The Big Issue of Small Businesses: Contract Enforcement in the New Russia

Abstract

The dissertation explores the problem of institution-building in nascent capitalist economies, with the emphasis on the role of culture in the genesis of new institutional forms. To help better understand the nature of the post-communist transformation in Russia, I address the questions of organizational adaptation and change in business practices resulting from the changing role of the state in the economy and society, focusing specifically on the problem of contract enforcement among small firms. The main source of data was the empirical research that I conducted in St.Petersburg, Russia, where I interviewed owners and/or managers of forty-five firms in 2001 and 2002.

When firms perceive state institutions as unable to guarantee the enforcement of contracts and property rights, they rely on alternative (non-state) ways of enforcing their agreements. My research shows that these strategies can be either based on a given firm's own resources (financial or social), or come from various agencies that offer enforcement services for sale, which vary from government licensed private courts to criminals. Non-state enforcement strategies are rooted in preexisting institutions and cultural practices, and develop in response to specific kinds of state failure to provide contract enforcement.

My research findings demonstrate a proliferation of non-state strategies of contract enforcement and dispute resolution, as well as the significance that state contract enforcement institutions have for economic exchange and building of market institutions. The lessons concerning the powerful structuring role of enforcement institutions which my dissertation draws from Russian experience have wider implications not only for analysis but also for policy, and contributes to the literature on the role of the state in capitalist development, and cultural neo-institutionalism. The evidence that I have collected contradicts the neo-liberal belief in the sufficiency of self-regulating markets for the smooth functioning of an economy. It supports an argument that that the capability to provide independent enforcement services for businesses is an indispensable feature of the modern state, and essential to the creation of successful modern capitalism. This is an argument of central importance not only for developing and "transition" countries, but for the long-term future of developed societies as well.