood in Chengdu, a large city in China's interior. Bruun shows the ways in which petty local tradesmen and shop-keepers have become tightly integrated into the local political hierarchy, while at the same time transforming it.
Part 4, finally, documents changes in the exercise of power and in group identity at the grass roots. Yun-xiang Yan argues that the shift from collective to household agriculture altered past patterns of peasant dependence within his north China village and have made village officials more dependent upon independent family farmers for their incomes. This, in turn, has led subtly to fundamental changes in local political mentalities and in the ways political power is exercised. Finally, Dru Gladney's essay analyzes the ways in which concessions to private enterprise, in the context of a still-traditional Stalinist nationalities policy, stimulated economic prosperity, while at the same time reinforcing long-submerged ethnic identities among Muslim communities on China's southeastern coast. Gladney portrays the rise of an increasingly self-conscious and prosperous ethnic community, along with a remarkably open and assertive new form of ethnic politics engaged in by the local officials who represent these communities in bargaining with higher levels of government.
Together, the essays in this volume suggest a more regime-centered organizational perspective on the processes of political change. Where past work on state-society relations has elaborated the gradual empowerment of citizens so well captured by Iván Szelényi's (1988) arresting phrase "the quiet revolution from below," our focus on the organization of political power leads us to emphasize a contemporaneous "quiet revolution from within." The purpose of this essay is to sketch the outlines of this broader perspective and to highlight its distinctive emphases.
The Command Economy and Party Power:
The Problem Defined
Writers from Leon Trotsky ([1937] 1972) and Bruno Rizzi ([1939] 1985) through Milovan Djilas (1957) and Iván Szelényi (1978) have argued that a
ruling Communist party's power and authority — along with the privilege enjoyed by its members — are founded upon de facto party ownership of productive assets, and an organized monopoly over the allocation of goods and career opportunities. While these writers have emphasized the ways in which political control over economic assets breeds a ruling class with interests in the perpetuation of bureaucratic power, others stress the ways in which this conjunction of political and economic power serves to organize the political order. According to this view, party authority is founded upon a citizen dependence upon officials for the satisfaction of material needs, and for access to career opportunities (Oi 1985, 1989a; Walder 1983, 1986). Such dependence is high when party officials are able to satisfy these needs and when citizens have no alternative sources of need satisfaction. It is decreased when the abilities of officials to reward subordinates declines, when alternative sources of need satisfaction are made available to citizens, or when superiors become newly dependent upon subordinates for the satisfaction of their needs.[1]
Despite the emphases of past work, it is not solely the dependence of citizens upon party officials in places of work and education that has promoted political order. Communist parties historically have developed elaborate monitoring practices at the grass roots to observe, report, and record citizen behavior and utterances, and have used such information systematically in allocating rewards and career opportunities. The placement of party organizations in all work, government, and educational institutions, and the placement of party members and activists in all work groups and classrooms reinforced such monitoring capacity. The maintenance of elaborate political records on all citizens, and their systematic use in reward decisions, made this information politically effective. A decline in the capacity to monitor citizen behavior and link it to material rewards and sanctions is a second possible source of institutional weakening.
Note, however, that the capacity of a party state to monitor citizens depends crucially upon the internal discipline and cohesion of party-state organizations. The agents of the party center must be induced to carry out the tasks given them by their superiors, and this is also a question of incentives and dependence. One cannot simply assume a disciplined and cohesive party-state apparatus, just as one cannot simply assume a compliant citizenry. Discipline and compliance, where they occur, must be explained. To the extent that party officials and their agents are dependent upon their
[1] It should be evident that these arguments are founded in power-dependence or exchange theory (Blau 1964; Emerson 1962; Stinchcombe 1965), and in recent compatible extensions to organized groups (Hechter 1987), but there is no need to rehearse these theories here.
superiors for the satisfaction of needs, and to the extent that their superiors are able to satisfy their needs, incentives will be viable and discipline high. To the extent that party officials and their agents develop alternative sources of need satisfaction to those previously monopolized by their superiors, and to the extent that the capacity of their superiors to provide for these needs is diminished, discipline within the party apparatus declines, and officials in the lower reaches of the party state are no longer the obedient agents they were in years past.
Departures from central planning have political consequences in both these ways. First, they open up alternatives to the rewards and career paths formerly controlled by superiors within the party-state, or they shift the balance of dependence more in favor of subordinates within the apparatus. Second, they weaken both the incentive and the capacity of local officials to monitor and sanction citizen behavior. Explanations for political decline should therefore begin by examining the processes whereby the party's monopoly of income and opportunity is diminished by the growth of alternatives (or whereby superiors come to depend more on their subordinates than before), and the processes whereby local authorities have a diminished capacity or incentive to monitor and sanction the behavior of citizens. Note that these questions, ostensibly about the capacity of party-state institutions to maintain political order, are simultaneously questions about political change, whether that is conceived of as a deterioration of political hierarchies or as the emergence of conditions that facilitate effective protest and opposition.
Departures from Central Planning
as a Source of Political Decline
Departures from central planning take place either by design, as part of an official program of economic reform, or by evolution, as countless individuals and institutions adopt strategies to satisfy their needs in ways that are not possible within the confines of the command economy. While departures from central planning in postcommunist regimes are intended in large measure to dismantle the bases of the party's power and privilege, the effects of such departures under party rule are usually unintended, albeit no less significant.
The Growth of Economic Alternatives
The first type of departure serves to create a sphere of economic activity and sources of need satisfaction separate from those under the control of party officials. One well-known instance of this is the gradual evolution, through a series of popular initiatives and tacit official concessions, of a sphere of activity
referred to variously as a "second economy," "informal sector," "black markets," or "moonlighting." Eastern Europe's "second economy" — primarily in agriculture, services, construction, repair, and commerce — has received considerable scholarly attention, and it is thought to have accounted for a large proportion of citizen income in Hungary and other countries (Kemény 1982; Gábor 1979; Feldbrugge 1984; Grossman 1977).[2]
A second type emerges when tacit official tolerance becomes explicit and legal, either through somewhat begrudging legal acceptance of "private plots," as in the former Soviet Union, or when the regime not only legalizes but encourages such independent initiatives in an effort to stimulate incomes and growth, as in China and Hungary in the late 1970s and early 1980s. The distinctive feature of these activities is that they are formally separate from public enterprise (although often interdependent with it) and are organized by households or partnerships. Well-documented examples include the rural "household" (China) or "cooperative" (Hungary) sector of family-owned service, transportation, manufacturing, and agricultural sideline enterprise (Szelényi 1988; Nee 1989a; Oi 1989a; Zweig 1986), the sale or rental of public enterprise to private entrepreneurs in China, enterprise work partnerships in Hungary (Stark 1989), household in place of collective farming in rural China and Poland, and the legalized urban private service, commercial, and manufacturing (sometimes called "cooperative") sectors of Hungary (Rupp 1983), China (Gold 1989; Wank 1993), Poland (Åslund 1984; Rostowski 1989) and the former Soviet Union (Åslund 1991), mostly in the 1980s. Such alternative forms of economic enterprise are the primary focus of the chapters by Róna-Tas, Wank, Bruun, and Yan.
A third instance is the opening up of national borders to foreign trade and investment, through the creation of alternative sources of investment capital, bank credit, or channels for sales and supply (and thereby of income). This opening can take place in a relatively centralized fashion, with national monopolies under the direction of central planners standing between enterprises and the outside world (e.g., in Poland in the 1970s). Its political impact will, however, be greater to the extent that these alternatives are directly available to localities, enterprises, and households without mediation
[2] This is perhaps the area where departures from central planning were most pronounced in the former Soviet Union and other regimes in which reform programs and legal concessions to private enterprise were limited. It is well known that such departures, usually discussed under the rubric of corruption, were very widespread in the late Brezhnev era. In some regions of the USSR, such as Georgia, corruption connected to black market activity thoroughly penetrated party structures. These "departures from central planning" are conceptually not fundamentally different from the ways in which party officials in China and Hungary profit from ties to legal private firms, and it follows that we should observe a similar pattern of political decline in places where such corruption was most widespread.
by planning agencies. Such alternatives became most widespread in China after the mid 1980s, with the emergence of a distinct joint-venture and foreign-enterprise sector, often but not always set in local "special economic zones." These alternatives, especially along the eastern coast, have penetrated deeply into urban and rural economies, and have created lucrative new sources of income for both public and private enterprises, and important new sources of investment capital (Chan, Madsen, and Unger 1992; Pearson 1991, 1992; Zweig 1991). This kind of departure from central planning is featured prominently in Gladney's chapter, which discusses investment by and trade with Arab nations, and Bartlett's chapter, which shows how the Hungarian central government found itself increasingly constrained by a growing dependence on foreign investment and credit.
Enterprise Reform in the Public Sector
Departures of this type were once almost synonymous with "reform" in a state-socialist economy. They were fitfully discussed, debated, and implemented in a piecemeal fashion in almost all communist countries, beginning in the Eastern Bloc during the 1950s. In two countries — Hungary after 1968 and China after 1978 — they were implemented to a significant degree over a sustained period, resulting in marked changes in economic institutions.
"Enterprise reform" is intended to change the mechanisms of the centrally planned economy, and through this change the environment of the enterprise and the decision-making behavior of managers. Overall, it consists of four separate kinds of reform; in practice, the mix and extent of each kind of reform varies considerably in each nation's experience. The first is commercial reform: an end to or sharp reduction in the purchasing monopoly of state commercial and planning agencies, and a reduction of guaranteed sales and supplies; the introduction thereby of sales competition through variety and quality of product; and the increasing determination of production decisions by the demand of enterprises and individuals. The second is price reform: a shift from prices set and readjusted by planning agencies to variable prices determined autonomously by buyer and seller. The third is financial reform: an end to state appropriation of enterprise surpluses in favor of annual revenue contracts or altered systems of taxation that allow enterprises to retain increasing amounts of their surpluses. Enterprises' retained revenues are to rise with profitability and in theory may vary widely. Accordingly, working and investment capital are allocated, not through budgetary grants, but through bank loans to be repaid with interest. The fourth is wage reform: more flexibility in enterprise wage bills; greater wage variation in response to enterprise and individual productivity; reduced employment and welfare guarantees and tightened labor discipline.
These reforms have been analyzed extensively, but almost exclusively from a policy perspective: in what ways does implementation fall short of the general principles of reform (it always does); what kinds of organizational interests and systemic inertia cause implementation to fall short; have the changes implemented achieved their intended effects on productivity; and if not, why not? Perhaps because political change is seen to flow largely from the first type of departure, this type of reform has not usually been examined for its political consequences. It figures prominently, however, in the chapters by Seleny and Bartlett.
Changes in Revenue Flows: Fiscal Reform
A third type of departure from central planning is in the way that revenues extracted from enterprises are distributed among levels of government. In the traditional command economy, revenues extracted from enterprises flow into government coffers, and those revenues are divided among levels of government agencies in an annual process of budgetary bargaining. Just as the financial reform of enterprises seeks to provide an enterprise with an incentive to earn higher profits by guaranteeing it rights to larger shares of increased profit, fiscal reform is designed to give local governments both the incentive and the means to increase their revenue base by guaranteeing them rights to larger shares of increased revenues.
China's fiscal system, for example, has moved from internal transfers of profits and tax payments to new kinds of negotiated tax "responsibility contracts," thereby strengthening the rights of localities to income from their assets, by limiting their revenue obligations to higher levels of government. In many areas of the country, tax responsibility contracts have been extended down to the level of the township (a level between the county and the village). Responsibility for collecting taxes is delegated to the government jurisdiction (which has also earned new rights to add additional local taxes and levies of its own), and the jurisdiction is obligated to turn over a quota of tax revenues to the level of government above it. Revenues collected above that target level are shared according to a variety of formulae, and in extreme cases they are kept entirely by the jurisdiction that collects them. In the same way that household contracting in agriculture reassigns rights to income from assets downward to the peasant family, tax quota contracting reassigns rights to income from assets downward to local governments (Oi 1992, 1996). As enterprises held by lower-level government jurisdictions expand rapidly and compete with older state enterprises for earnings, tax revenues shift further toward the localities (Naughton 1992). A rapid redrawing of fiscal arrangements between the Soviet center and various constituent republics was a key process in the unraveling of the Soviet political order in the late 1980s (Ellman and Kontorovich 1992). The
chapter by Wang analyzes the more gradual, yet nonetheless considerable, impact of fiscal reform upon the integrity of the Chinese state, especially the power of the center over the regions and localities.
The Quiet Revolution from Within:
Weakening the Centralized Party State
Party-state hierarchies in communist regimes were long distinguished by the dependence of officials upon their superiors, and of lower levels of government upon higher levels. Officials' living standards were specified by rank according to nomenklatura standards: salary, mode of transportation, housing conditions, and consumption patterns were all closely tied to rank. Appointments and career advancement were screened carefully by officials at the next-higher level in the hierarchy (Walder 1995). Political surveillance and loyalty screening affected officials more acutely than ordinary citizens; the mass campaign and purge served to reinforce this political dependence by eliminating suspected deviants in highly public ways. Official advancement depended upon fidelity and conformity in carrying out the party's political line. It was precisely this structure of dependence and incentive that made possible some of the greatest disasters of communism—for example, the false reporting of output and overprocurement of grain that created the massive famines of 1929–33 in the Soviet Union (Conquest 1986) and of 1959–61 in China (Bernstein 1984), or the escalating search for and elimination of class enemies (Conquest 1990; Medvedev 1989). These and other disasters of communist rule were essentially phenomena of bureaucratic conformity, and in some cases overconformity .
It has long been noted that after the initial phase of communist rule, purges and their associated uncertainties declined, and relations among officials evolved into a more secure period of stable bureaucratic administration (Kassof 1964; Lowenthal 1970; Dallin and Breslauer 1970; Hankiss 1990). While this reduced the insecurities that had led to rigid conformity in the past, it did not change the characteristic dependence of officials upon their superiors for resources, evaluation, and career advancement. Departures from central planning served to alter these patterns of dependence in three distinct ways, and in so doing ensured not merely an end to overconforming bureaucratic responses, but increasing difficulty by the center in controlling the behavior of its presumed agents in localities.
The first change is in the creation of firmer rights of local governments over their productive enterprises, especially with regard to their operation and the income to be derived from them. This has served to reduce local governmental dependence upon bureaucratic superiors for government revenue and investment funds, as the chapters by Wang, Bartlett, and Gladney illustrate. In years past, assets developed by local authorities were subject
to arbitrary expropriation by higher levels of government—that is, an arrogation of control rights and income rights by the higher level of government (Zweig 1989). In China, the end of these arbitrary seizures of revenue and income-bearing property was accompanied by a more careful specification of the local versus the state share of revenues collected from local enterprises. These rights, in turn, gave rise to new monitoring and information problems, as local officials were both agents of higher levels of government and beneficiaries of increased local revenues. One symptom of these monitoring problems is the rapid growth of extrabudgetary funds—revenues collected from enterprises but not calculated into the revenue base of local government budgets that is the basis for dividing revenues between the locality and the state, a phenomenon that Wang appropriately terms a "second budget."
The second change—related but not identical to the first—is the creation of new sources of revenue that do not depend upon the largesse or permission of superiors. For local governments, these are to be found not only in the new rights to revenue from public enterprises, but also in the lucrative new sources of revenue to be derived from a rapidly growing private, foreign, or joint-venture sector, or from foreign investment and trade. One important manifestation of this is in the use of such public property as land, buildings, or equipment by state organizations for enterprises outside of the plan. Another is found in the selling of "political insurance" to private firms, whereby they are registered as "collective" in return for larger payments to public coffers (Liu 1992). For managers of public enterprises, such sources of revenue are to be found in the opening of "branch" or "collective" enterprises wholly owned by the public firm, by establishing joint ventures, or by increasingly lucrative dealings "outside the plan," either in products or in materials. One of the messages of Gladney's chapter is that the leaders of Muslim communities have excelled in the exploitation of such independent opportunities in China.
A third change is in the creation of new sources of personal income , whether officially designated "corruption" or not. This is a central theme in RónaTas's analysis of the politically corrosive impact of the second economy in Hungary. We also observe this in the public officials who are made salaried partners of firms without making investments (Wank's chapter), in the large salaries earned by rural officials who head village "corporations" (Oi 1986, 1989a), in the officials who open their own businesses as "cadre entrepreneurs" (Nee 1991; Szelényi and Manchin 1987), in official predation upon private enterprise for payoffs or favors (Oi 1989b; Zweig 1986), in the rents extracted by public officials for the exercise of their public duties in the realm of licensing and taxation of enterprise (Oi 1989b, Zweig 1986), and in the payoffs received from foreign businesspeople and investors as a fee for official cooperation in facilitating local business operations.
All of these changes serve to open up alternative sources of revenue, income, and career advancement to officials outside of the hierarchies of the party and the command economy. As party-state officials are less dependent upon their superiors for revenue, income, and to some extent even career advancement, they become more interested in, and dependent upon, new economic activities emerging locally. Officials gradually become oriented more "downward" and less "upward" than at any time in the past. Success for local officials—whether measured in job performance, budgetary revenues, local economic prosperity, or personal income—is determined increasingly by local activities and opportunities outside the traditional structures and practices of central planning. The greater the departures and alternatives, the greater the change in official orientation, and the weaker the claims and the capacities of higher levels of government.
Political Authority in Local Settings
With the erosion of the mechanisms that once enforced discipline within the centralized party-state apparatus, and the attendant change in the orientations of local officials, the exercise of political authority in local settings changes in profound and complex ways. Increasingly, local political authority is based on control over new kinds of resources, on the forging of new kinds of political loyalties, and on the emergence of new forms of bargaining. Increased demand-making and contestation of authority by citizens is one facet of these changes, but it is hardly the dominant one usually portrayed in writings that chronicle the rise of civil society or the triumph of society over the state.
In recent research, and in the essays collected here, one can discern five separate trends in the exercise of party authority in local settings. The first is the creation of new kinds of alliances, or enhanced mutual dependencies, between officials and entrepreneurs in household or private enterprise (Solinger 1992). This is a social-structural expression of the increased autonomy of local officials from their superiors, and the enhanced orientation of officials toward new local sources of revenue and income. In many ways, as David Wank argues, these ties of patronage and mutual benefit come to supplant the earlier ties between party officials and political activists that characterized these regimes in an earlier period of their evolution. Wank shows how the owners of private businesses in the Chinese coastal city of Xiamen actively build ties with local officials, ties that are cemented by the exchange of protection and advantage for income. Bruun also shows the ways in which petty entrepreneurs and small shopkeepers in one neighborhood in the interior city of Chengdu are closely tied to officials in the neighborhood offices. Both chapters illustrate a phenomenon widely commented upon in writing about a broad variety of settings: the close involvement
of local officials in emerging market opportunities (Wong 1987; Oi 1986, 1989a; Nee 1991, 1992; Meaney 1989; Szelényi and Manchin 1987; Odgaard 1992; Solinger 1992; Staniszkis 1991; Humphrey 1991). Whereas past studies have tended to emphasize cadre predation upon successful entrepreneurs, Wank and Bruun show that such ties may also be initiated by entrepreneurs as part of their strategy for success (see also Liu 1992).
A second evident trend is the one toward some version of local "corporatism," in which local governments become intimately involved in coordinating and managing the market-oriented activities of publicly owned assets under their jurisdiction (White 1987; Oi 1986, 1988). Different analysts have stressed different reasons for this development: the incentives provided by redrawn fiscal arrangements (Oi 1992), the continuing regulative powers of local officials over an economy in transition between plan and market (Oi 1986, 1990; Nee 1989a, 1989b, 1992), or the continued control of government agencies over the supply of materials in a situation of continuing scarcity (Burawoy and Krotov 1992; Oi 1989a). All of these studies point to the consolidation of local or regional industrial empires based on public ownership and management, or some residual thereof
A third trend is the emergence of new forms of bargaining around the enforcement of authority relationships. Within public institutions, this is seen in new patterns of "hidden bargaining" between managers and workers over questions of work and pay (Kövari and Sziráczki 1985; Sabel and Stark 1982; Stark 1985; Burawoy and Lukács 1992; Walder 1987, 1989); in relations between officials and citizens, it is seen in the complex tacit negotiations employed in dealings between local officials and private entrepreneurs over the enforcement of, and compliance with, tax and other regulations (as seen in the chapters by Wank and Bruun). These changes are often subtle and are not always clearly visible; Yan's chapter illustrates the quietly profound ways in which the shift from collective to household agriculture has reduced the power of Chinese village officials and altered the practice of local government.
A fourth trend is the emergence of new forms of collective protest and the creation of new kinds of collective group identities and antagonisms (Connor 1991; Perry 1985; Nee 1989a; Stark 1989; Walder 1991). Gladney's chapter on the intensification of Muslim identity in China is an extended illustration of the ways in which departures from central planning may promote long-suppressed ethnic identities in communist and postcommunist regimes. There is an extensive and influential literature, written from the perspective of state-society relations, and sometimes framed as a "rise of civil society" or some partial approximation thereof, that charts the emergence of citizen autonomy, public dialogue, and protest and opposition in communist regimes (Arato 1989; Frentzel-Zagorska 1990; Kennedy 1990; Ost 1990; Brødsgaard 1992; Ostergaard 1989; Sullivan 1990; Strand
1990; Brovkin 1990; Mastnak 1990; Friedgut and Siegelbaum 1990; Walder and Gong 1993; Wank 1995).
A fifth trend is the emergence of organized vessels for the expression of group interests—for example, the formation of new kinds of trade associations (White 1993; Pearson 1994) or the rising role of organized religion in the community life of private entrepreneurs (Wank 1993). The private entrepreneurs' association analyzed in Bruun's chapter and the revived and newly prosperous mosques analyzed in Gladney's might be considered manifestations of this nascent trend, although one might dispute the extent to which, or the success with which, these organizations further group interests.
In light of the consistent emphasis in recent research upon the growing empowerment of society vis-à-vis the state, there are two striking things about these trends. The first is that as a structural description of local political change, only the last two trends—the rise of new group identities and the formation of independent organizations—are the concern of work in the "civil society" or "public sphere " genre, while the third—the rise of bargaining in the exercise of authority—might arguably be interpreted as a shift in power toward "society." Furthermore, the last two trends are rarely clear-cut: the evidence for them is often disputed, leading to common debates about whether civil society has emerged, is emerging, or might emerge, and usually concluding with the claim that these are the seeds of future developments.
On the other hand, evidence for the first two trends—the growth of extensive ties between local officials and private entrepreneurs, and the deep involvement of local officials in managing market-oriented enterprises—is pervasive. These are not typically described as nascent trends, and debate about them has centered not on their existence but on whether such phenomena will disappear as market allocation becomes more pervasive (e.g., Nee 1989b, 1991; Oi 1990; Stark 1990, 1992). These trends also fit poorly with the structural image of a "society" detaching itself from, and gaining greater autonomy and power vis-à-vis the "state." Instead, a different image is appropriate: that of the lower reaches of a state structure gaining increased autonomy from higher reaches and forging new kinds of political and economic ties with individuals and enterprises outside.
The second striking thing about these trends is that the process of political decline they represent cannot be understood without an appreciation of the changing interests, orientations, and capacities of party-state officials. Who are the political actors responsible for the decline of the centralized party-state? The pronounced past emphasis upon ordinary citizens as agents of change who struggle with a recalcitrant state has tended to obscure the crucial role played by party-state officials in the decline of the very institutions with which they are so intimately identified. When party officials seek new sources of income in private enterprise or build alliances with
entrepreneurs in the private economy, they act in a self-interested and "nonpolitical" fashion, but the aggregate political consequences of these individual actions can be very large. Officials who pursue individual interests in this fashion do not need to act in a concerted fashion for their activities to have a large impact. Indeed, the processes of change emphasized in this volume underline the fact that large systemic changes can occur without the agency of citizen resistance, whether organized or not.
The Self-Reinforcing Character of Political Decline
The process of political decline set in motion by departures from central planning is to a considerable degree self-reinforcing. As departures from central planning proceed, the costs of reversing them rise, and the party's political will, as well as organized capacity to reverse them, declines. Once these economic changes have proceeded far enough to alter patterns of dependence and sources of income among officials significantly, the costs of reversal become so large that opposition to change by hard-line communists can do little more than slow its pace. There is no feasible road back to the status quo ante, even though the effects of economic change on the political system may be widely evident and openly reviled by hard-line communists. This is true for the following reasons.
First, the new sources of income and revenue detailed earlier create powerful vested interests in the maintenance and expansion of departures from central planning. Peasant households increasingly exercise de facto property rights over land and enterprise; local governments enjoy enhanced revenues; officials gain higher personal incomes from new alternative sources; officials in one area want the expanded foreign trade and investment privileges that other areas have already been granted; the private sector supplies revenues, raises incomes, and solves unemployment problems for local governments. Retrenchment and reconsolidation of the former practices of central planning must confront powerful new vested interests in existing departures—whether from large population groups such as peasants or politically pivotal ones such as local government officials and managers of public enterprise.
Second, even should national officials seek to reverse a course of departures from central planning, they could do so only through the agency of local officials—one of the key groups who have gained the most through such departures. To ask these people to curtail departures from central planning is to ask them to cut their own lucrative sources of government revenue, organizational earnings, and personal income. Therefore in addition to the development of vested interests around these economic departures, the organized means for the regime to implement a reversal of policy is itself
progressively undermined. What makes these departures so difficult to reverse is not simply their popularity with citizens, but their popularity with the very agents through whom the party center must enforce its orders (see also Nee and Lian 1994).
These changes do transform—indeed undermine—the institutions upon which communist regimes were founded and long stabilized. Yet this decline in the organizational capacity of a communist regime does not lead ineluctably to any specific political outcome. In Hungary, the end came through a fundamental division within the party leadership, a split, negotiated transition to free elections, and electoral defeat of the reform wing of the Hungarian Socialist Workers' party (Bruszt 1990). Yet other outcomes would be equally consistent with this quiet undermining of the traditional institutions of communist rule: a coup or revolution; fragmentation of the polity along regional lines, leading either to a new form of federalism that enshrines increased local autonomy or to national fragmentation and civil war; or gradual evolution into a more fluid and contested form of authoritarianism, which in the optimistic scenario will gradually evolve into multiparty competition. The processes we have examined here make such political changes inevitable, but whether these changes will be abrupt or gradual, violent or peaceful, is more heavily influenced by processes that are more historically contingent and short-term than the ones that are the subject of this book.
Anticipations of Postcommunist Transformations
At first glance, the studies collected in this volume might appear to have little direct relevance for the economic and political transformations of the postcommunist era. All of the studies in this volume are preoccupied with the effects of economic change upon communist rule. The collapse of the old regime and the uncertain transition to the new would appear to raise radically new questions and highlight new uncertainties and instabilities. Studies conceived in an effort to understand the evolution and decline of communist regimes might appear to be too focused upon historical issues to be of great relevance in understanding the new.
Such appearances are deceiving. When one takes up new questions about the postcommunist era, one defines the political outcomes differently, but departures from central planning continue to affect the path of political change. If the issue of concern in this volume is the governability of a communist regime, the question today is often how the transition to a market economy may affect the governability of a post communist regime. Setting aside for the moment questions about the economic viability of various plans for the transition to a market economy, there remains the question of how specific reallocations of rights to control and derive income from productive
assets will affect the distribution of political power and the exercise of political authority, however constituted.
In this newly fluid setting, the now-familiar trends — and the questions we have sought to answer in this volume — reappear in altered form. To what extent do departures from central planning reallocate rights to households and ordinary citizens, affect a downward redistribution of political power, and promote the development of organized parties and political associations, trade unions, and representative democracy? To what extent is this trend offset by the competing development of concentrations of corporate power in the former state enterprises and corporations, or in local alliances between government officials, bankers, and entrepreneurs? It is tempting to assume the latter trends away by reference to a fuller development of a market economy, but we have already seen that party-state officials can adapt quite well to market conditions. The emergence of "civil society" today is still fraught with the same difficulties, and offset by the same competing trends, as those detailed in this volume. The same kinds of alliances between entrepreneurs and officials that lead to the emergence of "cadre entrepreneurs" or "nomenklatura capitalism," and to the consolidation of local concentrations of corporate economic power, have emerged and are widely commented upon, and lamented, in the postcommunist world. In these countries, political debate often centers on how to arrange departures from central planning to prevent these outcomes. In this sense, our analyses of the political consequences of departures from central planning under Communist party rule lead seamlessly to new questions about the construction of a postcommunist order.
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