The Architecture of Russian Markets

Organizational Responses to Institutional Change

B. Grancelli

• Publisher: Palgrave Pivot
• Year: 2014
• ISBN:
  9781137508492
• Topic: Politics & International Relations
• Subtopic: European Politics
• Index: Politics & International Relations

This study analyses enterprise development and entrepreneurship and their relationship with the state and market building in Russia. It focuses on continuities and changes in the factory regime, drawing on existing literature and the author's own research and evaluation.

1

Introduction: Re-reading a Program for An Economic Sociology of Post-socialism

Abstract: This introduction recalls three contentious issues in the debate on that program outlined by Neil Fligstein in his review essay on the American Journal of Sociology (1996). First, on the object of research: the relationships state-(big) business or those between organizations and their immediate environment? Second, on how to connect back area studies on the coupling between organizational and institutional changes to the established organization theory. Third, on how a multidisciplinary dialogue may improve our understanding of the reconstruction of markets given that institutionalist perspectives applied in area studies have proven to be quite robust. In light of the research presented in this study, some qualitative hypotheses are advanced on how to rethink those issues.

Grancelli, Bruno. The Architecture of Russian Markets: Organisational Responses to Institutional Change. Basingstoke: Palgrave Macmillan, 2015. DOI: 10.1057/9781137508492.0002.

In his important work, The Architecture of Markets, Neil Fligstein (2001) builds an economic sociology of contemporary capitalist societies on the idea that the dynamism of market economies stems not just from technological innovation and competition but also from the complexity of social organization. The sources of such complexity are traced back to historical processes that brought about modernity through combined processes of material reproduction: distribution, reciprocity and market. In such a political–cultural approach, markets are conceived of as institutions, that is, as a set of agreements, norms, practices and relational structures. And their working is addressed in investigations centred on the ideal type of “action field”, a socially organized space whereby dominant and subordinate collective actors confront each other as well as the “invaders”. All the actors in the field try to build up normative models that favour the pursuing of their own interests and projects. How this may happen has been shown in historically oriented comparisons on institutional structures such as property rights, firm governance and rules of exchange.

Fligstein also tests his approach with the building of market institutions in the former Soviet-type societies, and from the analysis of the Hungarian case he draws the following conclusion. The systemic transformation has been, in essence, a “construction of capitalism without capitalists” with a class of managers well versed in the art of recombining property but loath to turn themselves into entrepreneurs for fear of the competition by “invaders” who entered in drovers after the opening up to the global economy. Rebuilding the architecture of markets in default of architects has been conceived of as a strategy of an intelligentsia “devoted to the cause of the bourgeois society and capitalist institutions” in a society in which neither private property nor a class of proprietors existed (Eyal et al., 1998: 1). Thus, the central issue debated back then was whether or not what was under construction had to be seen as capitalism designed abroad and put in operation by old red directors and new oligarchs (Aslund, 1996; Pickel, 1997; Stark and Bruszt, 1998).

The narrative that prevails in the first wave of area studies on post-socialist transformation points to an imposing architecture of markets and tends to neglect the minor one of emerging entrepreneurship and small business. In addition, the co-evolutionary literature on the coupling between organizational practices and institutional pressures usually focuses on the networking between top managers and central authorities. In other words, the rebuilding of markets after the breakdown of the command economy is accounted for as a process which proceeds, for the most part, from top to down and from outside to inside (Grancelli, 2012). It is in a debate on some of those early studies that Fligstein outlines a programme for “an economic sociology of the transition from socialism” in the American Journal of Sociology (AJS) (1996).

From the contentious issues that emerged in that debate, three in particular deserve a reappraisal in light of new developments in the co-evolutionary literature. The first concerns the choice of the explanandum and the mid-level explanatory concepts to apply to it. In their contribution to the debate, Parish and Michelson pose the question in the following terms. What are the unintended results of economic reforms in organizational environments where the Soviet legacies remained overwhelming? According to them, the previous (failed) reforms of the mid-1960s brought about a situation of “political market” in the workplace. This means that patterns of informal bargaining and collusion between managers and the workers began to spread due to the relaxation of political control, the commonality of living quarters, the long periods of stay in the same factory, and the hiring of new recruits through recommendations by the insiders. That kind of political market was of use for a better defence from the tautness of plan in Soviet times and from the marketization that should have come with the privatization programmes of the early Nineties (Parish and Michelson, 1996: 1043–4).

The aim of that approach was to explain a central aspect of the micro–macro link: the consequences of the “quasi-market” in the shop floor in terms of political power and social inequality. The review essays of Neil Fligstein and Anthony Oberschall are instead more directly relevant to what is of interest here: the co-evolution of organizational and institutional change in Russia, its turning points and its consequences in different socio-economic environments.

In his review of the essay by David Stark (1996) on privatizations and the recombination of property in Hungary, Fligstein concurs on the necessity to look at how the political decisions on property rights shape the organization of markets. The unsolved issue, though, is to see whether the recombination of property is going to foster the creation of competitive firms. To do so, he claims, one should explain how laws and political decision-making provide specific combinations of property rights, governance modes and rules of exchange. Thus, Fligstein makes three types of critical remarks on the methodological shortcomings he sees in Stark’s analysis. First, his references to the literature in economic sociology that focuses on the “variety of capitalism” but only draws one line of thought from it: the fact that firms in Asian countries have a peculiar social structure. That is why Stark’s approach focuses on the networks of enterprises without clarifying the reasons why they differ due, especially, to the role played by states in the generation of such structures.

The second critical remark refers to the little attempt to connect back to organization theory, which indeed might provide support to what is of interest to Stark: how organizational actors cope with various sources of uncertainty and try to make their organizations survive. Finally, the criticisms that the processes of state and market building in the transition from socialism are tackled by Stark without any reference to other strands of institutional literature with their focus on the (un)intended effects of path dependence on social change, and the ways politics, collective actors and ideas impinge on these processes (Fligstein, 1996: 1080).

Thus, in his conclusions Fligstein (1996: 1081) makes a plea for a fruitful dialogue between the institutional perspectives in sociology, economics, history and political science that are concerned with these issues. A plea that goes along with an important remark: the two great projects of state building and market building were occurringin a period that, in the former socialist societies, was like the 1880–1920 era for the advanced OECD countries with respect to those processes of institutions building.

Anthony Oberschall (1996) proposes a quite different approach and draws other theoretical and methodological suggestions from the emerging social science of institutions and organizations. According to Oberschall, the two China papers and the one on Hungary put forward models in which they see the construction of markets in its structural and power dimensions. Consequently, they come up with quite suggestive concepts such as local corporatism, clans for market (a market in which the key players are collusive networks of state and economic actors), organizational reflexivity or political capital. However, this imagery falls short of theory. Indeed, an appropriate meso-level theory to explain the transition to market already exists in the public choice literature whereby individuals make the choices, not groups. It is there that one may also find the micro-theories suited to analysing the social organization and the institutional environment of post-communism (Oberschall, 1996: 1033). Approaches in the political economy and institutional theory such as, for instance, transaction costs, rent seeking, property rights, and agency, have actually been applied in meso- and micro-level analysis of the “hybrid” organizations that took shape also in such an environment (Anderson and Boettke, 1997; Chajewski, 2007).

The institutional analysis Oberschall refers to does not assume that actors’ interests are well defined, so he also considers ideologies, information costs and cognitive processes. The point though is that, contrary to the “inherited” theory of social change, this neoinstitutionalism does not short-circuit from groups and interests to institutions. Indeed, the successive advances of this strand of institutional scholarship confirms the importance of two points made by Oberschall. First, the action that takes place at the micro-level should be analysed to account for the variance of norms and institutions at the meso- and macro-level, not just types and central tendencies. Second, the fact that a great deal of social and institutional change results from unintended, unplanned actions is also to be taken into account (Aligica, 2013; Hirt et al., 2013).

Almost 20 years after that debate on the American Journal of Sociology (AJS), there have been continuities and changes in the explanandum: besides the persistence of collusive models in the workplaces, lots of changes did materialize, in both organizational fields and local socio-economic environments. As for the explanans, the co-evolutionary literature on organizations and institutions began to tackle “bridging issues” besides the usual ones of governance and strategy, such as those of emerging entrepreneurship and new business venturing.

The aim of this study is to present a reading of a set of key area studies in different fields of organizational institutional literature in order to provide new insights on that old debate. Specifically, the study focuses on two possible ways to fulfil that aim. First, it points to some reciprocal lessons between economic sociology and area studies whose results are read through an Italian lens (and not just Chinese or East European). Second, it refers to the ongoing multidisciplinary dialogue, and the risk that the many “there is more than that” of economic sociology may hamper a dialogue that is going to yield further refinements of institutional organizational analysis.

Fligstein’s programme is to be framed within the advances of the New Economic Sociology (NES) such as the impact of culture on economic phenomena, the social embeddedness of economic action, and the ways interests and social relations combine to affect economic action (Smelser and Swedberg, 1994; Fligstein, 2001; Zafirovsky, 1999; Guillem et al., 2002; Trigilia, 2002; Swedberg, 2003; Dobbin, 2004; Portes, 2010; Granovetter and Swedberg, 2011; Zelizer, 2010). For what is of interest here, it is worth alighting just on two points of these moving fronts of research. The first one is an early process of convergence between the NES and the comparative political economy, followed by a second movement toward a dialogue between institutional perspectives (old and new) in sociology, political science and economics (Greenwood and Hinings, 1996; Thelen, 1999; Immergut, 1998; Brinton and Nee, 1998; Trigilia, 2002; Campbell, 2004; Regini, 2007).

Economic action is socially embedded, but the variety of organizational forms that that embeddedness generates is seen in different ways. Structural approaches in the NES emphasize both the inclusion of social actors in various kinds of networks, and the prominence of such structures over individual motivation as the engine of action (Granovetter, 1985; Uzzi, 1996). On the other hand, constructivist approaches highlight the influence of cognitive and normative elements and not just on the way interests are pursued as with the same subjective definition of interest (Biggart and Beamish, 2003; Hay, 2008). This difference impinges on the stance toward the dialogue with other institutional perspectives. In the cognitive approach, the guiding principle of embeddedness is given a more pervading character, and this puts the approach in a position of starker contrast to the rationalist approaches applied in political science and the new institutional economics (Trigilia, 2002; Dobbin 2004; Portes, 2010).

Nonetheless, a degree of integration between structural and cognitive perspectives has been reached through comparative studies on how the social capital historically produced in a local society can add to the processes of economic change and on how local institutions can facilitate that process (Trigilia, 1999). That comparative approach was drawn from two theoretical sources. The first was the political economy of the 1960s that pointed to the need for overcoming previous dichotomous approaches to tradition and modernity (Bendix, 1956; Gerschenkron, 1962). The second source was the renowned study on the “second industrial divide” in which Piore and Sabel (1984) argued that industrial countries had evolved along different paths and retained significant parts of their historical legacies. For example, contrary to what happened in the US, countries such as Germany or Italy kept their skilled craftworkers and firms alongside mass production enterprises. Those paths have been extensively investigated, especially in the so-called Third Italy of industrial clusters, SMEs and local governments that “make democracy work” (Bagnasco, 1988; Brusco, 1989; Arrighetti and Serravalli, 1999; Trigilia, 1999; Becattini, 2000; Belussi and Gottardi, 2000; Provasi, 2002; Putnam, 2003; Moroni, 2007). On the background of that convergence, I put forward some of the reasons why it may be worth looking at Russia through an Italian lens.

Taking the “Third Italy” of SMEs and the industrial cluster as a comparator for the case in point may have heuristic validity insofar as it provides references on how national and local institutions may favour or constrain the economic valourization of trustworthy links engendered by traditional social structures. The questions that need further elaboration however are the following. Who are the agents of that valorization? What are their strategies in the organizational and institutional environments of post-socialism? Actually, these questions are both under-researched and under-theorized in area studies, and this takes us back to the other two methodological issues in the debate on the AJS. How should we conceive of actors that play a role in organizational and institutional change? How should we connect organizational institutional analysis to other strands of institutionalism to adjudicate between individualist and collectivist conceptions? This study advances three qualitative hypotheses on these issues to provide new insights into the old debate on an economic sociology of the transition from socialism.

1. On the pertinence of a conceptualization of social actors that does not short-circuit from groups’ interest to institutions. Indeed, the case studies on Soviet firms and their transition have repeatedly shown that many changes occur at the micro-level in ways that have little to do with collective action. Even under the dominance of a new administrative regime, the rebuilding of markets is not just a matter of networking between state officials and big business. This does not imply that we should ignore the collective action of key institutional and organizational actors. Rather, it means treating it in amore problematic way than that proposed in the models that centre on the structural and power dimensions of market transition. The main area of interest in this study is the behaviour of subordinate organizational actors. Yet what this study addresses is not so much collective action as the emerging forms of entrepreneurship in different socio-economic environments of post-socialism.

The first qualitative hypothesis derived from the evidence gathered in this study, then, is the following: Investigate the “subaltern entrepreneurship” that grew up behind the institutional façade of the command economy, and today’s new venturing may help better define some bridging issues – still quite neglected – that help in filling the micro–macro gap in the analysis of the coupling mechanisms.

2. On the comparative look at how organizational and institutional issues intertwine in the middle passage between national policies and local practices. The hypothesis here is that looking at Russia through Italian lenses can yield new insights on how to analyse the bridging issues neglected by a co-evolutionary literature that sees them only in terms of corporate governance and strategy. The choice of such an unusual comparator may shed light on something which deserves more attention, namely the social processes through which markets are reconstructed in that “messy middle” (Hardy, 2004). In essence, the choice of this vantage point may be useful for a comparative cross-regional analysis that sees something more than networks of patron–client relationships spanning governments, parties and business.

The second hypothesis then is that signs are there that a minor architecture of markets is under construction in the variegated economic geographies of Russia. This comparator may be useful for enhancing our perception of the self-propelling character of such a process, and the reasons why the central government began to refocus on SMEs and the improvement of conditions for doing business.

3. On the usefulness of a comparative look at the mechanisms of coupling in different periods of Russian history. The hypothesis that history matters stems not only from a comparative view of the “benign” or “malign” forms of social capital at play in sub-national patterns of economic development. It is also grounded on the striking similarities which emerge between the organizational behaviour in “genuinely Russian firms” and that depicted in some classical works of American industrial sociology of the 1940s (Burawoy, 1996). Thus, the hypothesis is that the lessons of “old” institutionalism on how institutions form in and between organizations (Hallet and Ventresca, 2006) is worth rethinking in the debate on an economic sociology of post-socialist transformation. This study reread that debate with the aim of highlighting some strengths and weaknesses of sociological institutionalism compared to other institutional perspectives applied to the co-evolutionary literature.

The book is structured as follows. The second chapter begins with a section that provides a reminder of Soviet management and labour relations. Then it presents some stylized facts on the continuities and changes in managerial practices and labour relations after the failure of economic reforms based on the principle of “economic calculation”. Also highlighted are borderline cases whereby private quasi-enterprises would exist in places where ethnic and cultural factors gave a greater than usual strength to the collusive ties among organizational and institutional actors. The second section takes as its starting point the micro-effects on the shop floor of the macro-event that was the failure of “market socialism” in the mid-1960s. This section ...

Table of contents

• Cover
• Title
• 1  Introduction: Re-reading a Programme for an Economic Sociology of Post-socialism
• 2  Toward Capitalism without Capitalists
• 3  Enterprise Governance and the Administrative Regime: History Matters
• 4  Local Systems and the Minor Architecture of Markets
• 5  Organizations, Institutions and the Rebuilding of Markets: New Insights on the Debate
• 6  Conclusion
• Bibliography
• Index