With the dissolution of the Soviet Empire, it seemed that market capitalism had triumphed and that democracy might replace authoritarian regimes. Economic reformers in the former Eastern Bloc rushed to liberalize prices and transfer state assets to private hands. They assumed that private owners in a market setting would have no choice but to behave rationally--that is, to invest in restructuring privatized enterprises so as to maximize profits. They also assumed that these owners would perceive a stable institutional environment as conducive to economic success and thus become a powerful...