Paper short abstract:

The paper uses case study research on transaction patterns in Russian industry to uncover “networks of distrust”, with relationships between patrons and clients and horizontally among economic actors constructed to minimize exposure through redundancy and buffering strategies.

Paper long abstract:

The paper uses case study research on Russian industry to trace the changing forms of sectoral economic governance - market relationships, state industrial policy institutions, associative and network ties - after the collapse of the Soviet system.

A popular topos in the literature on economies in transition have long been variously called "clans," "networks," or "fiefdoms" seen as substituting informal interpersonal ties for the lack of institutionalized trust embedded in formal state institutions. Self-described as determinedly empirical, the "clan" paradigm is in fact shaped by its origins in East Asia research, as well as by its use as an ideal-typical opposite of Western-style hands-off market contracting in the "markets and hierarchies" literature. As such, it has acute limitations in describing post-communist societies that according to numerous survey studies have been plagued by low levels of both institutional and interpersonal trust.

This paper proposes an alternative analysis. As it argues, 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.