Early transition histories and vested interests

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Economic institutions

In Romania and Ukraine resistance to reform developed among strong vested interests following the collapse of central planning, although for rather different reasons.¹

In Romania the former communist elites initially retained power, controlling a still largely state-run economy and opposing further enterprise restructuring and privatisation. In Ukraine industrial assets which survived the early transition recession were based primarily in the steel-producing east of the country and depended on access to cheap natural resources and energy, tax preferences and the protection of the domestic market. Their new owners permeated government and the media and amassed significant influence and financial resources. The leaders of the Orange Revolution sought to tap some of those resources in order to contest the elections, and the price was most likely an agreement to respect the status quo in terms of the business environment, ownership and business practices.

The Slovak Republic underwent a similar early period of privatisation benefiting an anti-reform elite, but this was cut short by the 1998 election. Georgia was similar to Romania in that the former communist elites were able to consolidate their power. Unlike Romania and Ukraine, however, Georgia did not have heavy industries. Its surviving economic sectors were highly decentralised and there were no Georgian oligarchs. Furthermore, the old elites mismanaged the country so badly that they lost popular support to a much greater extent than the incumbents in Ukraine. Unlike the run-off election that followed the November 2004 Orange Revolution, the January 2004 election that brought Saakashvili to power was uncontested, and less than 4 per cent of the electorate voted against him.

1. The general argument underlying this section – the argument that partial reforms and lack of initial political competition can create vested interests which oppose further reform – has been made by a number of authors, including Hellman (1998), EBRD (1999), Shleifer and Treisman (2000), and Aslund et al. (2001). See Aslund (2013) for additional references. [back]

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