What is the most fundamental aspect or building block of economic activity? Is it human instinct, the institution, the network, the overall system structure, or some other aspect of human behavior? Or even a mutual interrelation of a number of such elements? In the natural sciences, the evolution of knowledge continually pushes the frontiers of understanding to ever more fundamental levels of analysis, for example, in physics from proton/neutron/electron to hadrons/baryons/photons to strings and superstrings and so on. In the social sciences such levels are less clearly identifiable, but it still might be worth the effort to try. Consequently, this counter to Anton Oleinik's detailed reply to my brief note on the Russian peasant commune (2004) first attempts to analyze the relation between some important building blocks of economic theory that have been central to the evolutionary tradition--namely, institutions, networks, and systems--and asks how they might be related and whether any of them have precedence over any others in terms of explanatory ability or empirical application. It then examines the content of Oleinik's reply in more detail.
Two Views of the Nature of Economic Systems
In the essentialist conception, economic systems like capitalism or socialism have an essence that characterizes their fundamental nature. For example, the institutions of private ownership and the free market might be seen to characterize capitalism, and social ownership and bureaucratic control might characterize socialism. Of course, in concrete examples 100 percent purity is never maintained--capitalism can accept limited social ownership and socialism can accommodate limited free markets--but it is a question of the percentage weight of the features examined. It would be reasonable to suggest that, on this account, a particular system could not be called capitalism if 90 percent of all property in it were collectively owned. Hence all real world economic systems are in fact mixed, but it is the weight of the mix that counts in defining the essential nature of the system.
The opposite view to this is necessary to consider--the anti-essentialist conception. In this approach there is no one defining "essence" to an economic system, only a number of separate and interchangeable institutional components that could be used one way or another way, depending on the context under review. For example, socialism might employ 100 percent private ownership but make up for the ideological deficit by continually redistributing property equally to all citizens, thus preventing inequality from gaining a permanent hold. But note here that a new, more fundamental element has been introduced--equality--and hence the essentialist would respond by arguing that a new underlying essence has been established.
For what it is worth, this author would like to suggest that the essential feature of an economic system is how the power to influence production and consumption is organized and distributed within it. In twentieth century capitalism, the managerial elite and the state made most production decisions, and consumers with vastly more personal wealth than others made a disproportionate number of the consumption decisions. In Soviet socialism, the planning bureaucracy made most production decisions, and consumption decision power was often linked to party connections and nonlegal markets.
Preferring the term "social formation" to economic system, Geoffrey Hodgson defined capitalism as a social formation in which markets and commodity production were pervasive, with most production occurring in firms. Feudalism was a highly stratified social formation based on land tenure and rank (2001, 323). Neither of these definitions invoked network relations in any essential way. Hodgson saw the essence of any social formation in underlying habits of thought and activity, that is, in institutions as durable systems of social rules that structured social interactions (295). Such institutions might involve networks but were not reducible to them. Consequently, for Hodgson at least, institutions were more fundamental building blocks of economic activity than networks, and social formations were better defined by the institutions prevalent within them, rather than the network relations that they might contain.
Even a cursory examination of some of the existing literature would reveal that most (if not all) economic systems use network relations in some form or other. Feudalism, capitalism, and Soviet socialism abounded with criss-crossing networks of informal influence and official control both within particular institutions and between them. Thus the existence of such networks per se is unlikely to be the defining feature of an economic system, although the particular type of network found in a given system might conceivably be so. In reality, however, the network relation is common across most economic systems, and the structures of such networks are often directly comparable, depending more on factors such as geographical proximity, social hierarchy, and technological developments than on any essential economic principles. Hence it appears that it might be difficult to distinguish economic systems by the types of network relations found within them alone.
One definition of a network was a set of relations among actors (either individuals or organizations) which had both a content (the type or nature of the relation specified) and a form (the strength and formal structure of the relations) (Powell and Smith-Doerr 1994). Consequently both the type of relations that existed within a network and the structure of the network itself could vary enormously. The types could be vertical or horizontal, formal or informal, information or resource flows; the structure could be rigid or relaxed, tight or diffuse, linear or multidimensional. It might be reasonably asserted that the morphology of networks would differ in relation to the particular function that they were evolved to satisfy.
More specifically, Hodgson defined a network as a loosely structured but enduring cluster of several contractors or firms, linked together by ongoing relational or legal contracts (2001, 259). Widening this definition for use beyond capitalism, a cluster of economic units might be conceived, units that could be farms, estates, cooperatives, or communes. Divisions within one particular unit might also be linked by networks. In any complex economic system with multiple units, networks will very likely operate, but the particular networks favored would be historically specific. Moreover, due to an initial formal similarity of structure, it might appear on first glance that such networks might be comparable, when in fact differences were pervasive. The devil is very often in all the details.
Institutions, Networks, Systems
Like Hodgson, the founders of American institutionalism highlighted the institution as the fundamental building block of economic activity. For Thorstein Veblen, capitalism was based on the institution of pecuniary gain and a conflict between technology and business organization. For John Commons, legal conventions were primary. Institutions developed over time in response to technological change and social progress, but the relation between institutions and economic systems was not fully elaborated by the founding fathers.
But hold on a minute--aren't institutions and economic systems constituted from networks? In part, yes, they are, but they are also made up of other elements that are not networks. For example, the knowledge that went toward enabling a particular technological method of production might be distributed through networks, but the knowledge itself is not a network and the human want that is being satiated by the good thus produced is not a network. Markets are not simply glorified networks, no matter what tradition of economic analysis is followed--neoclassical, institutionalist, or Austrian. For Hodgson, institutions like the firm were also not networks, although they participated in network relations across various industrial groups. Systems like capitalism thus contained both networks and institutions, but it was the latter that defined them, not the former. Douglass North also distinguished between an institutional framework and what he called "network externalities" in his account of institutional development (1990, 7-8).
And now the final payoff is within view. Out of the three components considered here--systems, networks, and institutions--networks are least likely to constitute the defining feature of an economy or a social formation, either capitalist, socialist, or feudalist. Thus, when attempting to characterize the nature of particular economies or institutions, the type of network employed rarely assists us in the analysis. This does not mean that analyzing networks is not a completely legitimate topic, as defining the nature of particular systems is not always the topic being investigated. However, when comparing different economic institutions or structures across space and/or time in order to find significant similarities, it is their essential nature that has to be compared to find a match, not a peripheral element such as the networks employed. If this were not the case, then any common element--the use of human labor--might be sufficient to claim equivalence.
Oleinik's Apparent Network Similarities
As is implied in the above theoretical prelude, Oleinik's long and detailed attempted refutation of my short reply missed the wood for the trees. Oleinik provided a much more detailed list of apparent similarities between the commune, the kolkhoz, and post-Soviet enterprises, few of which I will dispute here. But the essence of the difference between the commune, the kolkhoz, and post-Soviet enterprises is not affected by Oleinik's network-type similarities. The commune was based on common ownership of land, the kolkhoz on enforced state ownership, and post-Soviet firms on quasi-private ownership. The fact that network relations operated within and/or between these economic units does not make them directly comparable, as the network similarities identified by Oleinik were peripheral to the underlying essence of the institution in question. At one point Oleinik stated that "one can even argue that these similarities necessarily exist in every organization with a particular structure" (2004, 1041). Indeed, this is so and makes this type of analysis less than useful in highlighting the essential nature of (and key differences between) different economic institutions.
From the evolutionary perspective, the defining behavioral habits embodied in the commune, the kolkhoz, and the post-Soviet firm were essentially different. Post-Soviet firms do not periodically redistribute assets among employees in order to maintain some type of social equality. In another example, there was indeed a relation between the Tsarist state and the peasant commune in prerevolutionary Russia, as Oleinik suggested, but it was a quite different type of relation from that between the Soviet state and the kolkhoz in the 1930s. Oleinik has ignored the defining feature in this example, that the kolkhoz was forced onto peasants by the Communist Party leadership; the fact that, previously, the Tsarist state had some type of relation with the commune is nowhere near comparable. The mere fact that there was a relation between state and institution is an empty formal similarity, and references to pseudo-Marxian distinctions between "abstract and concrete" add little at this point in the analysis. Moreover, Oleinik's example of a post-Soviet firm employing collective responsibility is disingenuous, as trapping petty thieves is not at all what was initially meant by socialist-inspired collective control and operation of entire economic units.
Oleinik believed that he had "bypassed the false opposition" between universal and specific categories based on a biological conception of the divergence in the characteristics of an organism from the average (2004, 1045-46). In fact, all he has done is point out some minor empirical similarities between different institutions across time. He provided no way of characterizing such institutions in an overall typology of economic units or of relating institutions to economic systems or even to network relations generally conceived. Nor did he argue the case for why some types of similarities might be more important than others. This is significant also in regard to Oleinik's championing of the idea of "path dependency" or inherited similarities. Which such inheritances are important, and which are irrelevant? Some post-Soviet firms no doubt inherited wooden desks from their Soviet predecessors, but so what?
Finally, Oleinik does a disservice to the principle of mutual aid by equating it with the phrase "I'll scratch your back if you scratch mine." Mutual aid means helping other people within a group regardless of whether they can "scratch your back" in return. Mutual aid is not mutual bribery. The essence of the difference is that mutual aid does not exclude anyone from a group based on their inability to supply desired favors in return. The underlying aim of mutual aid is inclusive; the aim of "back scratching" is exclusive. All this does not mean that examining similarities between the networks involved in different types of institutions should never be undertaken, only that due care should be taken in distinguishing the essential elements of something from peripheral features. Otherwise any similarity whatsoever might be erroneously mistaken for a significant historical parallel.
Barnett, Vincent. "The Russian Obshchina as an Economic Institution." Journal of Economic Issues 38, no. 4 (December 2004): 1037-39.
Hodgson, Geoffrey. How Economics Forgot History. London: Routledge, 2001.
North, D. C. Institutions, Institutional Change and Economic Performance. Cambridge: CUP, 1990.
Oleinik, Anton. "On Universal versus Specific Categories of Network Capitalism." Journal of Economic Issues 38, no.4 (December 2004): 1040-46.
Powell, W. W., and L. Smith-Doerr. "Networks and Economic Life." In The Handbook of Economic Sociology, edited by N. J. Smelser and R. Swedberg. Princeton, N.J.: Princeton University Press, 1994.
The author is a Research Fellow at CREES, Birmingham University, U.K., and is the author of a forthcoming History of Russian Economic Thought.…