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 6: The Dominant Role of the Soviet State in Governing Economic and Political Affairs

Ekaterina Brancato

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

Extract

Part III of this volume examines the impact of cultural, political and economic environment on the governing structure of market and hierarchical exchanges in the Soviet period.1 The state’s anti-market policy raised the cost of market-governed exchanges. The legacy of pre-revolutionary networking lowered the cost of hierarchical exchanges. Combined together they resulted in the dominance of hierarchical networks in almost every sphere of life and in a much wider use of horizontal networks for purposes of the exchange. This chapter draws on specific cases of networks that were built because of economic incentives, but in the absence of officially supported (or supported by law) market mechanisms. Soviet networks originated in the atmosphere of economic shortages and government monopoly, and matured during growing centralization and regulation of economic activity. Created by the ruling elite and bureaucracy, the system of privileges – a hierarchical network system – assigned an economic value to each position of control over the allocation of goods and services and was fundamental in building the scheme of perk distribution among the population. The 1917 October Revolution constituted a major change of political regime in Russia. Even though the continuity of some policies, such as government monopoly in some markets, is traced from the Tsarist into the Soviet period, the attempt to abolish market relations and currency and to create forced labour was a new and devastating shock to the economy. A concise list of the events is as follows.2 After the 1917 February Revolution, the Provisional Government coexisted with the...

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