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Recombinant Property in East European CapitalismAuthor(s): David StarkSource: The American Journal of Sociology, Vol. 101, No. 4 (Jan., 1996), pp. 993-1027Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/2782236 .

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Recombinant Property in East EuropeanCapitalism1

David StarkCornellUniversity

Recombinantpropertyis a formoforganizationalhedginginwhichactorsrespondtouncertaintyby diversifyingassets,redefiningand

recombiningresources.It is an attemptto hold resourcesthat canbe justifiedbymorethanonelegitimatingprinciple.Propertytrans-formationinpostsocialistHungaryinvolvesthe decentralizedreor-ganizationofassets and thecentralizedmanagementofliabilities.Togethertheyblurtheboundariesofpublicandprivate,thebound-ariesofenterprises,and theboundednessofjustificatoryprinciples.Enterprise-levelfieldresearch,data on the ownershipstructureofHungary's220 largestenterprisesand banks,and an examinationof thegovernment'srecentdebt consolidationprogramssuggesttheemergenceof a distinctivelyEast European capitalismthat will

differas muchfromWestEuropean capitalismsas do contemporaryEast Asian variants.

INTRODUCTION

Sociologybeganas a scienceoftransition,foundedat ourcentury'sturnon studies of the epochal shiftsfromtraditionto modernity,ruraltourbansociety,gemeinschafttogesellschaft,feudalismtocapitalism,andmechanicaltoorganicsolidarity.For thefoundersofsociology,thecrisis

1 Researchforthispaperwas conductedwhiletheauthorwas a visitingfellowat theInstituteforAdvancedStudy/CollegiumBudapestandwas supportedby grantsfromtheNationalScienceFoundation,IRIS (InstitutionalReformand theInformalSector),and theProjectonCorporateGovernanceoftheWorldBank/CentralEuropeanUni-versity.My thanksto Luc Boltanski,Ronald Breiger,Rogers Brubaker,Laszl6Bruszt,EllenComisso,PaulDiMaggio,NeilFligstein,GeoffFougere,Istvin Gabor,GernotGrabher,SzabolcsKem6ny,Janos Kornai,JanosLukacs, Peter Murrell,

Laszl6 Neumann,ClausOffe,KentRedding,AkosR6na-Tas,Ivan Szelenyi,AndrewWalder,PamelaWalters,and especiallyMoniqueDjokicStarkfortheircriticismsofan earlierdraft.Correspondencemaybe addressedto David Stark,DepartmentofSociology,UrisHall, CornellUniversity,Ithaca,NewYork 14853.

? 1996 by The Universityof Chicago. All rightsreserved.0002-9602/96/10104-0006$01.50

AJS Volume 101 Number4 (January1996):993-1027 993



AmericanJournalofSociology

besettingEuropeansocietiesat theendofthe 19thcenturywas diagnosedas a normativeand institutionalvacuum. The old orderregulatedby

traditionhad passed, buta new moralorderhad notyetbeenestablished.Duringourownfinde siecle,notthecrumblingoftraditionalstructures

butthecollapseof communismgives new lifeto the transitionproblem-atic (Nee 1989; Lipset 1990; and see Alexander[1994]foran extendedcriticaldiscussion).Withinthatproblematic,thepresentis studiedas anapproximationof a designatedfuture(Blanchard, Froot, and Sachs1994), riskingan underlyingteleologyin which conceptsare drivenbyhypostasizedend-states.In the frameworkof transitology,the transi-tionalpresentis a periodofdislocationas societyundergoesthe passage

througha liminalstatesuspendedbetweenone social orderand another(Bunce and Csanadi 1993), each conceivedas a stable equilibriumorga-nized around a coherentand moreor less unitarylogic.

But is ours stillthecenturyof transition?And is thatmodelofsocialchange, so formativein the launchingof sociology,still adequate forunderstandingthemomentouschangesincontemporaryEasternEurope?

Difficulttoassimilatewithinthetransitionproblematicarethenumer-ous studiesfromEasternEurope documentingparalleland contradictorylogicsinwhichordinarycitizenswerealreadyexperiencing,fora decadepriorto 1989, a social worldin which variousdomains werenot inte-gratedcoherently(Gaibor1979, 1986; Szelenyi 1988; Stark 1986, 1989;Rona-Tas 1994).2 Throughsurveyresearchand ethnographicstudies,researchershave identifieda multiplicityofsocial relationsthatdid notconformto officiallyprescribedhierarchicalpatterns.These relationsofreciprocityand marketliketransactionswerewidespreadinsidethe so-cialistsectoras well as in the "secondeconomy"and stemmedfromthecontradictionsofattemptingto"scientificallymanage"an entirenational

economy.At theshop-floorlevel, shortagesand supplybottlenecksledto bargainingbetweensupervisorsand informalgroups;at themanage-rial level,the taskofmeetingplan targetsrequireda densenetworkofinformaltiesthatcutacrossenterprisesand local organizations;and theallocativedistortionsof centralplanningproducedthe conditionsforthepredominantlypart-timeentrepreneurshipof the secondeconomiesthatdifferedinscope, densityofnetworkconnections,and conditionsoflegal-ity acrosstheregion(Gaibor1979;Kornai 1980; Sabel and Stark 1982;Szelenyi1988).

The existenceofparallelstructures(howevercontradictoryand frag-mentary)in these informaland interfirmnetworksthat "got the job

2 East European scholars have long argued that social change is a transformationalreshapingof enduringstructuresexhibitingmultiplicityratherthan uniformity(Kon-rad and Szelenyi 1979; Szuics 1985; Staniszkis 1993; Szelenyi 1994).

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done" means that the collapseof the formalstructuresof the socialistregimedoes notresultin an institutionalvacuum. Instead, we findthe

persistenceofroutinesandpractices,organizationalformsand socialties,thatcanbecomeassets,resources,andthebasisforcrediblecommitmentsand coordinatedactionsin thepostsocialistperiod(Bourdieu1990;Nel-son and Winter1982). In short,in place ofdisorientation,we findthemetamorphosisof sub-rosaorganizationalformsand the activationofpreexistingnetworksof affiliation.

If, by the 1980s, thesocietiesofEastern Europe weredecidedlynotsys-temsorganizedarounda singlelogic, theyare notlikelyin thepost-socialistepochtobecome,anymoreor less than ourown,societieswith

a singlesystemidentity.Change,evenfundamentalchange,ofthesocialworldis notthepassagefromone orderto anotherbutrearrangementsin the patternsofhow multipleordersare interwoven.Organizationalinnovationin this view is notreplacementbut recombination(Schum-peter1934).

Thus, we examinehow actorsinthepostsocialistcontextarerebuildingorganizationsand institutionsnot on theruins but with the ruins ofcommunismas theyredeployavailable resourcesin responseto theirimmediatepracticaldilemmas. Such a conceptionof path dependencedoes not condemnactorsto repetitionorretrogression,3forit is throughadjustingtonew uncertaintiesby improvisingon practicedroutinesthatneworganizationalformsemerge(Nelsonand Winter1982; White1993;Kogutand Zander 1992;Sabel and Zeitlin1996).The analysisthat fol-lowsemphasizestheorganizationalreflexivitythatis possiblewhenactorsmaneuveracrossa multiplicityoflegitimatingprinciplesand strategicallyexploit ambiguitiesin the polyphonyof accountsof work,value, andjustice that composemodernsociety (Boltanski and Thevenot 1991;

White1992;Stark1990;Padgettand Ansell1993; Breiger1995).

A New Typeof MixedEconomy?

This articleexaminestherecombinatorylogicoforganizationalinnova-tionin therestructuringofpropertyrelationsin Hungary.It asks, Arerecombinantprocessesresultingin a new type of mixedeconomyas adistinctivelyEast Europeancapitalism?

For morethan 30 years,policy analystsin EasternEurope debated

the "correctmix of plan and market"(Stark and Nee 1989). By the

3See, by contrast,BurawoyandKrotov'saccountofchangeas retrogression:"OurcasestudysuggeststhatwiththewitheringawayofthepartystatetheSovieteconomy,farfromcollapsingortransformingitself,hasassumedan exaggeratedversionof itsformerself' (1992, p. 34).

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mid-1980sinHungary,thedebatehad shiftedtothecorrectmixof"pub-lic and private property"as the earliersacrosanctstatus of collective

propertyerodedwiththe growthof thesecond economy.It was thus,inthewaningyearsofstatesocialism,thatGaibor(1986) and Szelenyi(1988)coined the term"socialist mixedeconomy"to designatethe new eco-nomicconfiguration.4Meanwhile, Stark(1989, p. 168),amplifyingGa-bor's call to acknowledgea mixedeconomy"as a viable hybridformand notas inherentlyunstableand necessarilytransitional,"questionednonethelesswhethertheconceptofmixedeconomywas adequate tograspthe emergentphenomenaoflatesocialism.On thebasis offieldresearchon "intrapreneurial"subcontractingunitsin Hungarian firms,I arguedthataspectsofemergentprivatepropertywerenotrespectingthebound-ariesofthe secondeconomybutwerebeingfusedwithpublicownershipinside the socialistfirmresultingina "diversificationof propertyforms."Identifying"hybridmixturesofpublicownershipand privateinitiative"(Stark 1989,pp. 167-68) I arguedthat,insteadofa mixedeconomywithwell-boundedpublicandprivatesectors,analysisshouldbegintoaddressthegrowingpluralityof "mixedpropertyforms"thattransgressedandblurredtraditionalpropertyboundaries.

ScholarsofeconomicreformsinChinasubsequentlydevelopedrelatedconceptsto analyzethefiscalreformsreshapingincentivesamonglocalgovernmentsgivingrise to "townshipand village enterprises."Oi's(1992) conceptof "local corporatism,"Nee's (1992) "hybridproperty,"and Cui's (in press)notion of "moebius-stripownership"each illumi-nated a particularfacetof Chinesepropertyreformsthatsupportedthegeneralconclusionthat China's is not a simplemixedeconomybut akaleidoscopeof mixedpublicand privatepropertyforms.

Of special relevanceto myconcernsis Walder's (1994) insightthat

propertyreformshouldnotbe equatedwithprivatization.Walderarguesthat"clarificationofpropertyrights"in the Chinese fiscalreformscanyield performanceenhancingincentiveseven whilemaintaining"publicownership"withoutprivatization.Our analysisof theHungariancasealso demonstratesthatpropertytransformationcan occurwithoutcon-ventionalprivatization.5The difference,however,is thatpropertytrans-

4 Szel6nyi (1978) argued that "mixture"characterizedboth East and West: whereasa redistributivewelfare state mitigatesinequalitiesproduced by markets under ad-vanced capitalism, in state socialism subordinated marketlike institutionsmitigate

inequalities produced by the dominant redistributivemechanism. Elsewhere (Stark1986) I labeled this analytic method "mirroredopposition" and used it to analyzedifferencesbetween capitalistand socialist internallabor markets.

5 In her analysisof"political capitalism"in Poland, Staniszkis (1991) similarlyidenti-fies "hybridforms"of "undefineddual status" in a varietyof leasing formsandcost-shiftingarrangementsthroughwhich nomenclaturacompanies enjoy the benefitsof propertytransformationwithoutprivatization.

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formationin Hungarydoes not necessarilyclarifypropertyrights.Aswe shall see, theemergingnew propertyformsin Hungaryblur(1) the

boundariesof public and private,(2) the organizationalboundariesofenterprises,and (3) theboundednessofjustificatoryprinciples.To denotetheseprocessesoftripleboundaryblurringI adoptthe termrecombinantproperty.

Recombinantpropertyis a formoforganizationalhedging,orportfoliomanagement,in which actors respondto uncertaintyin the organiza-tionalenvironmentbydiversifyingtheirassets,redefiningand recombin-ing resources.It is an attemptto holdresourcesthat can be justifiedorassessedbymorethan one standardof measure.

The distinctivevariantof organizationalhedgingthatis recombinantpropertyinHungaryis producedintwo simultaneousprocesses:Parallelto thedecentralizedreorganizationofassets is the centralizedmanage-mentof liabilities.On theone hand, decentralizedreorganizationpro-duces the crisscrossinglinesof interenterpriseownershipnetworks;ontheother,debtconsolidationtransformsprivatedebtintopublicliability.Althoughthesetwo dimensionsare discussedseparately,theirsimultane-itygivesdistinctiveshapetoHungarianproperty.The clashofcompetingorderingprinciplesproducesorganizationaldiversitythat can formabasis forgreateradaptabilitybut,at thesametime,createsacuteprob-lemsofaccountability.

Data.-My argumentsare basedondata collectedduringan 11-monthstayinBudapestin 1993-94.That researchincludes(1) fieldresearchinsixHungarianenterprises,6(2) compilationofa data setontheownershipstructureofHungary's200 largestcorporationsand top 25 banks,7and(3) interviewswith leadingactorsin banks,propertyagencies,politicalparties,and governmentministries.'

6 Threeofthesefirmsareamongthe20 largestfirmsinHungaryand are at thecoreofHungarianmanufacturinginmetallurgy,electronics,and rubberproducts.Threeare smallandmedium-sizefirmsinplastics,machining,and industrialengineering.Thisfieldresearchwas conductedincollaborationwithLaszl6 Neumannandinvolvedlongitudinalanalysisofthesamefirmsinwhichwe had earlierstudiedan organiza-tionalinnovationofinternalsubcontractinginsidethesocialistenterprise(Stark1986,1989,1990;Neumann1989).7 These data wereaugmentedby ownershipdata drawnfromthefilesof some800firmsundertheportfoliomanagementof theStatePropertyAgency.8 A partiallistofintervieweesincludesthe formerpresidentof the NationalBank;

theformerdeputy-ministeroftheMinistryofFinance;executivesofthefourlargestcommercialbanks and twoleadinginvestmentbanks;theformerpresidentof the,StateHoldingCorporation;directors,advisors,and officialsof theState PropertyAgency;seniorofficialsof theWorldBank'sHungarianMission;thechiefeconomicadvisorsofthetwomajorliberalparties;thepresidentoftheFederationofHungarianTrade Unions;and leadingofficialsof the HungarianSocialistParty(who lateras-cendedtohigh-levelpositionsinthenewSocialist-Liberalcoalitiongovernment).

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AmericanJournalof Sociology

PROPERTY TRANSFORMATIONIN HUNGARY:

THE POLICY DEBATEMy pointofdepartureis a questioncentralto contemporarydebates inEasternEurope andtheformerSovietUnion:Bywhat meanscan privatepropertybecomethetypicalformofpropertyrelationsin economiesover-whelminglydominatedbystateownershipofproductiveassets?

Much of thatdebate can be organizedaroundtwo fundamentalpolicystrategies.First,theinstitutionalizationofprivatepropertycan bestbeestablishedbytransferringassets frompublicto privatehands. Despitedifferencesinthespecificmethodsdesignatedforsuchprivatization(e.g.,sale vs. freedistribution,etc.),thevariousproposalswithinthisradicalperspectiveshare the assumptionthat the creationof a private sectorbeginswiththeexistingstate-ownedenterprises,thatis, thebasic organi-zationalunitsof theemergentmarketeconomywill be the preexistingbutnewlyprivatizedenterprises.

The secondpolicystrategyarguesfromtheperspectiveof institutional(and specifically,evolutionary)economicsthat,althoughslower,themorereliableroad to institutionalizingprivatepropertyrestsin the develop-mentofa class ofprivateproprietors.Insteadoftransferringtheassetsofa givenorganizationalunitfromoneownershipformtoanother,publicpolicyshouldlowerbarriersto entryforsmalland mediumscale, genu-inelyprivateventures.This perspectivetypicallylooks to the existingsecondeconomyentrepreneursas thebasicorganizationalbuildingblockofan emergentmarketeconomy.

RecentevidencesuggeststhatHungaryis adoptingneithera big bangapproachnorthepolicyprescriptionsof evolutionaryeconomics.Con-traryto theoptimisticscenariosofdomesticpoliticiansand Westernecon-

omistswho foresawa rapid transferof assets fromstate-ownedenter-prises to privateownership,theoverwhelmingbulk of theHungarianeconomyremainsstateproperty.Two yearsafterPrimeMinisterJozsefAntallconfidentlyannouncedthat his new governmentwould privatizemorethan50% ofstatepropertyby 1995,thedirectorofthePrivatizationResearchInstitutefunctioningalongsidetheStatePropertyAgency(SPA)estimatedthatonlyabout3% ofthestate-ownedproductivecapitalhasbeenprivatized(Mellar1992). Accordingto a recentstudycommissionedbytheWorldBank (Pistorand Turkewitz1994),bymid-1994the SPA

had onlysoldabout 11% of thevalue of itsoriginalportfolio.Contraryas wellto thehopesofevolutionaryeconomics,a considerablebodyofevidencenowsuggeststhatthe secondeconomyhas not becomea dynamic,legitimateprivatesector:Althoughthe numberofregisteredprivateventureshas skyrocketed,manyare "dummyfirms,"tax evasionis pervasive,andmanyentrepreneurs(a majorityin somecategories)still

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engageinprivateventuresonlyas a secondjob (Laky 1992;Gaibor1994,1996). And althoughemploymentis slowlyincreasinginthe sector,most

researchersagreethattheproportionofunregisteredwork(forwhichthestate receivesno social securitypaymentsand theemployeereceivesnobenefits)is increasingfaster(Kornai 1992, p. 13).

These tendenciestogetherwithnew formsof corruption,extortion,and exploitationhave promptedone researcherto label thetransitionasone "fromsecondeconomyto informaleconomy"arguingthatitis now,underthesenewconditions,thatLatinAmericancomparisonsaremoreapplicableto theHungariansetting(Sik 1992).Whenprivateentrepre-neurs look to governmentpolicy, they see onlyburdensometaxation,

lack ofcredits,virtuallyno programstoencourageregionalorlocal devel-opment,and inordinatedelaysinpaymentsforordersdeliveredtopublic-sectorfirms(Webster 1992; Kornai 1992). Throughviolations of taxcodes, off-the-bookspaymentsto workers,and reluctanceto engage incapital investment,much of the privatesector is respondingin kind(Gaibor1996).Suchgovernmentpoliciesand private-sectorresponsesareclearlynota recipeforthedevelopmentofa legitimateprivatesectorasa dynamicengineofeconomicgrowth.

THE DECENTRALIZED REORGANIZATIONOF ASSETS

Althoughtheyfail to correspondto thepolicyprescriptionsof eitherbigbangorevolutionaryeconomics,significantpropertytransformationsaretakingplace inHungary.Since1989,therehas been an explosionofneweconomicunits.In table 1,we see that

1. the numberofstateenterprisesdeclinedby about60% fromthe

end of1988to themiddleof 1994;2. thenumberofincorporatedshareholdingcompanies(reszventar-sasagorRT) increasedbymorethan20-fold(from116to2,679);and

3. the numberoflimitedliabilitycompanies(korlatoltfelelossegiitarsasagor KFT) increasedmostdramaticallyfromonly 450unitsin 1988to over79,000 bythemiddleof 1994.

Table 1 clearlyindicatesthe sudden proliferationof new unitsin the

Hungarianeconomy.Butdoes the tableprovidea reliablemap ofprop-ertyrelationsin contemporaryHungary?No, at least not if thedata areforcedinto the dichotomouspublic/privatecategoriesthat structurethediscussionabout propertytransformationin thepostsocialistcountries.As we shall see, actorswithinthelargeformerlystatefirmsare trans-formingpropertyrelationsat theenterpriselevel. The results,however,

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are notwell-definedrightsof private property,yetneitherare they acontinuationorreproductionofold formsof stateownership.

New Forms ofStateOwnership

Take firstthe shareholdingcompanies(RTs) on line2 of thetable. Someof these corporationsare privateventuresnewlyestablishedafterthe"systemchange."But manyare thelegal successorsofthe state-ownedenterprisesthatwould have been enumeratedin the previousyearonline 1 ofthe table. Througha mandatoryprocessof"corporatization,"theformerstate-ownedenterprisetransformsitslegal organizationalform

intoa shareholdingcompany.The question,ofcourse,is who is holdingthe shares?In mostofthesecorporatizedfirmsthemajorityof sharesareheldby the State PropertyAgencyor thenewlycreated State HoldingCorporation(AV-Rt).That is, as "public" and "private"actorscopar-ticipatein the new recombinantpropertyforms,the natureand instru-mentsof the "public" dimensionchange:Whereas "state ownership"insocialismmeantunmediatedand indivisibleownershipby a statemin-istry(e.g., MinistryofIndustry),corporatizationin postcommunismen-tailsshareownershipbyone or anothergovernmentagencyresponsibleforstateproperty.

Suchcorporatizationmandatedbya privatizationagencyinthecurrentcontexthas somedistinctivefeaturesofrenationalization.In the 1980s,managersinHungary(andworkersinPoland)exerciseddefactopropertyrights.Althoughtheyenjoyedno rightsoverdisposal ofproperty,theydid exerciserightsof residualcontrolas well as rightsover residualin-comestreams.In the1990s,corporatizationparadoxicallyinvolveseffortsbythe statetoreclaimthe actualexerciseofthepropertyrightsthathaddevolvedto enterprise-levelactors.Ironically,the agenciesresponsibleforprivatizationare actingas agentsofetatization(Voszka 1992).

The "trapofcentralization"alreadywell knownin the region(Bruszt1988) standsas a warning,however,that the effectiveexerciseof suchcentralizedcontrolvariesinverselywiththescopeandthedegreeofdirectintervention.One encounters,therefore,proposals forprivatizingtheassetmanagementfunction.In suchprograms,the stateretainstherightto disposeofpropertybut delegatesitsrightsas shareholderto privateconsultingfirmsandportfoliomanagementteamswhooverseedailyoper-

ationsand strategicdecisionson a subcontractingor commissionbasis.

InterenterpriseOwnership

The stateis seldom, however,the sole shareholderofthe corporatizedfirms.Who aretheothershareholdersoftheRTs enumeratedonline 2 of

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table1?To answerthisquestion,I compileda data seton the ownershipstructureof thelargest200 Hungarian corporations(rankedby sales).9

These firmscompose the "Top 200" of the 1993 listingof Figyeli, aleadingHungarianbusinessweekly.Like theirFortune500 counterpartsin the United States, the Figyelo 200 firmsare major players in theHungarianeconomyemployingan estimated21% of the labor forceandaccountingfor37% oftotalnetsales and42% ofexportrevenues(Figyelo1993). The data also include the top 25 Hungarianbanks (ranked byassets). Ownershipdata were obtaineddirectlyfrom the HungarianCourtsofRegistrywherecorporatefilescontainnotonlyinformationonthecompany'sofficersand board ofdirectorsbutalso a completelist of

thecompany'sownersas ofthe 1993 annual shareholders'meeting.Thedata analyzedherearelimitedto thetop20 shareholdersofeach corpora-tion.10In theBudapestCourtofRegistryand the 19 countyregistries,we were able to locate ownershipfilesfor 195 of the 2-00corpora-tionsand for all of the 25 banks,referredto below as the "Top 220"firms.

Who holds the sharesof these220 largestenterprisesand banks? Ifoundsomeformof stateownership-withshares held by the AV-Rt,theSPA, or the institutionsoflocal government(whohad typicallyex-changedtheirreal estateholdingsforenterpriseshares)-presentin theoverwhelmingmajority(71%) of theseenterprisesand banks. More sur-prisingly,giventhe relativelyshorttimesince the "systemchange" in1989-90,we found36 companies(i.e., morethan16%ofthispopulation)in majorityforeignownership.Hungarianprivateindividuals(summeddownthetop 20 owners)hold at least 25% ofthe sharesofonly12 oftheselargestenterprisesand banks.

Most interestingfromtheperspectiveof this articleis thefindingof

87 cases in which anotherHungariancompanyis amongthe 20 largestshareholders.In 42 of thesecases the otherHungariancompaniesto-

9 Suchdata collectionis nota simplematterwherecapitalmarketsarepoorlydevel-oped.Thereis noHungarianMoody'sandcertainlynocorporatedirectoryequivalentto IndustrialGroupingsin Japanor Keiretsuno Kenkyu(see, e.g., GerlachandLincoln1992).Thelabor-intensivesolutionhas beentogatherthatdata directlyfromthe HungarianCourtsofRegistry.My thanksto Lajos Vekas, professorof law,ELTE, and RectoroftheInstituteforAdvancedStudy,CollegiumBudapest,forhisinterventionsto secureaccesstothesedata and to SzabolcsKemenyand Jonathan

Uphoffforassistanceindatacollection.10 This 20-ownerlimitationis a conventionadoptedin researchon intercorporateownershipinEast Asia (GerlachandLincoln1992;Hoshi1994).In the Hungarianeconomywhereonly37 firmsaretradedon theBudapeststockexchangeand wherecorporateshareholdingis notwidelydispersedamonghundredsof smallinvestors,the 20-ownerrestrictionallows us to accountforat least90% of the sharesheldinvirtuallyeverycompany.

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getherhold a clearmajority(50% plus one share). Thus, by themostrestrictivedefinition,almost20% ofourTop 220companiesareunambig-

uous cases of interenterpriseownership;and we find some degreeofinterenterpriseownershipin almost40% of theselarge companies.

Figure 1 presentstwodiscretenetworksformedthroughsuchinteren-terpriseownership.Arrowsindicatedirectionalityin whicha givenfirmholds sharesin anotherlargeenterprise.Weak ties (shareholdingswithotherfirmsthatdo not have at least one othertie,whetheras ownerorowned,to anyotherfirmin thenetwork)are notdisplayed.1"The rela-tionsdepictedin thefigure,we emphasize,are thedirecthorizontaltiesamongtheverylargestenterprises-thesuperhighways,so to speak, of

Hungariancorporatenetworks.The diagramspresentedinfigure1 indi-catea differentwayofmappingthe socialspace ofpropertytransforma-tion than that suggestedin table 1. Whereastable 1 groupedentitiesaccordingto theirlegal corporatestatus,herewe trace not the distribu-tionof attributesbut thepatternsofsocial ties.

In analyzingtherelationaldynamicsof recombinantproperty,we nowshiftour focusfromthecorporatethoroughfareslinkingthelargeenter-prisesto examinethe local bywayslinkingspin-offpropertieswithinthegravitationalfieldoflargeenterprises.

CorporateSatellites

We turnthusto the formwith the most dramaticgrowthduringthepostsocialistperiod,the newlyestablishedlimitedliabilitycompanies(KFT), enumeratedon line 3 of table 1. Someof theseKFTs are genu-inelyprivateentrepreneurialventures.But manyoftheselimitedliabilitycompaniesare not entirelydistinctfromthetransformedshareholdingcompaniesexamined above. In fact,the formerlysocialist enterpriseshave beenactive foundersand continueas currentownersof thenewlyincorporatedunits.

The basic processofthispropertytransformationis one ofdecentral-ized reorganization:Under the pressureof enormousdebt, decliningsales, and threatsofbankruptcy(or,in cases of moreprosperousenter-prises,to forestalltakeoversas well as to increaseautonomyfromstateministries)directorsofmanylargeenterprisesarebreakingup theirfirms(along divisional,factory,departmental,or even workshoplines) into

numerousjointstockand limitedliabilitycompanies.It is not uncommon

11The totalpatternofstrongand weak tieswill be examinedin a laterstudythatuses block-modelanalysis,testsforbankcentrality,and assessestherelationshipbetweenownershiptiesand directorinterlocks.Thepurposeofthatstudywill be toidentifythemajorcorporategroupingsintheHungarianeconomy.

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Network I

Network II

E*E

B Financial Institution (Bank or Insurance) E Enterprise

FIG. 1.-Two interenterpriseownershipnetworksamong large Hungarianfirms(basedon data gatheredfromcorporatefilesof200 largestenterprisesand

top25 banksinHungarianCourtsofRegistry).



Symposium:Stark

50.1

12.7E (i)0.1

12.8<Kf 98. 50

15.0 10f-0 9&(8X 10

51S2 i 95 -2(

15.9 56.3 100 metal ) 81.3 6 49.0

25.0 (8 /E)S6.feq400

25.9 69.0

26.7 ) 8 (833.3

30.8

Rt = Shareholding CompanyKft= LimitedLiability CompanyBt = PartnershipsNumerals in italics indicate Heavy Metal's ownershipstake in a givensatellite.

FIG. 2.-Corporatesatellitesat HeavyMetal(basedon data frominternal

companydocuments).

to findvirtuallyall oftheactivitiesofa largepublicenterprisedistributedamong15-20 suchsatellitesorbitingaroundthecorporateheadquarters.

As newlyincorporatedentitieswithlegal identities,these new unitsare nominallyindependent-registeredseparately,withtheirowndirec-torsand separatebalance sheets. But on closerinspection,theirstatus

inpracticeis semiautonomous.An examinationofthecomputerizedrec-ordsoftheBudapestCourtofRegistryindicates,forexample,that thecontrollingshares of thesecorporatesatellitesare typicallyheld by thepublicenterprisesthemselves.This patternis exemplifiedbythe case ofone ofHungary'slargestmetallurgyfirmsrepresentedinfigure2. As wesee in thatfigure,"Heavy Metal," an enormousshareholdingcompany

1005




in the portfolioof the State Holding Corporation,is themajorityshare-holderof 26 of its 40 corporatesatellites.

Like Saturn'srings,Heavy Metal's satellitesrevolvearound the giantcorporateplanetinconcentricorbits.Near the centerarethe core metal-lurgyunits,hot-rollingmills,energy,maintenance,and strategicplan-ning unitsheld in a kindofgeosynchronousorbitby 100% ownership.In the nextring,wherethecorporateheadquartersholdsroughly50%-99% ofthe shares,are thecold-rollingmills,wireand cable production,theoxygenfacility,galvanizingand otherfinishingtreatments,special-ized castings,qualitycontrol,and marketingunits.As thislistingsug-gests,these satellitesare linkedto each otherand to the coreunits by

tiesoftechnologicaldependence.Relationsbetweenthemiddle-ringsatel-litesand thecompanycenteraremarkedby the center'srecurrenteffortsto introducestricteraccountingproceduresand tighterfinancialcontrols.These attemptsare counteredbytheunits'effortstoincreasetheirauton-omy-coordinatedthroughpersonaltiesand formalizedin thebiweeklymeetingsof the "Club ofKFT Managing Directors."

The satellitesoftheouterringare even moreheterogeneousin theirproductionprofiles(construction,industrialservices,computing,ceram-ics, machining)and are usuallyof lowerlevels ofcapitalization.Units of

this outerringare less fixedin Heavy Metal's gravitationalfield:somehave recentlyenteredand some seemabout to leave. Amongthe newentrantsare someofHeavyMetal's domesticcustomers.Unable to collectreceivables,HeavyMetalexchangedinterenterprisedebt forequityinitsclients,preferringthatthesemeteorsbe sweptintoan orbitratherthanbe lostin liquidation.Amongthosesatelliteslaunchedfromtheold stateenterpriseare someforwhichHeavyMetal augmentsitsless thanmajor-ity ownershipwithleasing arrangementsto keep centrifugalforcesincheck.

The corporatesatellitesamongthelimitedliabilitycompaniesenumer-ated on line 3 oftable 1 are, thus,farfromunambiguously"private"ventures;yet neitherare they unmistakably"statist"residues of thesocialistpast. Propertysharesinmostcorporatesatellitesare notlimitedto thefoundingenterprise.Top- and mid-levelmanagers,professionals,and otherstaffcan befoundon thelistsoffoundingpartnersand currentowners.Such privatepersonsrarelyacquire completeownershipofthecorporatesatellite,preferringto use theirinsiderknowledgeto exploit

theambiguitiesof institutionalcoownership.The corporatesatellitesarethuspartiallya resultofthehedgingand risk-sharingstrategiesof indi-vidualmanagers.We mightask whya given managerwould notwantto acquire 100% ownershipin orderto obtain 100% oftheprofit,butfromtheperspectiveofa given managerthe calculus insteadis, "Whyacquire 100% of theriskifsomecan be sharedwiththecorporatecen-

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ter?"Withambiguousinterestsand dividedloyalties,theserisk-sharing(or risk-shedding)owner/managersare organizationallyhedging(Sabel

1990).12Not uncommonly,theseindividualsarejoined inmixedownershipby

otherjointstockcompaniesand limitedliabilitycompanies-sometimesby independentcompanies,oftenbyotherKFTs ina similarorbitaroundthesameenterprise,and frequentlyby shareholdingcompaniesor KFTsspinningaround some otherenterprisewithlines ofpurchaseor supplyto thecorporateunit(Voszka 1991).Banks also participatein thisformof recombinantproperty.In manycases,theestablishmentofKFTs andothernewcorporateformsistriggeredbyenterprisedebt.In thereorgani-

zationoftheinsolventfirms,thecommercialbanks(whosesharesas jointstockcompaniesare stillpredominantlystateowned)becomesharehold-ers ofthecorporatesatellitesbyexchangingdebt forequity.

We have used the term"corporatesatellite"to designatethisinstanceofrecombinantproperty.Anexact(butcumbersome)terminologyreflectsthecomplex,intertwinedcharacterofpropertyrelationsin Hungary:alimitedliabilitycompanyowned by privatepersons,by privateventures,andbyotherlimitedliabilitycompaniesownedbyjointstockcompanies,banks,andlargepublicenterprisesownedbythestate.The newpropertyformsthusfindhorizontaltiesofcross-ownershipintertwinedwithverti-cal ties of nestedholdings.

MetamorphicNetworks

The recombinantcharacterofHungarianpropertyis a functionnotonlyof the direct(horizontal)ownershiptiesamongthelargestfirmsand oftheirdirect(vertical)tiesto theircorporatesatellitesbut also ofthe net-

workpropertiesof the full ensemble

ofdirectand indirectties linkingentities,irrespectiveof theirattributes(large, small,or ofvarious legalforms)in a given configuration.The available data do not allow us topresenta comprehensivemap ofthesecomplexrelations.Recordsin theCourtsofRegistryincludedocumentson theownersof a particularfirm,

12 Manyofthesemid-levelmanagershadexperiencesinthe 1980swithan organiza-tionalprecursorof the presentrecombinantforms-theintraenterprisepartner-ships-in whichsemiautonomoussubcontractingunitsusedenterpriseequipmentto

producegoodsor servicesduringthe"offhours"(Stark1986, 1989). Like "secondeconomy"producerswhocontinuedto holda job instateenterprises,theseintrapre-neurialunitswerea widespreadresultofhedgingstrategiesin theHungarianecon-omy.Some of thesepartnershipswere-scarcelydisguisedrent-seekingschemesthatprivatizedprofitstreamsand leftexpenseswiththestate-ownedenterprise.Otherscreativelyredeployedresourcesfromdiversepartsoftheshopfloorand regrouped,as well,theinformalnormsofreciprocitywiththetechnicalnormsofprofessionals.

1007




AV-Rt ~ -BankSP

0 Kft~~~~~~~~~~~~~~f

FIG. 3. A metamorphicnetwork(basedon datafromHeavyMetalinternaldocuments,SPA files,corporatefiles,and theBudapestCourtofRegistry).

but enterprisesare notrequiredto reportthecompaniesin which theyhold a stake. However, on the basis of enterprise-levelfieldresearch,examinationofpublicrecordsat theSPA, and interviewswith bankersand executivesofconsultingfirmswe have beenable to reconstructpar-tiallysuchnetworksas representedin figure3.

For orientationin thisgraphicspace, we positionfigure3 in relationtofigures1and 2. Figure1presentedinterenterpriseownershipnetworks

formedthroughhorizontaltiesdirectlylinkinglargeenterprises.Figure2 zoomedin on thecorporatesatellitesofa singlelargeenterprise.Withfigure3 we pullback to examinea fragmentofa broaderinterenterpriseownershipnetworkbringingintofocusthetiesthatlinkcorporatesatel-litesto each otherand that formtheindirectties among heterogeneousunitsin a morelooselycouplednetwork.13

13Themetamorphicnetworkis nota simplesummationof theset of horizontalandverticalties:tocategoricallylabel thetiesbetweena givenKFT and a givenRT as

"vertical"wouldbe toignorethewaystheKFTs arerecombiningproperties.To theextentthatnetworkqualities(networkproperties,in thedoublesenseoftheterm)areemergentin themetamorphicnetwork,thelanguageofhorizontaland verticalshouldgiveplacetomoreappropriatedescriptorssuchas extensivity,density,tightor loosecoupling,strongorweak ties,structuralholes,and the like(Breigerand Pattison1986;Burt1992).

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I label thisemergentformof recombinantpropertya metamorphicnetwork.Here we see that the limitedliabilitycompaniesthatbeganas

corporatespin-offsare orientedthroughownershipties eitherto morethanone shareholdingcompanyand/orto otherlimitedliabilitycompa-nies.In the metamorphicnetwork,actorsrecognizethenetworkproper-tiesoftheirinterdependentassetsandregroupthemacrossformalorgani-zational boundaries. These creative regroupingsfail to respect theorganizationalboundariesbetweenenterprisesas well as theboundariesbetweenpublicand private.

Withfewexceptions(Sabel and Prokop 1994),theliteratureonpostso-cialistpropertytransformation(mostof it confinedto "privatization")

assumesthattheeconomicunittoberestructuredis theindividualenter-prise. But the identificationof interfirmnetworkssuggeststhatpoliciesand practicesaimed at restructuringshouldtargetnot the isolatedfirmbut networksoffirms.Suchan alternativestrategyofrestructuringrecog-nizesthatassetsand liabilitieshave distinctivenetworkproperties.

The industrialstructureof the socialisteconomycommonlygrouped,withina singleenterprise,assets that wereincompatible(exceptwithinthelogic of centralplanning).Merelyseparatingor simplyregroupingsuch assetswithinexistingenterprisesalone (on a firm-by-firmbasis)cannotequal themore fruitfulrecombinationsofcomplementaryassetsacrossa set offirms.Restructuringvia recombinantnetworksthusopensthepossibilitiesof increasingthe value of existingassets throughtheirrecombination.Thisregroupingdoes notnecessarilyimplybringinginter-dependentassets underthe commonownershipumbrellaofa hierarchi-cally organizedenterprise.As such, Hungarianrecombinantpropertyprovidesexamplesofintercorporatenetworksas alternativestoa dichoto-mouslyforcedchoice betweenmarketsand hierarchies.

THE CENTRALIZED MANAGEMENTOF LIABILITIES

In theprevioussection,we examinedthe decentralizedreorganizationofassets. Propertytransformation,however,involvesnot only assets andrightsbut also liabilitiesand obligations.In thissection,we analyze whathappensin a postsocialisteconomywhen actorsare called to accountforenterprisedebt.

TakingtheLast Small Steps

The liabilitiesmanagementstorybeginsin 1991 when the Hungariangovernmentfundamentallymodifiedthreeimportantlaws regulatingthe

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accountingof assets and liabilitiesin an attemptto maintainits lead inregionalcompetitionforforeigninvestmentsand internationalcredits.

Hungary's comparativeadvantage, it appeared, was its gradualism,which,acrossthedecades ofthe1970sand 1980s,had yieldeda fullrangeof marketlikeinstitutions.Admittedly,thesewerenottheinstitutionsofa marketeconomy,buttheywereclose;andso,thegovernmentreasoned,whynottake thelast smallsteps?As thepioneerattempttobringpostso-cialistpracticein fullconformitywithWesternaccountingand bankingstandards,thenew measurescouldbe castas a bold movewhenappeal-ing to internationallendingagencies. But because they were not bigsteps,thenew measurescouldgainexternallegitimationwithoutcreating

a domesticshock.Thus, the new AccountingLaw of1991 (whichtook effectonJanuary

1, 1992)requiredenterprisesto switchto Western-styleaccountingprinci-ples. The simultaneouslyenacted,toughnewWestern-styleBankruptcyActsimilarlycontainedstiffpersonalpenaltiesfordirectorsofenterprisesthat failedto fileforbankruptcyafterthe accountants(usingthe newaccountingprinciples)soundedthealarm. At thesametime,thenewActon FinancialInstitutionsintroducedin December1991 was designedtoput Hungary'scommercialbanks on a Westernfooting.In particular,

the reserverequirementsformeasuringcapital-adequacyratios weremodifiedand the securitiesand otherfinancialinstrumentsforprovi-sioningagainstqualifiedloans wererespecified.

The last smallstepsprovedto be a leap intotheabyss.Alreadyreelingfromthe collapseof the CMEA (Council forMutual Economic Assis-tance)markets,enterprisedirectorsnow learnedfromtheiraccountantsthatthenew accountingpracticeswere coloringthe companies'bookseven redderthanexpected.Bytheendof1992,over10,000bankruptcies

and liquidationproceedingshad been initiated-a

figure10 times

higherthanduringthepreviousyearwhenenterpriseshadexperiencedtheworstshockof thecollapsedEasternmarkets(Bokros1994).Withone-thirdtoone-halfof enterprisesin thered,theloss-makingfirmsbegan to stoppaymenton theirbank credits.By the end of 1992, the overdue loanstockofthebankingsystemwas 127 billionforints(1.5 billionin U.S.dollars)up 90% fromthepreviousyear(NationalBank ofHungary1992,p. 109).

Withthousandsof firmsfilingforbankruptcy,the banks wereforced

by the new bankinglaw to reclassifyloans. The subsequentdramaticincreasein the new legallyrequiredprovisioningsagainst poorlyper-formingloans cut deeplyinto bank profits,slashed dividends and taxrevenuesfromthebankingsectorto the statetreasury,and turnedthebanks' capital-adequacyratiosfrompositiveto negative.The banking

1010




18.3% of the 1994 nationalbudget (i.e., proportionallymorethan theU.S. savingsand loan bailout)-the bailoutscreated a long queue of

banks and firmswith theirhands out, reachingforthe state'spock-etbook.

Thus, at the same timethat the corporatenetworkswereengaged inthedecentralizedreorganizationofassets,theHungarianstateattemptedthe centralizedmanagementof liabilities.That centralizationhas notleftthe decentralizedprocessesuntouched.From the perspectiveof theenterprises,"debt consolidation"triggersthe organizationalseparationofdebtsfromassets.The Hungariangovernment'sattemptat thecentral-ized managementof liabilitiesstimulatesthe networksto complement

theirstrategiesof riskspreadingwithnew strategiesof riskshedding.Two typesof strategiescan be identified,each based on the organiza-tionalseparationof assetsand liabilities.In one type,assets are distrib-utedtothesatellitesand debtsarecentralized,increasingtheenterprises'chancesof inclusionin thegovernment-fundeddebt consolidation.In theother,assetsare closelyheldbytheenterprisecenterand liabilitiesaredistributedto thesatelliteswherenetworktiesand politicalconnectionsmanipulate proceedingsin a Hungarian version of "bankruptcyforprofit"(Akerlofand Romer[1993]coin the termin theirstudyof state-

managedliabilitiesin theU.S. savingsand loan bailout).We thus see a new paternalismin Hungary:Whereas in the state

socialisteconomypaternalismwas based on thestate'sattemptsto cen-trallymanageassets(Kornai1993a),inthe firstyearsof thepostsocialisteconomypaternalismis basedon thestate'sattemptstocentrallymanageliabilities.Centralizedmanagementofliabilitieswill not continueindefi-nitely,buttheorganizationaldynamicsofenterprisesformedunder thenew paternalisticconditionsare likelyto have strongpath-dependent

effects.

THE MULTIPLE ACCOUNTSOF RECOMBINANT PROPERTY

In the highlyuncertainorganizationalenvironmentthat is thepostso-cialisteconomy,relativelyfew actors(apartfrominstitutionaldesigners)set out withthe aim to createa marketeconomy.Many, indeed wouldwelcomesuch an outcome. But theirimmediategoals are moreprag-matic: at best to thrive,at least to survive. And so theystriveto use

whateverresourcesareavailable. That taskis not so simplebecause onemustfirstidentifythe relevantsystemofaccountinginwhichsomethingcan existas a resource.At theextreme,it is sometimeseven difficulttodistinguisha liabilityfroman asset.Ifthe liabilitiesofyourorganization(enterpriseorbank)are bigenough,perhapstheycan be translatedintoqualificationsformoreresources.And what could be moreworthless

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Symposium:Stark

thana bankruptedlimitedliabilitycompany-except, ofcourse,ifyouhave shed the risktothebanks(and thentothestate)and put the assets

in anotherform.Assetsand liabilitieshave value notin themselvesbutin relationto legitimatingprinciples.

To examinehow economicactorsinthepostsocialistsettingmaneuvernot onlythroughan ecologyoforganizationsbut also througha complexecologyoforderingprincipleswe need to understandthedoublyassocia-tive characterof assets. There are no free-floatingresources.To existasan asseta potentialresourcemustbemobilizablethroughtiesofassocia-tionamong persons(Granovetter1985).And to be ofvalue a potentialresourcemustalso have relativeworthaccordingto a standardof mea-

sure. To be able to circulatethroughthetiesthatbind(and thuscontrib-uteto thatbinding)an assetmustbejustifiedwithina relativelystabilizednetworkof categoriesthat make up a legitimatingprinciple(Thevenot1985;Boltanskiand Thevenot1991;Latour1988;White1992).Regroup-ingassetsthusinvolvesmakingnewassociations-not onlybyrearrang-ing social ties amongpersonsand thingsbutalso by drawingon diverserepertoiresof justificatoryprinciples.

To emphasizethepatternedand theperformativeaspectsof thispro-cess,I exploita notionofaccounts.Etymologicallyrich,thetermsimulta-neously connotesbookkeepingand narration.Both dimensionsentailevaluativejudgments,and each impliesthe other:Accountantspreparestorylinesaccordingto establishedformulae,and in theaccountingsofa good storytellerwe know what counts.In everydaylife,we are allbookkeepersand storytellers.We keep accountsand we give accounts,and mostimportant,we can all be called to accountforour actions.Whenwe make such an accounting,we draw on and reproducesocialorders.We can competentlyproducejustificationsonlyintermsofestab-lished

and recognizedorderingprinciples,standards,and measuresofevaluation.Because we do notsimplygivereasonsbut also have reasonsfordoing things,accountsare notsimplyretrospective;the imperativeofjustification(BoltanskiandThevenot1991)structureswhat we do andnot simplyhow we explain.We can neversimply"calculate"becausewe mustdo so withunitsand instrumentsofmeasurementthataredeeplystructuredbyaccountsof what can be ofvalue. We reproducetheseunitsofmeasurementand we recalibratethemeasuringinstrumentswhenweassert our worthiness,when we deferto the "moreworthy,"or when

we denouncetheirstatusaccordingto someotherstandardofevaluation.When we give an account,we affirmor challengetheorderingcriteriaaccordingto whichour actions(and/orthoseofothers)have been orwillbe evaluated. And it is always withinaccounts that we "size up thesituation,"fornoteveryformof worthcan be made to apply and noteveryasset is in a formmobilizableforthe situation.We evaluate the

1013




situationby maneuveringto use scalesthatmeasuresome typesofworthand notothers,therebyactingto validatesome accounts and discredit

others.The multipleaccountsof recombinantpropertyrespondto and exploit

the fundamental,thoughdiffused,uncertaintyabout theorganizationalenvironment.In transformativeeconomies,firmshave toworrynot sim-ply aboutwhetherthereis demandfortheirproducts,or about therateofreturnon theirinvestment,or about the levelofprofitabilitybut alsoabout the veryprincipleof selectionitself.Thus, thequestionis not only"Will I survivethemarkettest?"-but also, under what conditionsisproofof worthon marketprinciplesneithersufficientnor necessaryto

survive?Because therearemultiplyoperative,mutuallycoexistentprin-ciplesofjustificationaccordingto whichyou can be called on to giveaccountsof youractions, you cannot be sure what counts. By whatproofand accordingtowhich principlesof justificationare youworthyto stewardsuchand such resources?Because of thisuncertainty,actorswillseektodiversifytheirassets,to holdresourcesinmultipleaccounts.

Thisabilitytoglideamongprinciplesandtoproducemultipleaccount-ingsis an organizationalhedging.It differs,however,fromthekind ofhedgingto minimizerisk exposurethatwe would findwithina purely

marketlogic-as, forexample,whentheshopkeeperwhosells swimwearand suntanlotionalso devotessomefloorspace to umbrellas.Insteadofactingwithina singleregimeof evaluation,theseactorsuse organiza-tionalhedgingthatcrossesand combinesdisparateevaluativeprinciples.Recombinantpropertyis a particularkindofportfoliomanagement.Itis an attempttohavea resourcethatcan be justifiedorassessedbymorethanonestandardofmeasure(as, e.g., therabbitbreederwhose roadsidestandadvertises"pets and meat" in thedocumentaryfilm,Roger andMe). In managingone's portfolioof justifications,one startsfromthedictum:diversifyyouraccounts.

The adroitrecombinantagentinthetransformativeeconomiesof EastCentralEurope diversifiesholdingsin responseto fundamentaluncer-taintiesaboutwhatcan constitutea resource.Under conditionsnot sim-plyof marketuncertaintybutoforganizationaluncertainty,therecan bemultiple(and intertwined)strategiesforsurvival-based in some casesonprofitabilitybutinothersoneligibility.Whereyoursuccessis judged,andthe resourcesplacedatyourdisposaldetermined,sometimesby your

marketshareand sometimesbythe numberof workersyou employin aregion;sometimesby yourprice-earningsratio and sometimesby your"strategicimportance";and, wheneven the absolutesize ofyourlossescan be transformedintoan assetyieldingan incomestream,youmightbe wise to diversifyyourportfolio,to be able to shiftyouraccounts,tobe equallyskilledin applyingforloans as in applyingforjob creation

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Symposium:Stark

subsidies,to have a multilingualcommand of the grammarof creditworthinessand the syntaxof debt forgiveness.To hold recombinant

propertyis tohave such a diversifiedportfolio.To gain roomformaneuver,actorscourtand even createambiguity.

Theymeasureinmultipleunits,theyspeak inmanytongues.Theywillbe less controlledby othersif theycan be accountable(able to makecredibleaccounts)to many.14In so doing, theyproducethepolyphonicdiscourseof worththatis postsocialism.

We can hear thatpolyphonicchorusin the diverseways thatfirmsjustifytheirclaims forparticipationin the debt-reliefprogram.The fol-lowinglitanyofjustificationsare stylizedversionsofclaims encountered

in discussionswith bankers,propertyagencyofficials,and enterprisedirectors:Our firmshouldbe includedin the debt reliefprogram

becausewewillforgiveourdebtors(i.e.,ourfirmoccupiesa strategicplaceina networkofinterenterprisedebt)

becausewe aretrulycreditworthy(i.e.,ifourliabilitiesareseparatedfromourassets,we willagainbe eligibleformorebankfinancing.Similartranslationscouldbeprovidedforeachofthefollowingjustifications)

becauseweemploythousandsbecauseoursuppliersdependonus fora market

becausewe areinyourelectiondistrictbecauseourcustomersdependon ourproductinputsbecausewecan thenbeprivatizedbecausewe can neverbeprivatizedbecausewetookbigrisksbecausewewereprudentand didnottakerisksbecausewe wereplannedinthepastbecausewehavea planforthefuturebecauseweexporttotheWestbecauseweexportto theEastbecauseourproducthas beenawardedanInternationalStandardsQuality

ControlCertificatebecauseourproductispartoftheHungariannationalheritagebecausewe areanemployeebuy-outbecausewe are a managementbuy-inbecausewe arepartlystate-ownedbecausewe arepartlyprivatelyheldbecauseourcreditorsdroveus intobankruptcywhentheyloanedto us at

higherthanmarketratesto artificiallyraisebankprofitsin ordertopaydividendsintoa statetreasurywhosecoffershad dwindledwhencorporationslikeourselveseffectivelystoppedpayingtaxes.

Andsowe mustask, intowhoseaccountand by whichaccountwill debtforgivenessflow?Or, in sucha situation,is anyoneaccountable?

14 See Padgettand Ansell(1993)foran analysisof suchmultivocalityin anotherhistoricalsetting.

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AN EAST EUROPEAN CAPITALISM?

How are we tounderstandtheseunorthodoxforms,theseorganizational"monsters"regroupingthe seeminglyincongruous?In this concludingsection,wereconsiderthethreeaspectsofrecombinantproperty(blurringof public and private,blurringof enterpriseboundaries,and blurringthe boundednessoflegitimatingprinciples)in termsof threeunderlyingconcepts-mixture,diversity,and complexity.

Mixture

Imagine two economies,each ofequal partspublicand private.In one,

halfthe firmsare fullyprivate,halfare fullypublic. In the other,everyfirmis half public,halfprivate.Each is a "mixedeconomy."Yet is itlikelythattheirdynamicswill be the same?'5No two economiescloselyapproximatethethoughtexperiment'sidealtypes;but it nonethelessputsin sharp reliefthequestion Whatis themixof thepostsocialistmixedeconomy?

My findingsofcorporatespin-offsand recombinantreorganizationattheenterpriselevel,and ofwidespreadpublicownershipcombinedwithinterenterpriseownershipnetworksamongtheverylargestenterprises,

challengestheassumption,widelyheldon all sides oftheprivatizationdebate,thatpostsocialisteconomiescan be adequatelyrepresentedin atwo-sectormodel. That analytic shortcomingcannot be remediedbymoreprecisespecificationoftheboundarybetweenpublicand private:theold propertydividehas been so eroded that whatmightonce havebeena distinctboundaryline is now a recombinantzone. Hungaryis apostsocialistmixedeconomynot because of a simpledualismof well-boundedstate-ownedfirmsin one sectorand privatelyowned firmsinanotherbutbecausemanyfirmsthemselvesexploitaspectsofpublicandprivatepropertyrelations.16Whatwe findare new formsofpropertyinwhichthequalitiesofprivateand publicaredissolved,interwoven,andrecombined.Propertyin East European capitalismis recombinantprop-erty,and itsanalysissuggeststheemergenceofa distinctivelyEast Euro-pean capitalismthatwill differas muchfromWestEuropean capitalismsas do contemporaryEast Asian variants.

15 In a relatedpath dependentthoughtexperiment:Imaginetwo mixedeconomieseach withhalfthefirmsfullypublicand halfthefirmsfullyprivate.The firstarrived

at thatsectoralmixfroma startingpointofonlypublicfirms.The other,fromastartingpointofonlyprivatefirms.Aretheirdynamicslikelyto be thesame?16 It was nottheaim ofthisarticleto producea definitivetestoftherelativeweightsofpublic,private,and recombinantzonesinthepostsocialistmixedeconomy.To doso,we willneedorganizationalsurveys,conductedincloseconjunctionwithdetailedenterprise-levelfieldinvestigationstoyieldmorerefinedandnuancedcategoriesandmeasures.

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The conceptofa postsocialistmixedeconomyis a usefulfirstapproxi-mationof an East European capitalism.But its essentialistcategoriesof

"public" and "private" (and the related dualisms of "market" and"redistribution")-evenwhen opened up to the possibilityof beingmixedtogetherinthesameorganizationalsetting-maybemorelimitingthan illuminating.

For decades,capitalismwas definedvis-a-vissocialismand vice versa.Their systematiccomparisonenrichedour understandingof both, butthe "methodsof mirroredopposition"and similarconstructs(Stark 1986;Szelenyi1978,1988)thatworkedwiththesedualismsare no longerfruit-ful.The demise of socialismchallengesthatanalyticallyforcedchoice,

anditoffersan opportunityforenrichingcomparativeinstitutionalanaly-sis. When we stop definingcapitalismintermsofsocialism,we see that,in our epoch, capitalismas a constructis only analyticallyinterestingin theplural: capitalismsmust be definedand comparedvis-a-viseachother.

Diversity

Our firstanalyticshift,therefore,mustbe fromthe conceptualtools

aroundtheconceptof mixtureto thosearoundthatofdiversity.Capital-isms are diverse,and thatdiversityis manifestedin formsthat cannotbe adequatelyconceptualizedas mixturesofcapitalismand socialism.17By analyzingrecombinantpropertynotonlyas the dissolutionand inter-weavingofelementsofpublicandprivatebutalso as a blurringoforgani-zational boundariesin networksof interlockingownership,we can es-cape, forexample,thetermsof the debate about whetherthe "lessonsofEast Asia forEasternEurope" are the virtuesofneoliberalismor ofneostatism(WorldBank 1993;Amsden1994).Instead we join economicsociologistswho are studyingthe East Asian economiesfroma network-centeredapproachin whichnotmarkets,norstates,norisolatedfirms,but social networksare the basic unitsofanalysis(Gereffi1994; Hamil-ton,Zeile, and Kim 1990;Hamiltonand Feenstra1995).In thisperspec-tive,theabilityof the East Asian economiesto adapt flexiblyto changesinworldmarketsrestsin theinterlockingties characteristicof corporate

17My argument,thus,bearsnoresemblanceto "thirdroad"solutions(i.e., the mis-

takennotionthattherecouldbe somecombinationofthebestfeaturesofcapitalismwiththebestfeaturesofsocialism),anditfollowsthatI am notarguingthatrecombi-nantpropertyis a "bestway."Aspeoplelivingin East CentralEuropehave knownfordecadesif notcenturies,all thebestroadstocapitalismstartedsomewhereelse.I am remindedof thejoke in whichan Irishmanin the far countrysideis asked,"What'sthe bestway to getto Dublin?" He thinksfora minute,and responds,"Don't startfromhere."

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groups(Orru, Biggart,and Hamilton 1991; Granovetter1995), whetherthesebe thepatternsofmutualshareholdingwithintheJapanesekeiretsu

(Gerlachand Lincoln 1992; Hoshi 1994); the ties of familyownershipwithinthe moreverticallyintegratedSouth Koreanchaebol (Kim 1991;Hamilton and Feenstra 1995); thesocial ties of the more horizontallyintegrated Taiwanese quanxiqiye "related enterprises" (Numazaki1991);or the dense ties thattransgressorganizationalboundariesin the"buyer-driven"and "producer-driven"networksin Hong Kong, Singa-pore,and elsewherein SoutheastAsia (Gereffi1994).

These recentstudiesof the social embeddednessand local organiza-tionalinnovationcharacteristicofEast Asiancorporatenetworkssuggest

thatthestrategicchoiceis notplansormarkets,or evenclansormarkets,but clansformarkets.Market orientationmust be distinguishedfrommarketcoordination:a broadvarietyofinstitutionsofnonmarketcoordi-nationarecompatiblewithhighperformancemarketorientation(Schmit-ter1988;Boyer 1991;BresserPereira1993). Manyof the mostsuccessfulformsofnetworkcoordinationinEast Asia, moreover,appearedtoearlyobserversas highlyimprobableformswhoseatavisticfeaturescouldnotpossiblysurvivebeyondtheperiodofpostwarreconstructionfromwhichtheyarose.18 Ourpointofdeparture,it should be clear,however,is notto looktoEasternEuropetofindHungariankeiretsuorCzech chaebol.Instead ofsearchingfordirectcounterparts,East Asian/EastEuropeancomparisonswillyieldnewconceptswhenwe graspthespecificityoftheregionalvariantsby explainingthedifferencesamongthe various coun-trieswithina region.'9

Future researchmustexaminewhetherthe East European corporatenetworksarebecomingsuccessfullyorientedto the world market.But itis not tooearlytopose analyticdimensionsalongwhichwe couldassess

thepotentialforrecombinantpropertyto contributeto economicdevel-opment.

18 Incongruity,in itself,neitherinsuressurvivalnorcondemnsan organizationalformto an earlydeath. Kim's(1991)discusionofthecombinatorylogicofthe formationof the chaebolin Korea immediatelyfollowingWorld War II invitescomparisonwiththeformationofrecombinantstructuresduringthecontemporaryperiodofEastEuropeanreconstruction.19 Starkand Bruszt(1995), e.g., comparecorporatenetworksinHungaryand theCzech Republic. TheyfindthatHungariannetworksare formedpredominantlythroughenterpriseto enterpriselinks,sometimesinvolvingbanksyetabsenttiesbe-

tweenbanksand intermediate-levelinstitutionssuchas investmentcompanies.In theCzechRepublic,bycontrast,ownershipnetworksareformedpredominantlythroughties at the mesolevelin thecrossownershipofbanksand largeinvestmentfunds,but directownershipconnectionsamongenterprisesthemselvesare rare. WhereasHungariannetworksare tightlycoupledat thelevelofenterprisesbutlooselycoupledatthemesolevel,Czech networksarelooselycoupledat thelevel ofenterprisesandtightlycoupledatthemesolevel.

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Symposium:Stark

One startingpoint, ready-at-handfromtheburgeoningliteratureonthe "transitional"economies,would be to ask, Do theycontributeto

creativedestruction?That litmustestis based on a widelyheldassump-tionthateconomicdevelopmentwill be bestpromotedby "allowingtheselectionmechanismto work"throughbankruptciesofunderperformingenterprises.Recombinantpropertywould not receivean unambiguouslypositivescoremeasuredbythisstandard.Indeed,thekindsofinterenter-prise ownershipdescribed above are classic risk-spreadingand risk-sharingdevicesthatmitigatedifferencesacrossfirms.Bydampeningtheperformanceofthe strongerand facilitatingthesurvivalof the weakerfirmsin theinterfirmnetworks,theymighteven impedecreativedestruc-

tionin the conventionalsense.But thereis some questionthat a tidalwave of mass bankruptciesis

a long-termcureforthepostsocialisteconomies.Withthecatastrophicloss of marketsto the East and withthe stagnationof theeconomiesofpotentiallynew tradingpartnersto theWest,thedepthand lengthofthetransformationalcrisisin East CentralEurope now exceeds thatoftheGreatDepressionoftheinterwarperiod(Kornai 1993b).In such circum-stances, an absolute hardeningof firms'budget constraintsnot onlydrivespoorlyperformingfirmsintobankruptcybut also destroysenter-prises that would otherwisebe quite capable ofmakinga high perfor-manceadjustment(see esp. Cui 1994). Wantondestructionis notcreativedestruction,goes thisreasoning,and recombinantpropertymightsavesomeofthesestrugglingbutcapable firmsthroughrisk-sharingnetworks.Along thisline of reasoning,we would want to assess whetherthe sacri-ficeinallocativeefficiencyby retardingbankruptcyis beingoffsetbythepreservationof assetswithreal potentialforhighperformancein a situa-tionof economicrecovery.

A related,but analyticallyseparate,pointis that riskspreadingcanbe a basis forrisktaking.Extraordinarilyhighuncertaintiesof the kindwe see nowinthepostsocialisteconomiescan lead to lowlevelsofinvest-mentwithnegativestrategiccomplementarities(as whenfirmsforgoin-vestmentsbecause they expect a sluggisheconomybased on the lackof investmentsby others).By mitigatingdisinclinationsto invest,riskspreadingmightbe onemeanstobreakout ofotherwiselow-levelequilib-rium traps.20Firmsin the postsocialisttransformationalcrisisare likemountainclimbersassaultinga treacherousface, and the networksof

interenterpriseownershipare the safetyropes lashingthem together.Neoliberalswhobemoan a retardedbankruptcyratefailtoacknowledge

20 Onstrategiccomplementaritiesin thepostsocialisteconomiesseeespeciallyLitwack(1994).Hirschman(1958)providestheclassicstatementon low-levelequilibriumtrapsand theimportanceof riskspreadingforeconomicdevelopment.

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thattheremightbe circumstanceswhen thismutualbindingis a precon-ditionforattemptinga difficultascent.Alongthisline ofreasoning,we

wouldwant to assess whethertheopportunitiesforrisksheddingin theHungarian settingcan be offsetwhennetworks(ratherthan "develop-mentalstates"[Evans 1992])performdisequilibratingfunctionsthat fa-cilitateand stimulateentrepreneurialrisktaking.

EconomicdevelopmentinEast CentralEurope does requiremoreexit(some,indeedmany,firmsmustperish)and moreentryas well. But fordestructionto be creative,these deathsmustbe accompaniedbybirthsnotsimplyofnew organizationsbut ofneworganizationalforms.Organi-zationalformsarespecificbundlesofroutines,and thereductionof their

diversitymeans theloss oforganizedinformationthatmightbe ofvaluewhenthe environmentchanges(Hannan 1986; Boyer 1991;Stark1989,1992). Fromthisperspective,an economythatmaximizedallocativeeffi-ciency(by puttingall resourcesinthemostefficientform)would sacrificeadaptive efficiency.Socialism,in thisview, failed not onlybecause itlacked a selectionmechanismto eliminateorganizationsthat performedpoorlybutalso because itputall itseconomicresourcesina singleorgani-zationalform-the stateenterprise.Socialismdrasticallyreducedorgani-zationaldiversityand in so doingprohibiteda broadrepertoireoforga-

nized solutionsto problemsof collectiveaction. Along this line ofreasoning,an assessmentof formsof recombinantpropertyin an EastEuropean capitalismshould startnotby testingwhethertheyreproducestatesocialismor harborrealprivatepropertybutwhethertheycontrib-ute to adaptive efficiency.

For thepropertyrightsschool,it is notdestruction(bankruptcy)nordiversitybut the clarityofpropertyrightsthat will yieldtherightsetof incentivesto make restructuringin the postsocialisttransformationperformanceenhancing.Instead of reassigningpropertyrightsto anowner(an ironiclegacyof an essentiallyMarxistnotionofproperty),thisschoolarguesthatpropertycan be productively"dis-integrated"(Grey1980)suchthatdifferentactorscan legitimatelyclaimrightsto differentaspectsand capacitiesof the samething(Hart 1988;Comisso1991).Buthoweverdisaggregated,propertyrightsmustbe clarifiedifaccountabilityis tobe insured.Walder(1994),theleadingproponentofthisperspectiveinthepostsocialistdebate,forexample,showsthatitis nottheprivatiza-tionofassetsbuttheclarificationofpropertyrightsthathas contributed

to the dynamismof townshipand village enterprisesin Chinese lightindustry.Alongthisline ofreasoning,we shouldassess whetherrecombinant

propertyis leadingto well-definedpropertyrights.The initialevidencepresentedin this articlesuggeststhat recombinantpropertywould failsuch a test. But fromanotherperspectivein the debate over property

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adaptabilityinthisview is notsimplythediversityoftypesoforganiza-tionsbutthepossibilitiesforcross-fertilizationinsideand acrossorganiza-

tionswheremultiplyoperativelegitimatingprinciplescollide-or inHar-rison White's(1993) phrase,"values mateto change."'21

Some mightargue,ofcourse,thatmultipleordersare fine-providedthateach occupiesa distinctlybounded domain. Such is the model ofmodernityin "modernization"theory:throughdifferentiation,each do-main ofsocietywoulddevelopas a separateautonomoussubsystemwithits own distinctivelogic. Complexityin thisview requiresdiversitybutonlyas thejuxtapositionof clearlybounded rationalities.Marxism,ofcourse,has itsown conceptionofcomplexity:thetemporaryoverlapof

mutuallycontradictoryprinciples.Bothmodernizationtheoryand Marx-ism are deeplygroundedin the transitionproblematic.The noisyclashof ordersis onlytemporary:therevolutionarymomentforone, thepas-sage to differentiateddomainsin theother.

If we break withthis transitionproblem,we can escape fromtheimpoverishedconceptionsofcomplexityinbothMarxismand moderniza-tiontheory.In thealternativeconceptionofferedhere,complexityis theinterweavingof multiplejustificatoryprincipleson the same domainspace. Thatview,ofcourse,shareswithmodernizationtheorythenotionofdistinctivedomains-relativelyautonomousfieldsof action(Bourdieu1990). And itshareswithMarxismthe notionof the collisionoforderingprinciples.But unlike modernizationtheory,each domain is a site ofheterogeneity;and unlikeMarxism,thattensionis notconsolidatedandthen releasedin an all-encompassingrevolutionarymoment.The noisyclashof ordersoccursthroughoutthesocialworld,and it is not transientbutongoing-punctuatedby relative,localizedstabilizationsbut neverequilibrium(Latour 1988).

Postsocialistsocietiesare enteringthisdiscordantworld. To stillthatnoisyclashbytheascendencyof oneaccounting,withprofitabilityas thesole metricand marketsas theonlycoordinatingmechanism,would betoduplicatetheattemptofCommunism,withitsimpositionof a unitaryjustificatoryprinciple,a stricthierarchyofpropertyforms,and a singlecoordinatingmechanism.To replicatethe monochromewith a differentcoloringwould be to destroytheheterogeneityoforganizingprinciplesthatis the basis ofadaptability.

As this account of recombinantpropertyhas demonstrated,postso-

cialist societiesare not lackingin heterogeneousorganizingprinciples.The problemthereforeis not a simplelack ofaccountabilitybut an over-

21See esp. Grabher (1994) for a discussionofhow rivalryof coexistingorganizationalformscontributesto reflexivityand adaptability. For related views on adaptabilityand complexity,see Landau (1969), Morin (1974), and Conrad (1983).

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abundance of accountability:An actorwho, withinthe same domainspace, is accountableto everyprincipleis accountableto none. The

adaptabilityof moderncapitalismsrestsnot simplyin thediversityoforganizationsbut in the organizationof diversity:enough overlap oflegitimatingprinciplesacross domainsto fosterrivalryofcompetingac-countswithindomainsand enoughboundednessof rationalitiesto fosteraccountability.It is notinfindingtherightmixofpublicand privatebutin findingtherightorganizationofdiversityto yieldbothadaptabilityandaccountabilitythatpostsocialistsocietiesface theirgreatestchallenge.

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