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Brokers and Bureaucrats

Building Market Institutions in Russia

Timothy Frye

Publication Year: 2000

A classic problem of social order prompts the central questions of this book: Why are some groups better able to govern themselves than others? Why do state actors sometimes delegate governing power to other bodies? How do different organizations including the state, the business community, and protection rackets come to govern different markets? Scholars have used both sociological and economic approaches to study these questions; here Timothy Frye argues for a different approach. He seeks to extend the theoretical and empirical scope of theories of self-governance beyond groups that exist in isolation from the state and suggests that social order is primarily a political problem. Drawing on extensive interviews, surveys, and other sources, Frye addresses these question by studying five markets in contemporary Russia, including the currency futures, universal and specialized commodities, and equities markets. Using a model that depicts the effect of state policy on the prospects for self-governance, he tests theories of institutional performance and offers a political explanation for the creation of social capital, the formation of markets, and the source of legal institutions in the postcommunist world. In doing so, Frye makes a major contribution to the study of states and markets. The book will be important reading for academic political scientists, economists (especially those who study the New Institutional Economics), legal scholars, sociologists, business-people, journalists, and students interested in transitions. Timothy Frye is Assistant Professor of Political Science, The Ohio State University.

Published by: University of Michigan Press

Contents

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pp. v-vi

List of Figures

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pp. vii-viii

List of Tables

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pp. ix-x

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Preface

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pp. xi-xii

Creating institutions to support a stable social order is a findamental problem that has concerned philosophers and social scientists for centuries. Absent reliable third-party enforcement by the state, individual incentives to cheat on agreements are too tempting to ignore and lead to perverse results for society. This problem of social order prompts the main question of the book:...

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Acknowledgments

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pp. xiii-xvi

Work on this book has taken me to Manhattan, Rochester, Boston, and Columbus, with six trips to Moscow along the way. l owe a debt of gratitude to many people. At Columbia University I have many people to thank, but my greatest debt is to Jack Snyder. Were it not for Jack, I would not be in political science today. He made it possible for me to enter the Ph.D. program...

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Introduction: The Problem of Social Order

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pp. 1-16

In the summer of 1993 I asked a broker on a commodity exchange in Moscow how he knew when someone was planning to cheat him. "Well, before we sign the contract, I look him straight in the eye, and if he blinks, then I know he is going to cheat me," he said. Puzzled, I asked him if this method ever worked. "Not usually," he responded,"but I don't have anything else to go on." Perhaps it is not surprising that brokers working in this market regularly violated contracts and commonly...

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1. Institutions and Social Order: Sociological and Economic Approaches

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pp. 17-32

How do people trade given powerful incentives to cheat? The reliable exchange of goods, services, or votes requires that both parties to an agreement believe that the gains from compliance exceed the gains from cheating.1 In the absence of reliable enforcement by a third party, such as the state, the gains from cheating are often simply too tempting to ignore. Cheating is not the only impediment to trade and social...

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2. Self-Governance and Social Order: A More Political Approach

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pp. 33-55

Prevailing theories drawn from sociology and economics have provided a needed corrective to the bleak outlook for collective action presented by many scholars. These approaches, however, tend to exhibit two shortcomings. First, they provide better explanations for the maintenance of SGOs than for their creation. The sociological approach often fails to specify the source of dense social relations. The economic approach assumes that institutions that are Pareto improving will be chosen by members...

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3. Benign Neglect: Self-Governance on Currency Futures Markets

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pp. 56-83

In an irony typical of the transition period, currency futures trading in the postcommunist world began in a spacious pavilion previously dedicated to the USSR's Exhibition of the Achievements of the People's Economy (Vystavka Dostizheniia Narodnogo Khoziastva [VDNKh]) in October 1992. Few observers expected this relatively sophisticated form of trading to flourish in the highly uncertain economic...

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4. The Meddlesome Leviathan: Self-governance on the Commodities Markets

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pp. 84-106

Commodity exchanges represented the first wave of a market economy in Russia. The first commodity exchange opened in late 1990 in Moscow and by 1992 more than six hundred operated throughout Russia.1 Across the former USSR this figure may have reached twelve hundred (Kokorev 1992b, 56). Traders at commodity exchanges bought and sold a wide variety of goods-from classic exchange goods like oils and metals, to atypical exchange goods, such as computers and cars. Most...

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5. Toward a Politics of Social Order: Self-Governance on the Equities Market

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pp. 107-142

Previous cases in this study have not depicted state agents in a favorable light. On the equities market, however, we find that state agents played a critical role in helping brokers establish and maintain an SGO by dramatically reducing the costs of sharing information among group members. The SGO on this market allowed brokers to trade with confidence that their counter-party broker would abide by the contract and contributed to the market's spectacular growth. The main market index...

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6. What Governs? Organizational Competition and the Weak Russian State

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pp. 143-164

We typically view the state as the organization best suited to govern markets. States have economies of scope and scale that are not available to other organizations (Baumol 1952; Stiglitz1989). They can often make stronger claims to legitimacy than other organizations seeking to provide public goods and can often rely on the international community for support (Jackson and Rosberg 1982; Reno 1997). Yetpreceding chapters demonstrate that other organizations, such as SGOs and...

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7. State Policy and Self-Governance: The Political Roots of Social Order

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pp. 165-192

Having examined the effects of state policy on private efforts to minimize the problem of social order, this work now focuses on variation in state policy across markets. Why did some state agencies favor policies that supported self-governance, but others did not?More specifically, why did state agents delegate vast governing authority to the brokers' association on the equities market but not to brokers' associations on currency futures and commodities markets?l This chapter argues that...

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8. The Bear’s Bear: Institutional Developments and the Crash of 1998

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pp. 193-214

On August 17, 1998, Russian Prime Minister Sergei Kirienko announced a de facto devaluation of the ruble, a freeze on payments by the government of its forty billion dollar foreign debt, and a ninety-day moratorium on foreign debt payments by Russian banks. The economic and political consequences of this announcement were swift. Within a week the ruble lost more than 80 percent of its value against the dollar. The Russian equities market accelerated its yearlong decline and lost more than 20...

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Conclusion: Social Order and Social Science

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pp. 215-222

This book began by exploring a classic theme in social science: the problem of social order. It sought to identify the conditions under which groups can govern themselves without turning to an outside agent for enforcement. In contrast to existing approaches from sociology and economics, this book developed a political approach to self-governance that linked state policy to the creation and maintenance of self-governing organizations. It argued that...

Notes

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pp. 223-248

References

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pp. 249-262

Index

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pp. 263-272


E-ISBN-13: 9780472023486
E-ISBN-10: 0472023489
Print-ISBN-13: 9780472067138
Print-ISBN-10: 0472067133

Page Count: 288
Illustrations: 14 drawings, 39 tables
Publication Year: 2000

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Subject Headings

  • Russia (Federation) -- Economic conditions -- 1991-.
  • Post-communism -- Russia (Federation).
  • Capitalism -- Russia (Federation).
  • Marketing -- Russia (Federation).
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