In From Triumph to Crisis, Hilary Appel and Mitchell Orenstein address the central puzzle of postcommunist transition: the longevity of neoliberal policies in the region and their radical nature. The puzzle is intriguing because early theorists of transition and neoliberally inclined practitioners alike anticipated the abatement, if not reversal, of painful economic reform. Appel and Orenstein's answer is elegant and parsimonious: on a capital-starved, bleak, post-communist industrial landscape, foreign capital became the key to reintegration into the global economy, and adoption of neoliberal reform served as a credible signal to foreign investors that countries were open for business. Thus, the clustered adoption of different iterations of neoliberal reforms represented competitive signaling through which transition economies vied with each other to attract foreign capital. This mechanism explains not just why neoliberalism had unexpected staying power in the region but also why some of the reforms, most significantly the flat tax, exceeded and even contradicted the recommendations of international purveyors of neoliberalism such as the International Monetary Fund (IMF). However, this mode of competitive signaling only worked so long as neoliberalism was the dominant theoretical paradigm. When its basic tenet—the promise of growth—was challenged in the aftermath of the financial crisis, including by the IMF itself, neoliberal reforms stalled and some, especially the most radical ones, were reversed. With the onset of alternative models promoting state capitalism, the future of the neoliberal model in the region hangs in the balance.
With the benefit of hindsight, the competitive signaling model provides a corrective to the early transition theory's focus on domestic constraints to the detriment of external pressures. Preempting the criticism of insufficient attention to individual country dynamics, the authors highlight their focus on the overarching transition trajectory while recognizing the diversity of reform experience and uneven progress of reform in different countries. Where the competitive spirit and the desire to attract foreign capital by adopting neoliberal reforms were not necessarily endogenous, international institutions disciplined countries if they strayed from the neoliberal agenda. They did so through a host of indicators and rubrics, such as the European Bank for Reconstruction and Development's (EBRD) Transition Indicators, which allowed quick inter-country comparisons of neoliberal wholesomeness. One of the most popular arguments these institutions used to bring stragglers in line, documented in numerous reports cited by the authors and produced by the IMF, EBRD, and the European Union (EU), was that these countries were forgoing foreign capital that would flow instead to their more reformist neighbors.
The authors carefully lay out a comprehensive picture of mutual reinforcement of the neoliberal reform agenda by various external actors throughout the entire post-communist region. They demonstrate how in tandem with the countries’ structural dependence on foreign investment, these interlaced forces shaped the trajectory of the political economy of post-communist transition. In an interesting and refreshing twist, Appel and Orenstein show that the effects of the EU extended not just to accession states that joined as early as 2004, but also to countries that did not have a realistic chance of joining.
The book's other strength lies in its comprehensive overview of the broad scope of challenges of economic reform and very informative yet succinct presentation of policy debates, including the considerations governments had to weigh with voucher privatization, pension privatization, or flat tax adoption. The authors also present nuanced empirical assessments of adopted policies.
The authors divide their analysis chronologically as they examine the early transition's Washington Consensus phase, the subsequent Europeanization (pre-EU membership) phase, avant-garde neoliberal reforms, and the aftermath of the financial crisis. Given their widespread nature and the ambivalent, if not hostile, attitude of the IMF and the EU, avant-garde reforms provide particularly compelling evidence for the authors’ competitive signaling argument.
The book's broad focus, however, comes at the cost of understanding country-level dynamics that may be critical to understanding neoliberalism's staying power and countries’ susceptibility to state capitalism. For example, the balance of power between neoliberal-leaning and populist forces can explain why an erstwhile neoliberal poster child such as Poland did not jump on the avant-garde flat tax bandwagon. The symbolic currency of neoliberalism as anti-communist may also continue to play a role in other places. That said, no matter the political circumstances, one would expect that the structural constraint of reliance on external capital, highlighted by Appel and Orenstein, will persist. Informed by their illuminating work, the question can now turn to what other approaches may signal “openness for business” to foreign investors and to international institutions steeped in the neoliberal model.
