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 8: The Political Economy of the Russian State: Elite Networks

Ekaterina Brancato

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


Our country offers great potential not only for the criminals but also for the State. (Vladimir Putin, 2003, Interes, 46, 6) US reporter: ‘Do you trust Vladimir Putin?’ George W. Bush: ‘Yes’. US reporter: ‘How do you know?’ George W. Bush: ‘I looked in his eyes and saw his soul’. (Interview with RTR TV of Russia, 29 May 2003) THE COLLAPSE OF THE EMPIRE, RETREAT OF SOCIALISM AND THE RETURN OF THE TSAR By the 1980s, following a period of economic stagnation, the Soviet Union started to collapse from within. Charles Rowley (1993, pp. 1–2) stressed that since the USSR fell apart from an internal failure and not from an external defeat or shock, not many rents were left for grabs. The leadership attempted to salvage the system. Andropov targeted corruption and excessive privileges of the higher party officials in a series of reforms, which he largely failed to implement, partly due to his death. The food production and distribution systems were failing. Life expectancy continued to decrease and reached the low of 57 years for men and 75 for women in the 1990s (Brady, 1999, p. 24).1 In 1986 the oil prices collapsed, severing the flow of hard currency at a crucial time. Gorbachev too tried to recover the deteriorating system.2 The structure of ownership under the Soviet regime yielded inefficiency.3 Perestroika intended to restore the socialist economy by officially allowing some market relations and redesigning the structure of ownership.4 Yeltsin intended to increase private...

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