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By Root 478 0

withdrawals, initially from sectors with low rents while holding on to sectors with high rents. Allocation of resources will remain inefficient. By concealing the information from the public, rulers can often hide the costs of such gradualist reforms, especially through hidden public obligations and bad debts in state-controlled banking systems. (Such concealment is much easier if the country begins the reform with practically no debt load, as China did in 1979.) China’s approach to reforming state-owned enterprises is an apt example. The CCP treated SOEs as its last bastion of rents and patronage, and maintained them on life-support through fiscal subsidies and bank credits during the reform era. As a result, the allocation of China’s scarcest resource—capital—was severely distorted. Although SOEs contributed to only a third of China’s GDP toward the end of the 1990s, they consumed two-thirds of the domestic investment capital.22 In addition, two decades of massive subsidies to loss-making SOEs saddled Chinese public finance with huge hidden obligations.23

Gradualism in economic reform may be more likely to fail when it is undertaken without accompanying reforms that restructure the key political institutions that define power relations and enforce the rules essential to the functioning of markets, such as security of property rights, transparency of government, and accountability of leaders. An implicit, but vital, assumption of gradualism is that reformers are expected to build political coalitions to push for such institutional changes to safeguard the fruits of economic reform as well as to sustain its progress. In reality, however, the feasibility of building such coalitions is rarely assured. This assumption is particularly problematic when gradualism is undertaken by a regime that possesses overwhelming initial advantages vis-à-vis societal forces, such as private capital and organized civic interests. In such a system, proreform coalitions are more likely to emerge within the regime, rather than between the regime and society, because either organized societal interests were practically nonexistent after years of quasi-totalitarian rule or the neoauthoritarian regime does not allow the emergence of such groups out of fear of their potential threat.

The low feasibility of forming and sustaining a grand proreform coalition encompassing both progressive elements inside the regime and organized societal interests not only increases the uncertainty of gradualist reforms, but also provides the entrenched interests inside the regime an inherent advantage. Such interests can always invoke the threat of further reform to the viability of the regime to block initiatives designed to institutionalize the rules and norms of the market, further liberalize the economy, and curb the predatory power of the state. Since reformers within the regime are unable to form alliances with societal groups—which would benefit from such institutional reforms—they often experience great difficulty in overcoming such opposition to reform that is phrased by their opponents in terms of regime survival, rather than economic or policy rationality. Moreover, antireform elements within the regime can use private deals to co-opt members of newly influential social groups, such as private entrepreneurs, thereby creating a government-business collusive network that makes participation in the antireform coalition far more attractive than an uncertain alliance with the proreform forces.24

Due to such a balance of political power, which favors the ruling elites, gradual political opening under a postcommunist autocratic regime is likely to be highly uncertain and subject to frequent reversals. In sum, three unfavorable factors are set against a process of gradual political opening that parallels gradual economic reform. First, the initial conditions provide the ruling elites an overwhelming advantage in political organization, patronage, and coercive power. Second, the process of selective withdrawal creates strong incentives for the ruling elites to