The Role of Ideology in Privatization Programs

In order to understand the transformation of ownership in post-communist states, ideology must be taken into account," stated Hilary Appel, Assistant Professor of Political Science at Claremont McKenna College and a Kennan Institute Title VIII-Supported Research Scholar at a Kennan Institute lecture on 25 October 1999.

Using the experiences of Russia and the Czech Republic for comparison, Appel set out to answer the question of why some governments and not others included special privileges for industrial and regional groups in mass privatization in order to explore more broadly the factors determining the design of privatization programs and the evolution of property rights in post-communist countries.

According to Appel, empirical studies of post-communist privatization tend to emphasize the relative power of various interest groups in society to explain the design of privatization in specific countries. Given this logic, management and labor should have received equal privileges and benefits in Russia and the Czech Republic since both states emerged from similar property rights systems and industrial structures, in which one could have expected managers and labor having, in principle, equivalent material interests and prior claims to property. This was not the case, Appel stipulated.

In the Czech mass privatization program, the government excluded special privileges to employees and regional groups in society. However, in the Russian mass privatization program, the government ultimately provided enormous privileges for various groups, especially managerial employees.

Why did these two cases differ so radically in the extent of privileges offered to certain groups? Appel argued that ideology--a coherent set of ideas and beliefs shared by many is the key variable needed to answer that question.

Appel offered a four part argument outlining how ideology determines the development of privatization programs and shapes property rights systems. First, ideology shapes the choice by policy-makers to base the new property system on private ownership. It is intuitive, Appel argued, that economic ideas embedded in economic theory influence economic policy-making.

Second, prevalent ideologies affect the economic interests and strength of potential opponents to govern-ment programs. In the transformation of property rights in post-communist states, the ideological context directly shaped the legitimacy and thereby the authority of certain groups. In the Czech case, both institutionalized and informal manifestations of anti-communism served to discredit labor demands and made managers reticent, thus preventing these two groups from shaping the design of privatization. In Russia, however, anti-communism was less prevalent in political discourse. As a result, the legitimacy and power of many groups who benefitted from the past communist regime was strengthened (or at least not weakened) which affected their ability to advance their claims to property during the reformulation of the ownership regime.

Third, ideology shapes how leaders go about building support for their programs. Appel argued that Russian property officials, in contrast to those in the Czech Republic, tried to establish a system of property relations without ideological reinforcement. Czech reformers linked the creation of the new property regime to the founding of a post-communist national identity. In Russia, a strong reliance on material incentives during privatization and the absence of an ideological legitimating idea hindered Russian liberals' attempts to implement and sustain the privatization program, and ultimately led them to grant certain privileges to certain groups in order to buy support and ensure compliance to the new ownership regime.

Fourth, Appel argued that a lack of compatibility between the ideological basis of a program and the ideas of elite and mass groups increases the cost of political reinforcement. The incompatibility becomes important when leaders lack the political skill to overcome the high costs of political reinforcement and popular support.

Appel notes that in the Czech Republic, reformers promoted privatization by portraying it as anti-communist, pro-European, and thus essentially Czech. Such a strategy would have been more complicated in Russia due to ideological incompatibilities. Appel noted that since the beginning of market reforms, the rejection of the Soviet past in favor of a new Western liberal orientation was often seen as a rejection of oneself and demeaning to one's past. So even if reformers had been willing to promote such a pro-Western private property legitimating campaign, rather than relying on economic incentives, the process would have been extremely difficult.

Appel contended that although in Russia privatization officials refused on principle to develop an ideological campaign for mass privatization, more commonly, new leaders lacked the political skill to construct effective ideological reinforcing mechanisms. Consequently, where there is no immediate resonance between the ideas behind privatization and the ideas of major groups in society, and when political entre-preneurs cannot construct effective ideological rein-forcing mechanisms, the incompatibility between the ideas of a program and the ideological context has a generative effect on policy content by altering and hindering the realization of a new property regime.