Toward a theory of the role of the state in market transition: from bargaining to markets in post-communism

Abstract

State socialism is often analysed as if all institutions functioned in directions diametrically opposed to those in liberal Western states. A frequent assumption in both the East and the West, therefore, is that marketization and democratization require the dismantling of powerful, centralized states. This paper explores changes in the distribution of income in Poland between 1982 and 1991. As market reforms are introduced, power shifts from centralized to decentralized authorities, and from the state to the private sector. Market coordination produces new opportunities and sources of income for rentiers and entrepreneurs, but it also substantially reduces the income share going to direct producers. These data suggest that both economic equality and income determination depend on changes in state policy more than on fledgling markets. Dismantling the centralized state organisation is proved to be much less favorable for economic growth and a better income distribution than usual liberalism would claim.