WP 539 Transacting in the absence of trust: uncertainty and network patterns in post-communism / by B. Lehmbruch

ISS Working Paper by Barbara Lehmbruch

Abstract

The paper critically discusses the widespread literature focusing on informal post-communist “clans,” “networks,” or “fiefdoms.” Often self-described as determinedly empirical, the “clan” paradigm is crucially shaped by its origins in the analysis of East Asia, as well as by its use as an ideal-typical opposite of Western-style hands-off market contracting in the “markets and hierarchies” literature.

To counter such deficiencies, the paper proposes an alternative argument. Although interactions are indeed personalized, interpersonal trust in many post-communist countries has failed to compensate for missing institutional safeguards. Rather, confronted with an environment of low trust and high uncertainty, actors have developed two main coping strategies: on the one hand vertical integration, on the other hand a hedging strategy of purposeful network redundancy. Even though trust and enforcement remain low, actors can minimize the consequences of default by maintaining multiple ties.

The consequences of such organizational strategies are ambiguous. By compensating for defaults, network redundancy has cushioned the impact of economic crisis. At the same time, network redundancy has considerably raised overall transaction costs and may also play a role in impeding democratic consolidation.

Keywords                                                                                                                             

Transition, networks, social capital, trust, Russia.

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