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4. The Meddlesome Leviathan: Self-governance on the Commodities Markets
- University of Michigan Press
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CHAPTER 4 The Meddlesome Leviathan Self-Governance on the Commodities Markets 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 important, brokers traded at free-market rather than state prices, as had been the practice for the past seventy years. Trading in a setting more closely related to the market than the plan provided many new opportunities, but also new problems. Brokers soon found themselves facing a classic problem of social order. The state was too disorganized to enforce contracts and brokers had to rely on their own efforts to create institutions to support trade. On each exchange, brokers sought to create disciplinary bodies and private arbitration commissions that would write trading rules, resolve disputes, and levy sanctions against dishonest brokers, but these attempts to conduct self-governance ended in failure. Contract noncompliance rates were too high to encourage brokers to trade on the exchange and few brokers turned to private arbitration commissions to resolve their disputes. This chapter argues that failure of self-governance on commodity exchanges in postcommunist Russia was primarily due to state policies that reduced incentives to share information about trading activities. High taxes and low delegation had a perverse effect on attempts to conduct self-governance . Brokers tried to engage in self-governance by using private arbitration commissions that required them to reveal inforn1ation about their trades, but once this information became public, they becalue vulnerable to high rates of taxation by the state. State policies led brokers to shun private arbitration commissions, make their trades in the unofficial economy, and turn to private protection organizations to settle disputes. Because SGOs rely on the 84 The Meddlesome Leviathan 85 free-flow of information about the practices of members, where state policies inhibit the flow of information among market participants, the prospects for self-governance are grim. These cases highlight two theoretical points. First, where SGOs operate within a territory controlled by a state, the actions of state officials often determine the prospects for self-governance. Even where the internal features of a group favor self-governance and the production of social capital, a state policy of high taxation and little delegation can block efforts to conduct selfgovernance . Second, the cases also suggest a source for the surprising lack of demand for state intervention to enforce contracts in Russia (Pistor 1996; Krugman 1998). Brokers on the commodities exchanges were wary of turning to the state to enforce contracts for the same reason they avoided using SGOs: they feared revealing information about their economic activity to state agents. High levels of regulation reduced demand for both state enforcement and SGO enforcement. Commodity Exchanges in Postcommunist Russia One of the most dynamic economic organizations in the early years of the postcommunist transition in Russia was the commodity exchange (Cohen 1991; Kokorev 1992a, b; Yakovlev 1991a, b; Zhurek 1993; Sedaitis 1994; Wegren 1994). These exchanges were a training ground for young entrepreneurs -many ofwhom later took their skills to other sectors ofthe economy. Some also made their way into politics. Two prominent exchange founders, Konstantin Borovoi of the RCRME and Konstantin Zatulin, eventually took seats as deputies in the Russian Duma. Moreover, commodity exchanges in Russia accelerated the decline ofthe centrally planned economy by providing an attractive outlet for firms that had not yet been privatized to sell on the open market. By selling goods that were previously sold through state channels, commodities exchanges struck the command economy at a particularly weak point-the ability to distribute goods quickly and efficiently. Brokers on many commodities exchanges in Russia traded a wide range of typical exchange goods, such as raw materials and pork bellies. In contrast to their western counterparts, they also traded many atypical exchange goods, such as clothes and consumer goods. Entrepreneurs founded many commodity exchanges as profit-seeking organizations that attracted brokers by providing the hall and the personnel to run the exchange. In return, brokers paid fees to the founders for services provided by the exchange and remitted [3.91.79.134] Project MUSE (2024-03-29 07:31 GMT) 86 Brokers and Bureaucrats a percentage (0.5...