Globalization, Political Institutions, and Redistribution in Central and Eastern Europe

• Author: Bilyana Petrova,Aleksandra Sznajder Lee
• DOI: http://doi.org/10.1177/00104140221100199
• Published date: 01 March 2023
• Date: 01 March 2023
• Subject Matter: Articles

Article

Comparative Political Studies

2023, Vol. 56(3) 395–428

© The Author(s) 2022

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DOI: 10.1177/00104140221100199

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Globalization, Political

Institutions, and

Redistribution in Central

and Eastern Europe

Bilyana Petrova

1

and Aleksandra Sznajder Lee

2



Abstract

We examine the role of political institutions in mediating the effects of

globalization on economic redistribution in Central and Eastern Europe. The

region represents a least-likely case of welfare state resilience in the face of

global economic pressures given its reliance on foreign capital and consid-

erable domestic elite support for neoliberal recipes during the post-

communist transition. Yet, contrary to the race-to-the-bottom hypothesis

and consistent with the compensation perspective, we f‌ind that economic

openness is on average related to higher redistribution. Using the high-quality

European Union Statistics on Income and Living Conditions database for

2004–2018, we f‌ind that this effect is particularly pronounced in institutional

environments where votes are more accurately translated into legislative

seats (low disproportionality) and where governments face greater scrutiny

both during elections (vertical accountability) and between them (diagonal

accountability). Thus, even in a region that adopted “competitive deregula-

tion,”the downward pressures of globalization were limited by electoral

pressures for economic redistribution.

1

Texas Tech University, Lubbock, TX, USA

2

University of Richmond, Richmond, VA, USA

Corresponding Author:

Bilyana Petrova, Department of Political Science, Texas Tech University, 113 Holden Hall, Boston

& Akron Streets, Lubbock, TX 79409-1015, USA.

Email: bilyana.petrova@eui.eu

Keywords

East European politics, globalization, political economy, economic

redistribution, welfare states

Introduction

The last few decades have put governments under unprecedented budgetary

strain. The Great Recession of the late 2000s and the European sovereign debt

crisis of the early 2010s exacerbated the considerable f‌iscal constraints im-

posed by demographic change and intensifying globalization. At the same

time, they vastly increased the number of citizens dependent on state-

sponsored social programs. Policymakers have thus faced diff‌icult choices

as they have sought to address emerging needs, alleviate rising economic

insecurity, and adapt existing social policies to a context of “permanent

austerity”(Pierson, 1998).

The sustainability of existing welfare states in an era of deepening in-

ternational integration has spurred a rich literature that puts forth two com-

peting hypotheses. While the “race-to-the-bottom”or “eff‌iciency”perspective

predicts that governments will reduce redistribution to prevent capital f‌light,

the “compensation”argument expects social safety nets to expand to shield

citizens from heightened risk (Cameron, 1978;Ohmae, 1995;Rudra, 2008;

Rodrik, 1998). Although multiple studies initially discarded the former,

claiming that democratic cabinets respond to public demands for economic

redistribution, recent work casts doubt on the resilience of generous welfare

states (Heimberger, 2021). Indeed, as Busemeyer (2009) notes, the newer

“phase[s] of globalization fundamentally transformed the economic and

political basis of the compensatory welfare state”as remaining closed to

international trade and capital was no longer a policy choice political elites

were willing to consider. Because global integration has been a gradual

process with long-reaching consequences, its long-term effects might have

begun to unravel only recently. The impact of globalization could thus have

changed or crystallized over time, leading to different effects in different

periods and countries (Busemeyer, 2009;Ruggie, 1997).

Has the redistributive capacity of modern democracies eroded in the

contemporary period? We set out to explore this question in the context of the

new democracies of Central and Eastern Europe (CEE). The enormity of

external pressures and the relative weakness of representative institutions

render this region a least-likely case of welfare state endurance in a globalized

world. In the aftermath of the collapse of communism in 1989, the changing

economic, ideational, and demographic environment made the communist-era

welfare state unsustainable. Inf‌luential international f‌inancial institutions

(IFIs) that postcommunist countries depended on for f‌inancing and policy

396 Comparative Political Studies 56(3)

advice promoted tighter eligibility criteria and decreased government re-

sponsibility (Deacon, 2000). Inf‌luenced by these IFIs, transition states went

beyond any other in terms of liberalization (Appel & Orenstein, 2018;

Vachudova, 2005), slashing corporate taxation rates, introducing f‌lat tax

systems, privatizing pension schemes, deregulating housing and labor mar-

kets, and overhauling healthcare and educational systems. Declining labor

unions and delegitimized left-wing parties were unable to counteract this

policy course. Faced with aging populations, rising debt burdens, and scarce

domestic capital, Central and Eastern European governments were expected to

cut social spending and benef‌it entitlements. The deteriorating economic

conditions of the 2010s and the illiberal turn that the region took after its

accession to the European Union should have accelerated the trend toward

lower redistribution.

Has this been the case? Drawing on existing work, we argue that national

governments in Central and Eastern Europe have in fact sought to alleviate the

rising uncertainty and widening income differentials brought about by eco-

nomic openness. Given the region’s legacy of comprehensive social provision

and high level of support for state-sponsored redistribution, we expect pol-

icymakers to have deeply entrenched incentives to maintain existing welfare

programs even in the presence of strong, mainly external, pressures for

welfare state retrenchment. We believe that this effect is stronger in insti-

tutional environments which raise the costs of unpopular reforms. Specif‌i-

cally, we focus on accountability and electoral disproportionality. While the

latter ref‌lects the connection between representatives and their constituents by

measuring the discrepancy between the share of votes cast and the share of

legislative seats gained by political parties, the former captures voters’ability

to punish off‌iceholders for implementing unwanted policies or for failing to

deliver on their promises. Low accountability and high disproportionality

decrease the probability that public discontent will translate into electoral and

reputational losses for incumbents. Globalization is thus associated with

redistributive efforts in political contexts that motivate elected legislators to

cater to the electorate’s demands.

We test these hypotheses with data from 11 Central and Eastern European

countries between 2004 and 2018. Contrary to the race-to-the-bottom hy-

pothesis and consistent with the compensation perspective, we f‌ind that

economic openness is on average related to higher redistribution. This effect is

particularly pronounced when accountability is low and disproportionality is

high. In line with recent work (Ibenskas & Polk, 2021), this suggests that

policymakers in the region are not isolated from public pressures and remain

sensitive to the electoral costs of welfare retrenchment. In fact, our results

point to a persistent effort to shield citizens from the disruptions induced by

globalization despite the adoption of comprehensive deregulatory reforms

meant to attract foreign capital (Appel & Orenstein, 2016). The presence of

Petrova and Sznajder Lee 397