Managing the mixed economy in Central and Eastern Europe: Democratic politics and the role of the public sector

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Abstract
The central argument of this article is that the introduction of democracy and the transition to a market economy in Central and Eastern European countries is producing contradictory and even perverse effects on these societies. These effects are enlarging the micro‐macro paradox of politics and inducing political instability. Instead of focusing on the economic problems or institutionalizing democracy only, it is argued, one should elaborate more fully the relationship between democratic decision‐making, societal needs and wants in civil society and the public organization of policy‐making. In this article an attempt is made to conceptualize these relations by using the principal/agent approach. In addition various models of welfare capitalism and public sector management are discussed and their implications for East European countries. The main conclusion is that the model of the ‘mixed economy’ is not only appropriate, but also that it contributes to a better understanding of the present problems of democratization in this part of the world. In particular the role of the democratic principal and the position of public agents appear to be crucial.

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