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 9: Social Networks and Economic Efficiency: Everyday Networks

Ekaterina Brancato

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


Let us suppose for a moment that after the fall of the Soviet Union property rights to land, enterprises, real estate and other things of economic value were distributed through a fair auction system. Let us suppose further that a sincere attempt at representative governing and allowing free markets was made, and let us ignore the difficulties in setting up such a framework. Even though the price mechanism will regulate some exchanges relatively quickly, problems of long-term investment that are risk-sensitive cannot be ignored. Time lags and the complex structure of modern economy presuppose the existence of formal or informal exchange governance (but not necessarily government-engineered or government-instituted). Therefore, even in a near ideal situation it is difficult to set up free markets where there has been no history of the rule of law and private property. In addition, people are very likely to rely on the informal accepted ways of doing business, especially when the formal rules are being changed as abruptly as they were in post-Soviet Russia. During the Soviet period personal success was often determined by how well an individual could con the system; in the beginning of the transition many people were defrauded by pyramid schemes and many more felt involved through sympathizing with the victims. Naturally, in the post-Soviet Russia an expectation of opportunism persisted. SOCIAL NETWORKS AND THE ROLE OTHER INSTITUTIONS PLAY IN FACILITATING PRODUCTION AND EXCHANGE What Ledeneva (1998) calls ‘non-monetary forms of exchange’ are claimed to have lost their importance by comparison...

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