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A Tale of Two

Politico-EconomicSystems: Implicationsfor Entrepreneurshipin Central andEastern EuropeR. Duane IrelandLaszlo TihanyiJustin W. Webb

Following the collapse of socialism in the late 1980s, Central and Eastern European coun-tries initiated attempts to adopt capitalist economic frameworks and promote entrepreneur-ship. However, persistent economic difficulties and high levels of unemployment have led todissatisfaction with political parties favoring capitalism. We integrate identity, institutional,

and social movement theories to describe the emergence of four competing social move-ments (capitalist democracy, socialist command, social democracy, and populist command)that are undertaken to pursue politico-economic reforms. We discuss the implications fordeveloping an entrepreneurial culture in Central and Eastern Europe.

Introduction

Emerging economies are countries experiencing rapid economic development that isstimulated by transitioning institutional policies favoring and supporting private enterprise(Hoskisson, Eden, Lau, & Wright, 2000). The adoption of capitalist institutional frame-works in place of previous economic institutions founded in socialism characterizes thetransition of countries in Central and Eastern Europe over the past two decades. Theintended purposes of these changes have been to increase the influence of the free marketand infuse entrepreneurial risk taking into the decisions made within the context ofemerging economies (Zahra, Ireland, Gutierrez, & Hitt, 2000).

The emerging economies in Central and Eastern Europe present both opportunitiesand risks on a global scale (Baldwin, Francois, & Portes, 1997). If, as hoped, privatiza-tion and free-market forces eventually engender widespread entrepreneurial behavior, thepro-democracy and economic reforms will have been successful in displacing previousinstitutions. Indeed, the stabilization of Central and Eastern European economies could

Please send correspondence to: R. Duane Ireland, tel.: (979) 8623963; e-mail: [email protected].

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1042-2587 2008 byBaylor University

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then be expected to promote further entrepreneurial investments from developedeconomies. Conversely, should institutional reforms fail to stimulate adequate levels ofentrepreneurship, stagnant or falling incomes and impoverishment of a large slice of thepopulation could foster widespread disillusionment with market economies and democ-racy (Baldwin et al., p. 127). As is evident from these concerns, entrepreneurship is notonly an intended outcome of the transition from socialism to capitalism but also a keyfactor in insuring the transitions success.

The incongruent transition of formal and informal institutions remains a key obstacleto promoting entrepreneurship in emerging economies. Formal institutions refer to therules, 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 asociety (North). While formal institutional policies and structures supporting capitalismhave steadily emerged in Central and Eastern Europe, informal institutions remain dividedbetween old and new economic systems. By deterring widespread adoption of entrepre-neurial behavior, informal institutions persisting from the socialist system undermined thetransition of formal institutions during the 1990s that were intended to promote entrepre-

neurship. Furthermore, economic turmoil, lack of social justice, growing inequality, anddeteriorating welfare services have created dissatisfaction with the emerging capitalisteconomic system in many countries of Central and Eastern Europe.

How formal and informal institutions evolve has significant implications for devel-oping an entrepreneurial culture in Central and Eastern Europe. By entrepreneurialculture, we refer to a national system of shared values in a particular society that embracesand supports entrepreneurship (Mueller & Thomas, 2000). Here, we integrate identity,institutional, and social movement theories to describe the ongoing transition of thepolitical economies within these countries. Our underlying argument is that following thetransition of formal institutions in Central and Eastern Europe, a division remains, with

some individuals identifying with the new capitalist economic system and others identi-fying with the previous socialist framework. Entrepreneurship is expected to be con-strained in countries with strong social movement activity that advocates the values andnorms of the previous socialist system.

Social movements to constrain entrepreneurship may also result from recent experi-ences in Central and Eastern Europe. For example, the visible success of entrepreneurs whohave taken advantage of the opportunities available in the newly founded capitalistframework has led to a number of troublesome outcomes, including: (1) income inequality;(2) dissatisfaction with capitalism by less successful individuals; and (3) less successfulindividuals increasing identification with political parties favoring noncapitalist economic

systems. In some countries where inequalities are readily apparent, widespread dissonancewith capitalism has initiated a social movement for the reversal of formal institutionalreforms and a limitation of the scope of the market system. Particularly disconcerting is thatthe separation between proponents of capitalism and socialism and the institutional vacuumin Central and Eastern Europe have also allowed the emergence of yet another group thatdis-identifies with both capitalism and socialism and favors more populist policy changes(Evans & Whitefield, 1993). The recent reduced pace of transition and the emergence ofpopulism in many countries are troublesome signs from the perspective of entrepreneurshipin that such institutional changes decrease the opportunities available to potential entrepre-neurs. Because entrepreneurship is widely viewed as an integral part of economic devel-

opment, an environment of a country that impedes entrepreneurship may have negativeconsequences in the long term, including a reduction in value-creation potential, a lack oflocal innovation, and job losses (Schumpeter, 1950; Zahra et al., 2000).

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Our discussion of the politico-economic systems in Central and Eastern Europe yieldsseveral important theoretical contributions. First, we describe the transition from social-ism as an open-ended process with an uncertain outcome. How this transition stabilizesdepends on the nature and timing of both political and economic strides that are taken toencourage the acceptance of entrepreneurship in society. A second contribution is ourtheoretical argument that different core economic values are the bases of the tensionbetween proponents of capitalism and those of socialism. We identify populist movements

as taking advantage of this tension. The political support of populist movements is aproduct of successfully discrediting existing political parties and promoting differentvalues (e.g., reducing crime or preserving the national identity). The folding of aspects ofthe 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 sonow. Nevertheless, we argue that interactions between political and economic systemsremain especially salient in emerging and transitioning economies such as those in Centraland Eastern Europe. Understanding the economy is not possible without taking intoaccount the political system and the ease with which changes may occur in it. As we argueherein, 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 anentrepreneurial culture uncertain.

The article proceeds as follows. We begin with a discussion of entrepreneurshipsrelationship to political economy. We then elaborate theory concerning the role of insti-tutions in economies and how citizens identification with economic values (morespecifically, identification with political parties promoting specific economic values) canlead to social movements driving economic and political institutional reforms. From thispoint, 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 promotedin 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 thepolitical stage advocating the different values of socialism and capitalism (and now alsopopulism) may shape the environment for entrepreneurship. We conclude by offeringimplications of our work for entrepreneurship theory and practice involving governmentpolicy.

Theory Development

Political Economy and Entrepreneurship

A political economy is a system through which policy decisions are analyzed onjudgments of value and implemented to produce, distribute, and exchange this value(Robbins, 1981; Sidgwick, 1924). A political economy includes interdependent politicaland economic structures. On the political side, actors are charged with the task of formingpolicies that enable citizens to provide sufficient value for themselves as well as forfunding of the states public services (Sidgwick; Smith, 2003). Political actors gain theirposition and power through the support of the citizenry. Remaining in power requires thatpolitical actors retain this support by establishing policies that provide value to thecitizenry (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). Theeconomy (i.e., the structure of institutions, firms, and entrepreneurial activities that facili-tates the dispersion of scarce resources throughout a society) plays a central role in

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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 resourcesmore efficiently allows a larger portion of society to reap their value.

The attitudes of political actors toward entrepreneurship has significant implicationsfor 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 insocialist systems. Conversely, capitalist-oriented political actors favor the market in dis-persing scarce resources. In reality, the stability of most existing politico-economicsystems is based on reaching a balance of state and market roles in providing value forsociety.

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 constraintsthat define legitimacy within regulations, laws, and supporting apparatuses, informalinstitutions define what is legitimate or socially desirable within the system of rules,norms, values, and beliefs (Suchman, 1995). Because institutions constrain to acceptableboundaries what opportunities may be pursued, they tend to establish how entrepreneursmay legitimately explore and exploit opportunities (Clemens & Cook, 1999). Forexample, because capitalism values free markets, many different types of opportunitiesare available for individual entrepreneurs and entrepreneurial firms competing in theseeconomies. Conversely, within a socialist system valuing social justice, institutions mini-mize the legitimacy of independent forms of entrepreneurship, favoring the redistributiverole of the state. Opportunities for entrepreneurship also differ owing to the changes ininstitutional boundaries over time.

States erect and mold institutions to preserve the core values of their economicsystems. The extent to which formal and informal institutions are aligned increasesthe stability of the overall economic system. Nevertheless, the alignment of formal andinformal institutions requires the state to monitor the society, to eliminate opposition thatsurfaces in a consistent manner, and to reward behaviors and outcomes that are consideredlegitimate.

Identification and Social MovementsIdentification 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 thatindividuals have with a certain group (Ashforth & Mael, 1989). Over time, identificationmay lead to an internalization of group values (Ashforth & Mael), but until this occurs, theattachment remains subject to change depending on contextual influences. Individualsidentify with groups with which they share a common regard for certain values, behaviors,or other general attributes, such as ethnicity or education (OReilly & Chatman, 1986).

Individuals possess a constellation of identities (Elsbach, 1998). For example, one

may identify with his or her firm, an educational institution, religious organization, orethnic group. Individuals, as citizens of a state, also often identify with the valuesespoused by particular political parties (Campbell, Converse, Miller, & Stokes, 1960). In



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general, individuals organize their values within a hierarchical structure and rank theirvalues according to their preferences (Schwartz & Bilsky, 1987). From a politico-economic standpoint, individuals values span a diverse scope from economic security toliberty, equality, social order, and nationalist considerations. Political parties play twovital roles: (1) unifying citizens sharing common interests, and (2) representing thecollective interests in establishing policy (Miller, Erb, Reisinger, & Hesli, 2000).

As with other broad organizations, political parties advocate diverse sets of values,

such as those concerning the environment, personal freedom, the role of business insociety, health care, and so on. Also embedded within the overall value set of a politicalparty are values concerning how the economy should be constructed and managed toprovide societal benefits. Citizens may identify broadly with a political party, agreeingwith many of its espoused values. Party identification may also be based more strongly onparticular values (e.g., economic values) while being apathetic to others (e.g., health careor the environment). Research shows that individuals who are at least partly educated ina political context form their political decisions in a manner that is consistent with theirvalue structure (Jacoby, 2006).

One of the primary responsibilities facing political parties is to insure widespread

economic security, although political parties may also be able to take advantage of current,hotly contested issues that affect citizens core values. Failure to ensure economic securityor stability of other core values can lead to dis-identification of citizens with the rulingparty and a subsequent reoriented identification with opposing parties (MacKuen,Erikson, & Stimson, 1989; Weisberg & Smith, 1991). Such attitudinal changes manifestin an array of actions, including redirected votes in subsequent elections, protests, or inextreme cases, revolt. These actions are intended to prompt reforms in the economicsystem by alerting political elites to the needs that are significant to certain groups or tobegin the process of installing new elites that promise to implement desired reforms.

The actions of protest and revolt reflect a change from passive party identification to

a collective political action. Individuals will participate in collective political action if theexpected outcomes of their behavior have a net positive value (Finkel & Opp, 1991,p. 342). Collective political actions targeting political structures are often organized intosocial movements where a social movement is a set of opinions and beliefs in a popu-lation which represents preferences for changing some elements of the social structureand/or reward distribution of a society (McCarthy & Zald, 1977, pp. 12171218). Socialmovement theory is concerned with the ways different actors shared interests translateinto collective action (Davis, McAdam, Scott, & Zald, 2005; McAdam, 1996; Tarrow,1994). In previous research, social movements were considered from different perspec-tives based on the sources of movement activity (Davis & McAdam, 2000; McAdam &

Scott, 2005). Of the different perspectives, we use the political process model (e.g., Davis& Thompson, 1994; Soule & Olzak, 2004) and the framing process model (e.g.,Benford & Snow, 2000) to develop our arguments on collective political action and theeffect on entrepreneurship in Central and Eastern European countries.

The political process perspective focuses on political opportunities and constraintsexisting in the political climate (McAdam & Scott, 2005). From a political processperspective, Finkel and Opp (1991) suggest that the extent to which benefits may accrue tocitizens participating in the social movement depends on the incentives available in theenvironment. These researchers found collective political action to be positively associatedwith both public-goods-related incentives (e.g., perceived benefits of overcoming sources

of policy dissatisfaction) and private incentives (e.g., gaining political knowledge).While political opportunities and constraints may mobilize individuals, actual collec-tive action may also occur based on shared meanings and cultural understandings

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(Davis & McAdam, 2000, p. 218). Benford and Snow (2000) suggest that individuals useframes and schemas to develop a shared understanding of problems and to suggest specificchanges and solutions. For example, if citizen groups of Central and Eastern European

countries perceive that their opportunities are constrained by an entrepreneurial culture,they are more likely to engage in a social movement against entrepreneurship relative tocitizens with a shared and positive view of an entrepreneurial culture. In Figure 1, wemodel our theoretical arguments concerning the emergence of politico-economic socialmovements.

The Role of Entrepreneurship in Socialism and Capitalism

Depending on how economies are organized, entrepreneurs are allowed to play a

significant role or are confined to serving peripheral needs. The economic systems ofsocialism and capitalism organize firm behavior and the role of entrepreneurship in vastlydifferent frameworks. The differences originate from unique philosophies regardingresource allocations as well as how best to provide society with products and services,such as food, shelter, health care, and education. In the following sections, we discuss bothhow resources are allocated through the institutional frameworks in socialist and capitalisteconomies and the implications of the frameworks for entrepreneurships development.

Socialism

Institutions supporting socialism were erected in the former Soviet Union starting in1917 and countries of Central and Eastern Europe after World War II. The philosophyunderlying the socialist economic systems emphasized social justice, equality, and welfare(Kornai, 1992). The socialist states initial actions were intended to reduce inequalities bynationalizing private property (e.g., confiscating property from the wealthy and placing itunder state ownership). Decision makers justified the changes as a fair distribution ofproperty throughout society. Alongside these societal changes, one-party systems charac-terized concurrent political transitions in Central and Eastern Europe in the late 1940s.The one-party system was structured as a centralized bureaucracy with all major decisionsbeing made by the party apparatus.

The state utilized a two-pronged approach to align informal institutions with theabove-noted formal institutional changes. The approach included selecting out oppositionand socializing those individuals who were malleable (Kornai, 1992). Coercion was a

Figure 1

A Model Describing the Emergence of Politico-Economic Social Movements

Party

identification

Identity

re-orientation

Economic

dissatisfaction

Social

movement



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common tool to repress opposition to the socialist party line, and it was used to constrainboth active opposition and mere utterances of dissent. Coercion allowed the party tomaintain power and preserve the ideological drive to distribute property and incomeequally across society. Socialization tactics included the state consistently imposing itsvalues through rallies, marches, and other forms of propaganda (Kornai).

The formal and informal institutions supporting the socialist economic system leftlittle room for independent forms of entrepreneurship in Central and Eastern Europe.

Rather business was characterized by mass organizations enjoying monopolies in theirrespective markets. Within the socialist system, the leading officers of the mass organi-zations were appointed by the party. In so doing, these organizations were established aspawns, ultimately directed by the needs of the party apparatus. Decisions regarding newproduct and service development, resource allocations, and the nature of production andconsumption were all essentially controlled by the party apparatus (Kornai, 1992).Because the survival and growth of the mass organizations depended not on their credit-worthiness or ability to cover costs, but on their ability to expand production and output,mass organizations lacked incentives to undertake entrepreneurial action independently(Stark & Nee, 1989).

Entrepreneurship in Central and Eastern Europe was also hindered because the cen-tralized decision-making structure limited the overall level of entrepreneurial alertness(defined as a superior insight to discover entrepreneurial opportunities [Kirzner, 1979]) inthe socialist economies. The complexity of managing resources and identifying opportu-nities for entrepreneurship across such a diverse and large set of decisions was simplyoverwhelming for central planning in Central and Eastern Europe. As such, the entrepre-neurial alertness of the centrally controlling party apparatus paled in comparison with theentrepreneurial alertness possible with all the potential entrepreneurs present in thesociety (Herbener, 1992; Kirzner, 1980). Because of this, the sheer quantity of entrepre-neurial opportunities recognized and then exploited within the socialist economies was

significantly less than what was possible in capitalist economies.Despite the need for independent forms of entrepreneurship, the various forms

of socialization and selection out of opposition consistently reiterated the values ofsocialism, creating a culture of discipline and conformity with the overarching ideology.Ageev and Kuzin (1990, p. 84) further detail the anti-entrepreneurship norms and beliefsengendered by socialism in Central and Eastern Europe:

Prohibitionism, the undoubted priority of state interest that suppresses virtually allpersonal initiative, wage stability, leveling and distributionism, the low prestige ofprofessionalism and innovationism, business success and risk, envy and the striving tocount the money in our neighbors pocket, and the inability to separate the real desireto work and earn from speculation and pure gain, the reluctance to value the skilledwork of others highly, suspiciousness of competition, the market, and commodity-monetary regulators, the lack of interest in the quality of labor, distorted businessethics, fear of failure, passivity and inertia, leisurely obedience and the limitedspectrum of motivation, and finally, rigid dependence on political and ideologicalstrategy and business conditionsall this rejects entrepreneurial values and modelsof behavior.

In summary, following the initial transition to socialism, the states were effective inemphasizing the values of social justice, equality, and welfare. Formal institutions were

established in a way that facilitated attaining these values and structured to constrainpossible changes outside of the purview of the party apparatus. To solidify socialism, thestates realigned the norms, beliefs, and values of society through consistent messages

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communicated with various forms of socialization and heavy-handed coercion. More-over, these institutional reforms simultaneously created national cultures shunningentrepreneurship.

Capitalism

The socialist economies of Central and Eastern Europe collapsed in the late 1980s.

Although the events leading to the demise of socialism are complex, the ineffectivenessof the socialist economic system to adequately distribute resources across society is aprimary causal agent. Lagging technological development, production inefficiencies andblockages, and product shortages are examples of ineffectiveness characterizing socialisteconomic systems. These sources of ineffectiveness intensified the underlying dissatisfac-tion with the lack of personal freedom (Kornai, 2000; Lavigne, 1995). Prior to the collapseof socialism in the late 1980s, some countries recognized their economys distress. Inresponse, these countries passed moderate economic reforms that were intended to intro-duce certain aspects of a market system into their respective socialist economies. Ulti-mately, however, these reforms failed to stimulate the economic turnaround as hoped. In

turn, these failures led the countries of Central and Eastern Europe to adopt capitalistframeworks beginning in 1989 as the foundation for the desired turnarounds.

The transition to capitalism introduced economic systems based on a new set ofvalues, including property rights, free markets, and wage labor (Audretsch & Thurik,2000; Schweickart, 1993). The differences between the set of values underlying capital-ism and those of socialism stem largely from how the two systems perceive justice in thedistribution of products and services to society. As noted previously, proponents ofsocialism perceive justice in an economic framework that creates social equality (i.e.,equality of outcomes). Conversely, capitalists hold more of an entitlement view of distri-bution, or equality of opportunity. In this view, individuals are entitled to holdings

previously undiscovered or holdings transferred from other individuals as long as themeans of acquisition are legitimate (Nozick, 1974). Kirzner (1989, p. 174) clarifies thisview of justice: . . . in reality resources and products have always had to be discovered.They have never existed up until the moment of their entrepreneurial discovery. It isupon this contention that I have based my case for the finders-keepers ethic and itsrelevance for the justice of capitalist income assignments. In other words, value is notcreated until entrepreneurs discover and exploit an opportunity. As long as the entrepre-neurial behaviors are legitimate, entrepreneurs are entitled to access the value created bytheir knowledge and actions.

In contrast to the redistributive role of the state under socialism, capitalist economic

systems are based on laissez faire, or a doctrine promoting minimal governmentintervention in economic affairs. An invisible hand guides firm behavior and entrepre-neurship without the watchful eye of the state imposing its willand values (Smith,2003). The enforcement of property rights by the state and appropriate wage structuresinsure that entrepreneurs and workers receive their just portion of value that theirresources, actions, and knowledge create for society.

From a capitalist perspective, the market system allows all individuals to competeby exploiting their unique stocks of knowledge and resources. The expertise of theseindividuals facilitates entrepreneurial alertness and the discovery of opportunities. Further-more, the lack of overarching coercive control allows appropriate risk-taking behavior.

In sum, capitalist economies rest on the core economic values of free markets, propertyrights, and wage labor. Free markets allow all individuals to pursue entrepreneurship.Property rights and wage labor insure that the value created through entrepreneurship is



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distributed fairly (according to an entitlement view) within society. Together, the economicvalues of capitalist economies, supported by well-established formal and informal institu-tions, indoctrinate national cultures supporting entrepreneurship.

Institutional Transformation

As we noted previously, Central and Eastern European countries began to transitionfrom socialism to capitalism in 1989. In doing so, significant changes took place on bothpolitical and economic fronts. Particular nuances of the transition (both its means andends) varied across countries because of their different histories and economic conditions(Meyer & Peng, 2005; Stark, 1996). While some countries started out their transition withmore traditional socialist regimes, others had already completed waves of reforms that,among other outcomes, cleared the stage for the emergence of entrepreneurial culture.Institutional changes also depended on local economic and political conditions and thusranged from voucher privatization to the sale of state ownership to foreign investors

(Hanley, King, & Tth, 2002; Tihanyi & Hegarty, 2007). Furthermore, historical differ-ences, such as with respect to the industrial base established in certain countries prior tothe socialist system, have led to varying transition success (Kozminski, Yip, & Dempster,2000). Despite the important differences, the institutional transformation in many coun-tries shared several broad similarities. Politically, the one-party systems that characterizedthe socialist regimes were replaced with democracies. From an economic standpoint,privatization was the key to opening the doors to capitalism across Central and EasternEurope (Spicer, McDermott, & Kogut, 2000). Both the political and economic approachesfaced initial scrutiny. We discuss the concerns of the political and economic reformsbelow. We note that initial political concerns were overcome. However, reforms of eco-

nomic institutions are yet to engender widespread entrepreneurial cultures in Central andEastern Europe, leading to economic hardships and high levels of unemployment in somecountries. Citizens dissatisfaction that has followed appears to be causing a reorientationof political party identification, paving the political avenue for socialist and populist socialmovements.

Political Transformation

With the transition to capitalism, Central and Eastern European countries establisheddemocracies that were intended to promote equality of opportunity, not only in the

economic context but also within the broader context of societal benefits. The stability ofthe newly founded democracies rested on the ability of political parties to unify citizensand to act as a means of representing the needs of the masses as communicated to politicalelites (Miller et al., 2000).

A number of scholars voiced skepticism about the ability of political partiesto engender identification, without which political stability would be undermined.Reddaway (1994), for example, argued that the multiparty democratic system in Russiawas already unraveling in the initial transformative stages and a military dictatorshipwould likely unify everyone under a national identity. Others have not been so extremein their predictions, but have addressed concerns related to a lack of familiarity with

and distrust of political parties following decades of socialist dictates (Klingemann &Wattenberg, 1992; Rose, 1995). Others argue that the development of party identifi-cation occurs only through many years of socialization (e.g., Greenstein, 1965).

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Despite the numerous concerns, evidence suggests that citizens of Central and EasternEuropean countries increasingly identify with political parties (Evans & Whitefield, 1993;Miller & Klobucar, 2000). Furthermore, party identification extends beyond merely rec-ognizing the presence of a favorable party. Miller et al. (2000) found that citizens whohave aggregated in political parties share ideological and policy preferences, possess issuecongruence with political elites in their respective parties, and are able to differentiateopposing political parties on a policy basis. Citizens understand policy differences across

parties and base their political decisions on this understanding.Although party identification is an initial success in the transition from socialism to

capitalism, political stability requires further progress. For example, time is still needed toinsure the institutionalization of linkages between the masses and political elites (Miller& Klobucar, 2000). Also, political stability will only be attained when citizens perceivepolitical parties as responsive and effective in addressing their needs (Miller & Klobucar).Recently, the incomplete transformation of economic institutions in Central and EasternEurope (and the resulting economic hardships and unemployment) appear to be under-mining political stability.

Economic Transformation

The economic transformation that accompanied the political shift from socialism tocapitalism was characterized by reforms targeting multiple formal institutions.The reforms in general were aimed at developing a free, yet legitimate, market. Furtherreforms in most countries targeted legal and regulatory infrastructures, capital marketinstitutions, and unemployment and retirement systems. Svejnar (2002, p. 5) detailed theformal institutional reforms:

The macroeconomic strategy emphasized fiscal and monetary policies, wage controlsand, in most cases, also a fixed exchange rate. The micro strategy was to movequickly toward price liberalization, although a number of key prices, like those ofenergy, housing and basic consumption goods, often remained controlled along withwages and exchange rates . . . most countries opened up rapidly to internationaltrade . . . Most countries also quickly reduced direct subsidies to trusts and state-owned enterprises and allowed them to restructure or even break up. They removedbarriers to the creation of new firms and banks and carried out small-scale privatiza-tions . . . A final feature was the introduction of some elements of a social safety net.These changes caused a sizeable reallocation of labor away from the state-run firms,some of which went to the new private firms and some of which ended up in

nonemployment.

Simultaneous with the formal institutional reforms, governments undertook privati-zations of their respective state-owned enterprises. Proponents of mass privatizationadvocated the need to instill capitalist economic frameworks before political oppositionmaterialized (Spicer et al., 2000). The mass-privatization proponents also believed entre-preneurship would quickly fill the economic void left by dismantling the socialist system(Spicer et al.). Unfortunately for those favoring rapid, mass privatization, widespreadentrepreneurship did not emerge in the decade following the transition. The lack ofwidespread entrepreneurship in Central and Eastern European countries following the

transition to capitalism led to vast disparities in income and quality of living. Asthe socialist system was dismantled, many individuals lost their jobs and independentforms of entrepreneurship failed to fill the void. Although fluctuating, unemployment



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figures rose into the double digits in many Central and Eastern European countries foryears following the initial transition phase (Svejnar, 2002).

Until recently, staunch opposition in what may be considered a notable political forcehad not surfaced. The economic hardships and high rates of unemployment, however,remain in many Central and Eastern European countries today. The failure of governmentsto mold formal and informal economic institutions that were conducive to entrepreneurialcultures appears to be a primary force underlying these economic difficulties. We contend

that two specific failures in the transformation of economic institutions have underminedthe development of an entrepreneurial culture: (1) initial imperfections of formal institu-tions to monitor and enforce the economic values of capitalism (i.e., property rights, wagelabor, and a free, but legitimate market), and (2) a lack of attention addressed to informalinstitutions concerning the economy.

The mass privatization of state-owned enterprises occurred so rapidly following thedemise of socialism that many Central and Eastern European countries were left withinadequate formal institutions to support free, legitimate markets. Although the formalinstitutional changes recounted by Svejnar (2002) soon followed, business in the Centraland Eastern European countries operated in a formal institutional void during the initial

years following mass privatization. Poorly developed state policies undermined legi-timate forms of entrepreneurship (Kolvereid & Obloj, 1994). The void also enablednumerous forms of illegitimate behavior. Ambiguous (or a complete lack of ) formalinstitutions governing contracts facilitated opportunistic behaviors (Spicer et al., 2000),banks were slow in providing needed capital to entrepreneurs, and political elites from thesocialist era were in some cases able to leverage their positions to gain favorable accessto resources and other entrepreneurial opportunities (Walder, 2003). The lack of appro-priate formal institutions to enforce legitimate behaviors limited the opportunities forindependent entrepreneurs who failed to quickly recognize and exploit opportunities orwere unable to take advantage of their status. The visible need for opportunism and status

in gaining success discouraged others from even attempting entrepreneurship. By doingso, the formal institutional void slowed down the emergence of an entrepreneurial culturethat the countries hoped would stimulate the economy.

The fact that transforming informal institutions within economies has been a slowprocess in Central and Eastern European countries exacerbates the issues imperfect formalinstitutions create. Although citizens living in capitalist societies have long embraced thevalues promoting entrepreneurship, decades of socialist influence have ingrained valuesthat are strongly opposed to the surfacing and pursuit of entrepreneurship. In fact, decadesbefore, Schumpeter (1950, p. 170) asserted the following:

. . . we will keep in mind that socialism aims at higher goals than full bellies, exactlyas Christianity means more than the somewhat hedonistic values of heaven and hell.First and foremost, socialism means a new cultural world. For the sake of it, one mightconceivably be a fervent socialist even though believing that the socialist arrangementis likely to be inferior as to economic performance. Hence, no merely economicargument for or against can ever be decisive, however successful in itself.

Schumpeters (1950) comments suggest that Central and Eastern European citizensmay view socialism as an inferior engine of growth as compared with capitalism, yet remainstrongly committed to socialisms values and beliefs. By the end of the socialist regimes, thesocialization efforts undertaken to bring about rigid conformity, fear of failure, suspicious-

ness of competition (Ageev & Kuzin, 1990), and other beliefs (as driven by the need toattain the values of social justice, equality, and welfare) had created what were firmlyingrained behaviors in the citizens living in Central and Eastern Europe (Kornai, 1992).

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Hence, formal institutional transformations aimed at supporting capitalism were anincomplete solution to the economic deterioration created by decades under centrallyplanned economies in Central and Eastern Europe. A widespread entrepreneurial culturecould only be achieved through efforts to simultaneously transform formal and informalinstitutions. Because informal institutions have been slow to adapt to the capitalist ideol-ogy, the scope of entrepreneurship in many Central and Eastern European countries hasnot yet compensated for the growing unemployment and economic hardships created by

the restructuring (or privatization) of state-owned enterprises.

Collective Party Identities and Entrepreneurial Culture

Party identification increased in the decade following the transition from socialism tocapitalism that began in 1989. How this party identification emerged varied across indi-viduals. Citizens socialized completely within socialist institutions favored attachmentto socialist-oriented parties in the new democratic system. In contrast, older generationsthat were descendants of the elites of previous capitalist-type political economies, those

who dis-identified with socialism, and younger generations that were not fully socializedwithin the socialist regimes more likely embraced capitalist-oriented parties (Powers &Cox, 1997). Others became attached to political parties that attempted to balance socialistand capitalist economic values, such as those parties promoting certain social guaranteeswhile adopting an orientation to free-market principles (Miller & Klobucar, 2000). Inter-estingly, while identification strengthened with individual political parties, a broadopinion of Central and Eastern European citizens was that the overall political system wasflawed. Furthermore, citizens did not hold a particular preference for any type of politicalsystem (e.g., democracy versus one-party command) (Miller & Klobucar).

The high levels of unemployment and the economic hardships following the transi-

tion have increased dissatisfaction with governments in the region. In a study of citizensperceptions of economic and social conditions in Central and Eastern Europe,McDonough (1995) found that less than 10% of citizens believed they were better off inthe new economy compared with conditions during the previous socialist regimes.Economic dissatisfaction remains a major political issue (Anderson, Cienski, Condon, &Wagstyl, 2006; Guzelova, 2001). Perhaps partly because of this, political and economicturmoil has surfaced recently in Central and Eastern European countries.

Whether due to lack of ability, effort, internal cohesion, or overriding external factors,the Central and Eastern European governments ineffectiveness in dealing with the per-sisting economic challenges has created dissatisfaction with the political and economic

institutions. In many ways, the economic challenges have served to persist and magnifythe cultural trauma that characterized the initial transition from socialism to capitalism(Sztompka, 2004). As a response to the economic needs, social movement activities haveincreased. The initial political inroads made in establishing democratic governmentscomposed of political parties with strong identification appear to be unraveling (Troublein New Europe, 2006).

In the following sections, we discuss how a number of Central and Eastern Europeancountries (e.g., the Czech Republic, Hungary, Poland, and Slovenia, among others) areembroiled within a conflict of clashing collective identities. In Figure 2, we highlight foursocial movements distinguished by their collective party identities (capitalist democracy,

socialist command, social democracy, and populist command). Each social movement hassurfaced on the basis of the overarching politico-economic values that are associated, tovarying degrees, with either a capitalist economic system or a socialist economic system.



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Depending on which collective identity becomes dominant in the future, Central andEastern European countries may continue their shift to capitalism, fall back to elements ofsocialist economic policies, develop a compromise of socialist and capitalist policies, oradopt a wholly new economic system based on populism. We set forth propositionsdiscussing our expectations for the role of entrepreneurship in Central and EasternEuropean countries within the context of each potential outcome (i.e., the continuedemergence of capitalist democracy, resurgence of socialist command, the gridlock of asocial democratic framework, or rise of populist command).

A Continued Emergence of Capitalist Democracy

The economic hardships present within the socialist regimes of Central and Eastern

Europe prior to 1989 sparked an initial social movement within these countries to endsocialism. Leading the social movements of the respective countries, political elitestransformed political and economic institutions to promote capitalism. The establishmentof institutions supporting free markets, property rights, and wage labor was intended topromote widespread entrepreneurship, which in turn was expected to stimulate stronggrowth in new and revitalized economies. Some citizens identified with the new economicvalues and embraced entrepreneurship. However, imperfections in formal institutions andfailure to transform informal institutions undermined the emergence of a widespreadentrepreneurial culture. While the policies implemented by political elites were intendedto end the economic adversity in Central and Eastern Europe through capitalism, the

institutional problems prolonged the economic difficulties. Consequently, attitudes towardthe capitalist democratic movement and the entrepreneurial behaviors that are part of itchanged as citizens have sought other ways to overcome their hardships.

Figure 2

Four Social Movements Emerging in Central and Eastern Europe

Capitalistdemocracy

Socialistcommand

Socialdemocracy

Populistcommand

Capitalisteconomicvalues

Socialist

economic

values

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Nevertheless, a capitalist democratic movement, albeit with less momentum, remainsin many Central and Eastern European countries as many citizens continue to identifywith political parties advocating capitalist economic values. A number of reasons, relatedto both public and private incentives, may be offered for why a capitalist movementcontinues despite persistent economic difficulties. For example, individuals who quicklyembraced entrepreneurship following transition and personally reaped its benefits recog-nize its potential to create value. For these individuals, reforming capitalist policies may

mean losing the value gained through their entrepreneurial behaviors as states seek toredistribute wealth in terms of social equality (as opposed to laissez faire). Therefore,many citizens continue to promote the values of free-market economy principles that haveled to their personal success. Continued identification with political parties favoringcapitalist values also stems from how citizens attribute blame for the current economicadversity. To the extent that blame is attributed to lingering effects of the eco-nomic destruction imposed by previous socialist regimes, policy dissatisfaction maycontinue with socialist politico-economies. Citizens may continue to identify with partiespromoting capitalist economic values that are expected to overcome the damage createdby previous policies. Similarly, citizens may continue to identify with capitalist-oriented

political parties because of comparably favorable prospective evaluations of the economywith capitalism (Chappell & Keech, 1985; MacKuen et al., 1992). If capitalism and theentrepreneurship it stimulates are thought to more likely lead to an economic turnaround,as opposed to what might be possible under socialism, Central and Eastern Europeancitizens may continue to identify with political parties promoting capitalist economicvalues.

A continued emergence of a capitalist movement has significant implications forfuture entrepreneurship in Central and Eastern European countries. Capitalism is expectedto create a free market and equality of opportunity for potential entrepreneurs, constrainedonly by formal institutions that regulate the boundaries of legitimate business activities.

Moreover, with time, formal and informal institutions have the potential to develop inways that will support capitalism and entrepreneurship. With this support, entrepreneurialbehaviors, taken to recognize and then exploit opportunities, have the possibility ofgenerating outcomes that citizens will perceive to be equitably dispersed (i.e., as definedby property rights and wage labor regulations). Therefore, we suggest the following:

Proposition 1: An increased level of capitalist democratic movement will be posi-tively related to institutional changes favoring an entrepreneurial culture in Centraland Eastern European countries.

A Resurgence of Socialism

In some cases, Central and Eastern European countries attempted to constrain socialistparties, but legal changes in the early 1990s facilitated a resurgence of socialist-orientedpolitical parties (Moraski & Loewenberg, 1999). Despite the economic hardships createdunder the previous socialist regimes, many citizens continued to identify with socialistpolitical parties favoring the economic values of social justice, equality of lifestyle, andwelfare rather than the values associated with capitalism (Miller & Klobucar, 2000). In theyears following the transition, a resurgent socialist movement can be explained by a numberof factors, driven primarily by the public-goods-related and private incentives perceived as

attainable through such collective political action. While some citizens attribute economicdifficulties to lingering effects of socialism, others claim that society was betrayed byopposition leaders who later implemented the early reforms: Either the transition was



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hijacked by a small elite, or societys goals from the early 1980s were not (or onlyminimally) realized through the enacted reforms (Powers & Cox, 1997, p. 619). Whetherbecause of feelings of betrayal or dismay with economic reforms, many citizens in Centraland Eastern Europe are dissatisfied with capitalist policy outcomes. By participating insocialist counter-movements, citizens hope to return to previous economic systemsin which they were provided at least some level of social guarantees (Duch, 1993).

The inability of capitalist institutions to ensure equality of opportunity and the vast

disparity across society of outcomes achieved in terms of incomes and lifestyles thatare associated with capitalism appear to have also influenced citizens to reorient theiridentification with socialist movements. Following the transition to capitalism, numerouspolitical elites (Walder, 2003) and opportunistic entrepreneurs (Spicer et al., 2000) wereadvantaged in exploiting opportunities by their social positions and deviant behaviors thatwent unpunished, respectively. Furthermore, many entrepreneurs experiencing wealth forthe first time publicly enjoyed lifestyles far above what was possible for the averagecitizen in many Central and Eastern European countries. Magnifying the general suspi-ciousness of neighbors norm that existed from socialist regimes, many citizens that werenot as successful became dissatisfied with the visibly apparent inequalities that surfaced

with capitalism.An increasing social movement aiming to return socialism has negative implications

for entrepreneurship in Central and Eastern Europe. Returning to socialist regimes wouldlikely entail political and economic reforms that would constrain entrepreneurial behav-iors. Socialist political parties could be expected to remove political opposition and takecontrol of economic affairs. If this were to occur, entrepreneurship would return to beinga state-driven protocol with opportunities confined to the alertness of those in command.If this were to happen, the widespread entrepreneurial culture sought by capitalist reformswould be prevented from surfacing. Thus, we suggest that:

Proposition 2: An increased level of socialist command movement will be negativelyrelated to institutional changes promoting an entrepreneurial culture in Central andEastern European countries.

A Social Democratic Gridlock

Although political parties predominantly emphasizing capitalism and socialismexisted in Central and Eastern Europe, perhaps most political parties espoused a mix ofcapitalist and socialist economic values, which we refer to as social democratic parties. Aspointed out by McDonough (1995, p. 652) early in the transition to capitalism, . . . the

euphoria of the early days of democratization may lose their edge as nostalgia forthe social guarantees of communism blurs with social democratic measures designed tosoften the shocks of marketization. To the extent that some social guarantees canbe provided while simultaneously erecting capitalist-oriented institutions, the socialdemocratic state may be able to appease both those that identify with socialist economicvalues and those that identify with capitalist economic values. The experiences of socialdemocracies around the world suggest that this mutual accommodation has the potentialto support the emergence of some entrepreneurial behaviors by citizens. Furthermore,social democratic parties represent a more incremental change of identification for citi-zens favoring capitalism or socialism, as opposed to reorienting ones identity from purely

capitalist to socialist-oriented political parties. Therefore, a socialdemocratic movementmay gain momentum as citizens become increasingly confident with capitalist-orientedpolitical parties and remain disillusioned with socialism.

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Social democracys ideology represents an economic compromise of the capitalistfree market and socialist distribution of wealth. Within social democracies, entrepreneursare usually afforded latitude in exploiting opportunities. However, the need to distributesocial guarantees across society requires that the state absorb a portion of the valueentrepreneurs create. By doing so, the state reduces the overall number of valuableopportunities available to entrepreneurs and for which entrepreneurs are willing to takerisks. When the state provides extensive levels and types of social guarantees (e.g.,

income, jobs, education, medical assistance, etc.), the scope of valuable opportunitiesavailable to entrepreneurs may narrow significantly. This suggests the following:

Proposition 3a: An increased level of social democratic movement will have acurvilinear (L-shaped) relationship with institutional changes favoring an entrepre-neurial culture in Central and Eastern European countries, such that as the level ofsocial democratic movement increases, institutional changes promoting an entrepre-neurial culture will decrease before stabilizing.

As noted previously, the emergence of social democratic movements can be attributed

to economic dissatisfaction. The social democratic movements demand that governmentsprovide some level of social benefits to their citizens. The existing level of economicdevelopment in Central and Eastern European countries may be able to support socialbenefits to a given extent. However, countries characterized by poor economic develop-ment are not able to support social benefits, and perceptions of injustice, inequality, andpoverty are likely to increase. In such cases, social democratic movements are likely toseek an economic compromise more strongly favoring socialism. In turn, economicinstitutions supporting an entrepreneurial culture would be dismantled and transformed asthe state carries a heavier burden to distribute wealth. Therefore, we suggest:

Proposition 3b: Economic development in Central and Eastern Europe moderates

the relationship between a movement toward a social democracy and an entrepre-neurial culture: as economic development increases, the level at which institutionalchanges promoting an entrepreneurial culture stabilize increases.

A Populist Movement

Populism is a fourth social movement surfacing in some Central and EasternEuropean countries. Populism is a politico-economic system based on values that differsignificantly from both capitalism and socialism. The populist movement has gained

support by discrediting existing political parties and promoting other values, such as theneed to reduce crime or to preserve the national identity by limiting immigration(Giddens, 2003).

Riker (1982) describes populism as a flawed politico-economic system. This perspec-tive argues that the majority is right and must be respected. Liberty manifests when themajoritys will is served by the decisions and actions of political elites. However, popu-lism leads to coercion aimed at oppressing values and tastes of minorities that conflictwith majority rules (Riker). There are two other long-term, politico-economic issues inpopulist regimes. First, the majority is served in a true sense only when there are twosocial preferences. When more than two social preferences exist, a minority can actually

gain the majority because other groups are split across numerous preferences (Riker). Asecond issue that plagues populist regimes is that political elites can modify electoralsystems in their favor by asserting that such changes are the majoritys will (Riker). More



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specifically, populists argue that the people are one and will be best served by a single,ideologically unified leadership (Knopff, 1998).

Populist regimes secured their positions of power in Argentina and Mexico fordecades through manipulation of electoral institutions (Gibson, 1997). While preservingpositions of power for the elites, the institutional changes that populists implement createinertial politico-economies that resemble the one-party command systems of socialistregimes. Furthermore, changes in the composition of the majority often fail to overcome

the solidified positions of the political elites.Populist movements appear to be gaining momentum in Central and Eastern Europe

(March & Mudde, 2005; Perry, 2006). The growth of populism may reflect a reorientationof party identities by Central and Eastern European citizens who are dissatisfied witheconomic hardships and blame both previous socialist economic destruction and thefailure of capitalist policies to resurrect the economies (Held, 1996). The populists havebeen effective in highlighting the flaws of capitalist and socialist political parties whileadvancing their own identity to appeal to the masses. Emphasizing the lack of respon-siveness of capitalist and socialist political parties, the political elites leading the populistmovements are able to take advantage of economic adversity by promising certain

guarantees that are of interest to the majority of a nations citizenry.The differences between the political ideologies are less clear in Central and Eastern

European countries than in the democracies of developed countries (Evans & Whitefield,1993). Most local populist movements have been dominated by ideologies that includevalues of strong national identity (e.g., populist nationalism), traditionalism, and opposi-tion to immigration (Skolkay, 2000). However, in most countries of the region, thesevalues have been mixed with ideas of universal employment, free education, and rena-tionalization of private property. In the new Central and Eastern European membercountries of the European Union, populist movements have also emerged from theunfulfilled expectations of Union membership or Euroskepticism (Mudde, 2003). Popu-

lists exploit citizens who are willing to trade their vote (i.e., a manifestation of their partyidentification) to gain short-term guarantees while ignoring potential long-term ramifica-tions (Canovan, 1981). While criticizing capitalist and socialist policies, the populistssimultaneously establish their own identity.

Central and Eastern European countries provide a fertile setting for populist move-ments. As noted, populism is based on preserving the majoritys will. When two optionsare present, the option with the majority support wins. However, when more than twooptions are present, the majority may be spread across numerous tertiary preferences,allowing a minority secondary option to gain control (Riker, 1982). The political systemsof Central and Eastern European countries are often characterized by many (sometimes

over 20), discrete political parties. This fragmentation increases the number of optionsavailable to voting citizens and allows populists to gain control without having a truemajority. From a capitalist and entrepreneurial standpoint, the rise of populism in Centraland Eastern Europe has already manifested in troublesome changes. For example, therecently elected prime minister of Slovakia, Robert Fico, has pushed for a reversal ormodifications of numerous capitalist reforms, such as special taxes on banks and utilitiesand de-privatization of the Bratislava airport (Trouble in New Europe, 2006). Similarsentiments are emerging by populist movements in several countries in the region, includ-ing in Ukraine, Hungary, and Romania.

A persistent rise in populism has negative implications for developing a widespread

entrepreneurial culture in Central and Eastern European countries. Following the rise ofpopulist political elites to power, institutions are transformed to secure this positionalpower, usually achieved through coercion. The oppressive nature of populist regimes

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resembles that of socialist totalitarianism, driving out creativity and risk taking that maychallenge state command. Therefore, the entrepreneurial behaviors that stimulate eco-nomic development become limited in populist regimes (Gibson, 1997). Thus, we suggestthe following:

Proposition 4: An increased level of populist command movement will be negativelyrelated to institutional changes promoting an entrepreneurial culture in Central and

Eastern European Countries.

Discussion and Conclusions

We have used identity, institutional, and social movement theories to frame argumentsabout entrepreneurships future in Central and Eastern European economies that areexperiencing transitions to different economic systems. Our underlying argument is thatthe institutional transformation from socialism to capitalism resulted in the emergence ofmeaningful differences in party identification and that these differences play an important

role in shaping entrepreneurship by means of increased social movement activity. Beyondits direct implication for entrepreneurship theory (e.g., comparative study of entrepre-neurship), the future scope of entrepreneurial activity will likely have a profound effect onthe macroeconomic development of countries in Central and Eastern Europe. The benefitsof entrepreneurship may include increased employment levels, innovation, and spillovereffects (Zahra et al., 2000).

Herein, we provide an overview of the environment for entrepreneurship in thetransition economies of Central and Eastern Europe and propose that social movementactivity by groups with different political identities will influence the rules that support orconstrain entrepreneurship. Specifically, we suggest that while a social movement advo-

cating capitalism facilitates the emergence of an entrepreneurial culture in Central andEastern Europe, movements of socialism and populism may have negative effects onentrepreneurship. We further argue that social democratic movements lead to moderateddecline in a societys entrepreneurial culture.

Studying the societal environment of entrepreneurship in Central and EasternEuropean countries extends entrepreneurship theory. While most prior studies focusedon entrepreneurship in developed countries (especially the United States), there arenotable developments for the field in different regions, including emerging economies.The transition economies of Central and Eastern Europe have unique characteristics thatwarrant researchers attention. Indeed, we believe that the institutional shift from social-

ism to capitalism offers a laboratory setting to examine entrepreneurship in a turbulentenvironment that is characterized by complex political and economic changes. Howdifferent societal groups affect or are affected by emerging entrepreneurial firms intransition economies may yield insights that in turn could inform efforts to increase ourunderstanding of other regions and country environments. Because social movements arepowerful forces in many emerging economies, the validity of future entrepreneurshipresearch in those settings may improve by uncovering the influences of societal forces.

In addition to considering the variations across social movements, future researchshould provide a better understanding of the specific underlying mechanisms of socialmovements in different countries. Obvious contexts for future research include the expe-

riences of different transitioning countries, such as Russia and China. In conducting thisresearch, scholars can achieve a multinational triangulation for identifying the commonpolitico-economic factors that influence social movements and their outcomes (Peng &



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Heath, 1996). However, there are also a number of reasons why the observed variationsacross transitioning countries may grow if researchers consider the bases of social move-ment activity in Russia or China. Despite the important advancements, recent politicaldevelopments in Russia still indicate a relatively vulnerable position of entrepreneurshipin the country. In contrast, while the Chinese society appears to rapidly embrace the ideaof entrepreneurship, it does so with relatively limited political freedom. An increasedsocialist movement may reverse the course of entrepreneurship in the future in this

country. Alternatively, changes in Chinas political structure, coupled with economichardships, may also lead to the rise of populism and the limitation of entrepreneurialculture in the future. Surveys of the ruling elite as well as diverse groups of citizens couldhelp researchers understand the changing attitudes toward entrepreneurship in differentcountries.

The study of social movements focusing on entrepreneurship may also informresearch on a broader scale. While emerging economies provide a natural setting toexamine entrepreneurships emergence, the changing landscape of social movements haveimportant influences on the development and future of entrepreneurial culture in devel-oped countries as well. The acceptance of entrepreneurship may change over time through

differences in the views of ruling political elites. Beyond the changes in rules and laws,entrepreneurial behavior may be encouraged or constrained by representation, taxation,education, religion, and government incentives. Furthermore, social movements insocieties may increase or limit the scope of entrepreneurship by advocating norms andacceptable behavior through media and different art forms. Future empirical researchcould explore the nature and specific influence of social movement activity concernedwith entrepreneurship. Additionally, contributions can result from studies of changes inentrepreneurial culture over time in response to social movements.

Through previous work, the macroeconomic benefits of entrepreneurship indeveloped economies are well known. In contrast, the influence of entrepreneurial

firms in transition economies, an influence that is enhanced by a general lack of capital,innovations, and the high level of unemployment left by the bankruptcies of formerlystate-owned enterprises, is an understudied phenomenon. We thus attempted to argue thatattitudes and social movement activity related to entrepreneurship would influence thedirection of macroeconomic development in transition economies. The diversity wesuggest exists may partly explain the increasing consensus about the open-ended countrytransformations in Central and Eastern European countries and the variation in the levelsof institutional transition from socialism to capitalism across countries. Social movementsare autonomous processes and participants views about entrepreneurship are groundedin their frames and schemas about the world. Socialist and populist political parties in

particular tend to advocate a narrow view of entrepreneurship, limiting how entrepreneur-ship may manifest. Yet policy makers at different levels may shape these views byimproved communication and education about the societal benefits and problems ofentrepreneurship.

Because many Central and Eastern European countries have already joined the Euro-pean Union (or seek to do so), policy makers may be interested in designing policies tofacilitate the spread of entrepreneurial cultures in the region. Failing to sustain entrepre-neurship may result in an increase of populism and foster sentimental feelings aboutsocialism in Central and Eastern Europe. Furthermore, a lack of support for entrepreneur-ship within the new European Union member countries may lead to a rise of populism in

other member countries. Persistent economic problems in Central and Eastern Europemay also increase the migration of entrepreneurial talent to Western European countries.Such migration would likely widen the economic gap between new and old members of

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the European Union and would result in an overall dissatisfaction with the transitionprocess by local citizens.

As is the case for all societies, countries of Central and Eastern Europe are charac-terized by a diversity of collective identities and numerous social movement activities.Social movements are particularly diverse in this region owing to the six decades of strictgovernmental control of activities. Our framework focused on only four main politicalmovements that are directly relevant for the future of entrepreneurship. However, there are

several other important movements in Central and Eastern European countries at thedifferent levels of the society that may influence the role entrepreneurship will play inthe region. Social movement organizations based on the growing population of entrepre-neurs may also become significant forces over time in Central and Eastern Europe. Theiractive political involvement is expected to constrain populist and socialist movementactivities as well as to shape pro-business institutions.

To frame our preliminary arguments, we assumed homogeneity among Central andEastern European countries. Although the political movements and their views aboutentrepreneurship may play a role across the region, they likely appear in different com-binations within different countries. For example, populism will likely be stronger in

countries with traditions in this political movement, poor economic conditions, andpotential for conflicts with other nations, cultures, or religions. Future comparativeempirical studies should yield a precise study of entrepreneurship in individual countriesor groups of similar countries.

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R. Duane Ireland holds the Foreman R. and Ruby S. Bennett Chair in Business and is a professor ofmanagement at the Mays Business School, Texas A&M University.

Laszlo Tihanyi is an associate professor and Mays Research Fellow at the Mays Business School, Texas A&MUniversity.

Justin W. Webb is a doctoral student in the Department of Management at the Mays Business School, TexasA&M University.
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