The Triumph of Neoliberalism in Eastern Europe: Competitive Signaling and Policy Interdependency

The countries of the former Soviet Union and Eastern Europe have been among the most enthusiastic adopters of free market reforms.  Not only did they adopt most of the policies of the “Washington consensus,” but second generation reforms like the flat tax and pension privatization that surpassed what was politically possible in Europe and the United States.  Time and again, Eastern European governments have overcome expected political hurdles to liberalize at a rate that has exceeded all other regions of the world.  This paper seeks to answer the following questions:
·         What accounts for the adoption of these programs in the region, long after the honeymoon period of anti-Communist revolution ended?
·         What role did the EU, the United States, the IMF and think tanks play in the diffusion of these policies?
·         How can we account for the intensification of neoliberalism in Eastern Europe in the 2000s?
·         Now that Eastern European countries have caught up, will rapid liberalization continue?

This paper uses cross-national comparative data from the Fraser Institute to show that a key factor in Eastern Europe's embrace of neoliberalism was its "late" development.  Eastern European countries began to embrace neoliberal policies in the 1990s, a full decade after most other countries.  They also started from a lower starting point.  As a result, Eastern European reforms were driven by a logic of catching up with other developed and developing countries in a competition for investment, placing an emphasis on competitive signaling and policy emulation.