Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 00-5: Missing social capital and the transition in Eastern Europe

Martin Paldam () and Gert Tinggaard Svendsen ()
Additional contact information
Martin Paldam: Department of Economics, Postal: Aarhus University, 8000 Aarhus C, Denmark
Gert Tinggaard Svendsen: Department of Economics, Aarhus School of Business, Postal: Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: The transition of the »Old Communist« countries of East and Central Europe has been disappointingly slow given the amount of physical and human capital available at the start of the transition. We argue that this slowness is caused by the lack of social capital, which is an important factor of production. The Communist system replaced it with an official organization of society. Further, the communist system needed a set of grey/black networks of »fixers« to give it the necessary flexibility. These networks were tolerated, but controlled. When the Communist regime ceased the official organizations collapsed and so did most of the control systems. This allowed a flourishing of the grey/black networks, which can be harmful to the operations of a market economy. The available data are still scanty, but they confirm the argument.

Keywords: Social capital; network; communism; Eastern Europe; Trust; Corruption; Political participation

JEL-codes: A12; C71; D23; D70

21 pages, January 1, 2000

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