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Markets And Inequality In Transitional Economies: Toward Testable Theories

A. Walder
Published 1996 · Economics

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Nee's (1989 and in this issue) "market transition theory," contested by Xie and Hannum (in this issue), claims that market mechanisms have predictable implications for inequality. "Compared to nonmarket allocation, market exchange enhances the bargaining power of producers" (Nee, p. 910). The core argument is that cadre advantages shall decline to the extent that markets replace redistribution as the dominant mode of economic allocation. While in successive publications Nee has altered his judgment about how far the market transition has proceeded in rural China, and whether his theory does predict a decline of cadre privilege, he has not altered the core claim about market allocation. Market economies vary widely in their patterns of power and privilege, in ways unrelated to the extent to which a market economy has been established. The variability of market economies warns against attempts to predict changes in inequality without first specifying the kinds of enterprises and other institutions that characterize the emerging market economy-or even the characteristics of markets themselves. We have been tempted into these predictions by the memorable Polanyian contrast between two ideal-typical economies-"redistributive" and "market" -that has proven a rich source of hypotheses about stratification (Szelenyi 1978, 1983) and the theory of the firm (Kornai 1992) under state socialism. This contrast has crystallized a research agenda by posing an important historical question about the social impact of the rise of market allocation in planned economies-especially as it concerns the fate of communist officials. But many now find that these ideal-types, and the continuum that bridges them, are a poor guide to the analysis of emerging market economies (see Bian and Logan 1996; Lin 1995; Rona-Tas 1994, 1995; Walder 1992, 1995; and Stark and Xie and Hannum, in this issue). General claims about the impact of markets should be viewed skeptically, for the impact of markets works through the allocation of assets, the characteristics of emerging markets, and the political processes by which market economies are established. Markets per se are not the issue.
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