Markets Versus Hierarchies

Markets Versus Hierarchies

A Political Economy of Russia from the 10th Century to 2008

The Locke Institute series

Ekaterina Brancato

This unique book uses a transaction cost perspective to illustrate how hierarchies influenced the structure of markets and behaviour of individual businesses and cartels in pre-revolutionary, Soviet and present-day Russia.

Chapter 2: Theoretical Background

Ekaterina Brancato

Subjects: economics and finance, political economy, politics and public policy, political economy


Social networks are present in every society. As an institution of private ordering, social networks in Russia did not emerge overnight. Examination of network relationships along three characteristics – strength of ties, direction and content – identifies essential distinctions of Russian social networks. They are based on strong personalized relationships, they are dense and affect practically every walk of life, vertical networks dominate and horizontal networks are very segregated. First, I would like to discuss the theoretical background for my analysis and then focus briefly on three subjects that have played a large role in the evolution of ties in Russia – trust, autocracy and rent seeking. TIES Granovetter’s (1973) pioneering work introduced the concept of ties and their importance in the US labour market. He proposed further that the strength of interpersonal ties could relate network analysis to macro phenomena such as diffusion, social mobility, political organization and social cohesion. ‘[I]t is through these networks that small-scale interaction becomes translated into large-scale patterns, and that these, in turn, feed back into small groups’ (ibid., p. 1360). Strong and weak ties affect societies very differently. Primitively, a strong tie is found between family members or friends, and a weak tie is held with acquaintances (Figures 2.1 and 2.2).1 Granovetter stresses the importance of weak ties because bridges, which are necessarily weak ties, are responsible for social cohesion. A bridge is ‘a line in a network which provides the only path between two points’ (ibid., p. 1364; original emphasis). That is, a...

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