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...political parties favoring capitalism. integrate identity, institutional, and social movement theories to describe the emergence of four competing social movements (capitalist democracy, socialist command, social democracy, and populist command) that are undertaken to pursue politico-economic reforms. We discuss the implications for developing an entrepreneurial culture in Central and Eastern Europe.
Introduction
Emerging economies are countries experiencing rapid economic development that is stimulated by transitioning institutional policies favoring and supporting private enterprise (Hoskisson, Eden, Lau, & Wright, 2000). The adoption of capitalist institutional frameworks in place of previous economic institutions founded in socialism characterizes the transition of countries in Central and Eastern Europe over the past two decades. The intended purposes of these changes have been to increase the influence of the free market and infuse entrepreneurial risk taking into the decisions made within the context of emerging economies (Zahra, Ireland, Gutierrez, & Hitt, 2000).
The emerging economies in Central and Eastern Europe present both opportunities and risks on a global scale (Baldwin, Francois, & Portes, 1997). If, as hoped, privatization and free-market forces eventually engender widespread entrepreneurial behavior, the pro-democracy and economic reforms will have been successful in displacing previous institutions. Indeed, the stabilization of Central and Eastern European economies could then be expected to promote further entrepreneurial investments from developed economies. Conversely, should institutional reforms fail to stimulate adequate levels of entrepreneurship, "stagnant or falling incomes and impoverishment of a large slice of the population could foster widespread disillusionment with market economies and democracy" (Baldwin et al., p. 127). As is evident from these concerns, entrepreneurship is not only an intended outcome of the transition from socialism to capitalism but also a key factor in insuring the transition's success.
The incongruent transition of formal and informal institutions remains a key obstacle to promoting entrepreneurship in emerging economies. Formal institutions refer to the rules, regulations, laws, and supporting apparatuses that establish order in economic, legal, and political frameworks (North, 1990). Informal institutions include the norms, beliefs, values, and similar conventions that form the sociocultural relations within a society (North). While formal institutional policies and structures supporting capitalism have steadily emerged in Central and Eastern Europe, informal institutions remain divided between old and new economic systems. By deterring widespread adoption of entrepreneurial behavior, informal institutions persisting from the socialist system undermined the transition of formal institutions during the 1990s that were intended to promote entrepreneurship. Furthermore, economic turmoil, lack of social justice, growing inequality, and deteriorating welfare services have created dissatisfaction with the emerging capitalist economic system in many countries of Central and Eastern Europe.
How formal and informal institutions evolve has significant implications for developing an entrepreneurial culture in Central and Eastern Europe. By entrepreneurial culture, we refer to a national system of shared values in a particular society that embraces and supports entrepreneurship (Mueller & Thomas, 2000). Here, we integrate identity, institutional, and social movement theories to describe the ongoing transition of the political economies within these countries. Our underlying argument is that following the transition of formal institutions in Central and Eastern Europe, a division remains, with some individuals identifying with the new capitalist economic system and others identifying with the previous socialist framework. Entrepreneurship is expected to be constrained in countries with strong social movement activity that advocates the values and norms of the previous socialist system.
Social movements to constrain entrepreneurship may also result from recent experiences in Central and Eastern Europe. For example, the visible success of entrepreneurs who have taken advantage of the opportunities available in the newly founded capitalist framework has led to a number of troublesome outcomes, including: (1) income inequality; (2) dissatisfaction with capitalism by less successful individuals; and (3) less successful individuals' increasing identification with political parties favoring noncapitalist economic systems. In some countries where inequalities are readily apparent, widespread dissonance with capitalism has initiated a social movement for the reversal of formal institutional reforms and a limitation of the scope of the market system. Particularly disconcerting is that the separation between proponents of capitalism and socialism and the institutional vacuum in Central and Eastern Europe have also allowed the emergence of yet another group that dis-identifies with both capitalism and socialism and favors more populist policy changes (Evans & Whitefield, 1993). The recent reduced pace of transition and the emergence of populism in many countries are troublesome signs from the perspective of entrepreneurship in that such institutional changes decrease the opportunities available to potential entrepreneurs. Because entrepreneurship is widely viewed as an integral part of economic development, an environment of a country that impedes entrepreneurship may have negative consequences in the long term, including a reduction in value-creation potential, a lack of local innovation, and job losses (Schumpeter, 1950; Zahra et al., 2000).
Our discussion of the politico-economic systems in Central and Eastern Europe yields several important theoretical contributions. First, we describe the transition from socialism as an open-ended process with an uncertain outcome. How this transition stabilizes depends on the nature and timing of both political and economic strides that are taken to encourage the acceptance of entrepreneurship in society. A second contribution is our theoretical argument that different core economic values are the bases of the tension between proponents of capitalism and those of socialism. We identify populist movements as taking advantage of this tension. The political support of populist movements is a product of successfully discrediting existing political parties and promoting different values (e.g., reducing crime or preserving the national identity). The folding of aspects of the political science domain back into entrepreneurship research is our third contribution. Politico-economic systems are a subject of great past importance in research, but less so now. Nevertheless, we argue that interactions between political and economic systems remain especially salient in emerging and transitioning economies such as those in Central and Eastern Europe. Understanding the economy is not possible without taking into account the political system and the ease with which changes may occur in it. As we argue herein, the instability and lack of experience with political freedom in such economies increase the ease with which political change may occur, leaving the development of an entrepreneurial culture uncertain.
The article proceeds as follows. We begin with a discussion of entrepreneurship's relationship to political economy. We then elaborate theory concerning the role of institutions in economies and how citizens' identification with economic values (more specifically, identification with political parties promoting specific economic values) can lead to social movements driving economic and political institutional reforms. From this point, we turn to a discussion of the institutional policies within socialism and capitalism. We contrast the policies and structures based on the differing economic values promoted in each framework and explain why attempts to establish capitalism in Central and Eastern Europe have yet to meet success. We propose how different social movements on the political stage advocating the different values of socialism and capitalism (and now also populism) may shape the environment for entrepreneurship. We conclude by offering implications of our work for entrepreneurship theory and practice involving government policy.
Theory Development
Political Economy and Entrepreneurship
A political economy is a system through which policy decisions are analyzed on judgments of value and implemented to produce, distribute, and exchange this value (Robbins, 1981; Sidgwick, 1924). A political economy includes interdependent political and economic structures. On the political side, actors are charged with the task of forming policies that enable citizens to provide sufficient value for themselves as well as for funding of the state's public services (Sidgwick; Smith, 2003). Political actors gain their position and power through the support of the citizenry. Remaining in power requires that political actors retain this support by establishing policies that provide value to the citizenry (Weingast, 1995).
Value manifests not only in material wealth but also in citizens' common rights (e.g., liberty and equality) and general public services (e.g., education and health care). The economy (i.e., the structure of institutions, firms, and entrepreneurial activities that facilitates the dispersion of scarce resources throughout a society) plays a central role in creating material wealth and allowing the state to provide other general public services. Entrepreneurship refers to processes through which more efficient means of producing, distributing, and exchanging resources are recognized and exploited (Ireland, Hitt, Camp, & Sexton, 2001). Because resources are scarce, the ability to disperse these resources more efficiently allows a larger portion of society to reap their value.
The attitudes of political actors toward entrepreneurship has significant implications for how value (in all forms) is produced, distributed, and exchanged throughout a society. Some political actors prefer a larger role of the state in distributing scarce resources, as in socialist systems. Conversely, capitalist-oriented political actors favor the market in dispersing scarce resources. In reality, the stability of most existing politico-economic systems is based on reaching a balance of state and market roles in providing value for society.
Economies and Institutions
Institutions refer to "the humanly devised constraints that shape human interaction" (North, 1990, p. 3). While formal institutions are economic, legal, and political constraints that define legitimacy within regulations, laws, and supporting apparatuses, informal institutions define what is legitimate or socially desirable within the system of rules, norms, values, and beliefs (Suchman, 1995). Because institutions constrain to acceptable boundaries what opportunities may be pursued, they tend to establish how entrepreneurs may legitimately explore and exploit opportunities (Clemens & Cook, 1999). For example, because capitalism values free markets, many different types of opportunities are available for individual entrepreneurs and entrepreneurial firms competing in these economies. Conversely, within a socialist system valuing social justice, institutions minimize the legitimacy of independent forms of entrepreneurship, favoring the redistributive role of the state. Opportunities for entrepreneurship also differ owing to the changes in institutional boundaries over time.
States erect and mold institutions to preserve the core values of their economic systems. The extent to which formal and informal institutions are aligned increases the stability of the overall economic system. Nevertheless, the alignment of formal and informal institutions requires the state to monitor the society, to eliminate opposition that surfaces in a consistent manner, and to reward behaviors and outcomes that are considered legitimate.
Identification and Social Movements
Identification refers to a cognitive, moral, or emotional attachment an individual has with a group based on similar, shared characteristics (Nahapiet & Ghoshal, 1998; Polletta & Jasper, 2001). More specifically, identification is an attitudinally based attachment that individuals have with a certain group (Ashforth & Mael, 1989). Over time, identification may lead to an internalization of group values (Ashforth & Mael),...
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