From Communists to Foreign Capitalists explores the intersections of two momentous changes in the late twentieth century: the fall of Communism and the rise of globalization. Delving into the economic change that accompanied these shifts in central and Eastern Europe, Nina Bandelj presents a pioneering sociological treatment of the process of foreign direct investment (FDI). She demonstrates how both investors and hosts rely on social networks, institutions, politics, and cultural understandings to make decisions about investment, employing practical rather than rational economic strategies to deal with the true uncertainty that plagues the postsocialist environment. The book explores how eleven postsocialist countries address the very idea of FDI as an integral part of their market transition. The inflows of foreign capital after the collapse of Communism resulted not from the withdrawal of states from the economy, as is commonly expected, but rather from the active involvement of postsocialist states in institutionalizing and legitimizing FDI. Using a wide array of data sources, and combining a macro-level account of national variation in the liberalization to foreign capital with a micro-level account of FDI transactions in the decade following the collapse of Communism in 1989, the book reveals how social forces not only constrain economic transformations but also make them possible. From Communists to Foreign Capitalists is a welcome addition to the growing literature on the social processes that shape economic life.

List of Tables ixList of Figures xi
Acknowledgments xiii
Prologue xvii


CHAPTER 1: Social Foundations of the Economy 1
The Argument 2
A Social-Constructivist Perspective on Economic Organization
and Action 8
The Empirical Case: Foreign Direct Investment in
Postsocialist Europe 16


CHAPTER 2: From Socialism to Postsocialism 29
Socialism 30
Challenges of the Transformation: Shock Therapy versus
Gradualism 43
The Context of Transformation 46
Conclusion 64


CHAPTER 3: Institutionalization of FDI in Postsocialism 65
FDI as Instituted Process 66
Legitimization of FDI Practice 70
FDI Trends since 1989 88
Explaining FDI Inflows across Countries
over Time 91
How Postsocialist States Create Markets 99
Conclusion 101


CHAPTER 4: Cross-Country Patterns in FDI Flows 103
From Country Characteristics to Relations between Countries 104
Social Relations as Determinants of FDI Flows 111
Embeddedness and Globalization 126
Conclusion 130


CHAPTER 5: Embeddedness of Organizational FDI Attempts 131
Invested Transactions: The Intricacies of FDI Attempts 131
What Determines FDI Transactions? 143
Network Embeddedness 145
Cultural Embeddedness 149
Political Embeddedness 155
Macro-Institutional Embeddedness 159
Embeddedness: Structures-Power-Culture Configurations 162
Conclusion 166


CHAPTER 6: Uncertainty and the Practice of FDI Transactions 168
Rethinking Instrumental Rational Action 169
Uncertainty 174
Practical Action Model 177
Substantive Varieties of Rationality 179
Procedural Varieties of Action 181
Logic of Decision-Making Practice: Routines, Emotions,
Creativity 189
Conclusion 194


CHAPTER 7: Embedded Economies 196
Creation of Markets: From One Kind of Embeddedness
to Another 196
Operation of Markets: Structures-Power-Culture Configurations 200
Varieties of Postsocialist Capitalism 206
Conclusion 218


Epilogue 221
Appendix on Method and Data Sources 223
Notes 243
References 255
Index 291