Academic journal article The European Journal of Comparative Economics

Formal and Informal Institutional Change: The Experience of Postsocialist Transformation

Academic journal article The European Journal of Comparative Economics

Formal and Informal Institutional Change: The Experience of Postsocialist Transformation

Article excerpt

1. Introduction

The wide-ranging experiences of post-socialist transformation in about 30 countries during the 1990s and 2000s have led to a number of surprises and puzzles for the social sciences. Two stylized facts of transformation are the striking diversity of national paths of change and the general importance of informal relations and rules, even though the process of system change from socialism to capitalism has generally been understood as a process of rationalization and formalization.

The variety of trajectories of transformation has been remarkable indeed, be it observed at the national level (Chavance and Magnin 1997; Magnin, 1999; Van de Mortel 2002; Lane, Myant, 2007) or at a more aggregate level where the differences or contrasts between a Central European, a post-Soviet and an Asian trajectory are apparent. The specific and evolving relations between formal and informal institutional change have been a key element in the array of causes of such an emerging and enduring variety.

The role of informal relations and rules has been underlined in numerous analyses of a wide range of phenomena: networks, social norms and values in general, but also spontaneous privatization, corruption, cronyism, mafia-ization, tunneling, arrears, labor hoarding, barter, tax evasion, informal economy or, on the other hand, trust, social capital, new work and business ethics and informal cooperation. The manifest significance of the informal realm in systemic change has contributed to a gradual shift in economic theory from a de-institutionalized and market-centered analysis to a more institutional approach.

The distinction and interaction between the formal and informal dimensions of social relations have long been analyzed by social theorists, particularly from the legal and sociological tradition but also by economic theorists dealing with institutions. Weber (1921) observed that the relationship between informal behavioral regularities and formal rules is complex and reciprocal. Commons (1934) wrote that customs are produced spontaneously and that authoritative figures operate an "artificial selection" among them in trying to manage conflict, leading to formal and legitimized rules; this is the "common law method," which is at work in the numerous going concerns that constitute capitalist society (including the larger going concern, the state). Hayek (1973, 1988) emphasized (informal) law or moral rules that had evolved over long periods before some were eventually transformed into legislation; beneficial informal rules were principally subject to a kind of selection through "cultural evolution" that was neither natural nor artificial. In his analysis of institutional evolution, North (1990) stressed the distinction between formal and informal constraints, with the latter both underlying and supplementing the former.

In examining the historical experience of post-socialist transformation, this question has recently been recognized as an important dimension of wide-scale organizational and institutional change. Different views of these interactions have been put forward in economic analyses of systemic change. In this paper, I discuss new institutional views about the relationship between formal and informal institutional change,2 in order to explore how such analyses may contribute to clarifying questions concerning the variety of transformational pathways and national forms of post-socialist capitalism.

2. Diversity of Transformation Trajectories and Path-Dependence

The search for commonalities in transformation experience may be carried out at various levels of abstraction. The lowest implies a comparison directly based on the national level of about 30 countries or a subgroup of them. The highest level of abstraction concerns "system change" in general (e.g. Kornai 2000). An intermediate level may deal with strong similarities within groups of countries that have experienced similar trajectories. …

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