Disorganization or self-organization : the emergence of business associations in a transition economy

The transition from plan to market provides a rare opportunity for insight into the endogenous development of economic institutions. Economic activities under the Soviet regime were coordinated by a central authority. Soviet coordinating mechanisms were disrupted during the transition period, leading to an increase in firms'transactions costs. Blanchard and Kremer (1997), among others, emphasize the negative impact of this"disorganization"on output behavior at the beginning of the transition. Although their argument is correct, the authors believe that their work and similar analyses stop short of fully characterizing the transition by concentrating only on reform's disruptive effects. The authors start where the earlier work ends, examining the business associations that emerged spontaneously in response to the transition's challenges. They provide empirical evidence that institutions that help coordinate production and trade emerge spontaneously in a widely"disorganized"environment. Using a largely unexplored set of firm-level data, they document the emergence of business associations at the beginning of the transition and provide evidence that these new coordinating institutions mitigated the initial decline in output. Building on the growing literature on complexity and transaction costs, they interpret the emergence of these informal institutions as the firms'rational attempt to coordinate activities in a decentralized economy. In other words, the creation of complex organizations such as associations is the spontaneous result of a natural tendency in every system to create order at the edge of chaos. Business associations are more likely to emerge where there is disorder to provide their members with stability, coordination, and the information needed to improve performance.Public Institution Analysis&Assessment,Governance Indicators,Economic Theory&Research,Environmental Economics&Policies,Health Monitoring&Evaluation

Is Russia restructuring ? new evidence on job creation and destruction

The authors explorethe labor dynamics of Russian enterprise restructuring, empirically assessing how patterns of job creation and destruction are related to various aspects of enterprise restructuring across firms in different sectors and regions, and to different forms, sizes, vintages, and performance characteristics of ownership. Evidence from case studies - based on more than 50 site visits in 2000 - suggests that jobs have been destroyed, but only to a limited degree in some sectors and regions, largely because of institutional and incentive constraints and a still-widespread"socialist"corporate culture. Jobs have been created - particularly in sectors where devaluation had the most pronounced effect on important substitution and export promotion - but only slowly, mostly for lack of skilled workers and because regional mobility is limited. Labor turnover appears higher within regions than across regions. Newly available data for 1996 - 99 (provided by Goskomstat) for about 128,000 enterprises in 24 industrial sectors in Russia's 89 regions indicates that the typical firm has experienced only modest downsizing - about 12 percent - in number of employees. Smaller firms have entered, and larger, mature businesses have exited some sectors. Except for a lull in 1998, the rate of job creation has steadily increased and the rate of job destruction has declined, dropping substantially in 1998 - 99."Voluntary"worker separations remain the main - and growing - form of layoff, and the proportion of layoffs through redundancies is shrinking (now about 4 percent of total separations). Firm size and net employment growth are not statistically related, but form of ownership seems to matter. Firm size is also statistically correlated (positively) with profitability, but restructuring through changes in net employment growth appears not to be. It seems Russian restructuring needs to become more efficient.Labor Management and Relations,Labor Policies,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Labor Standards,Environmental Economics&Policies,Labor Management and Relations,Banks&Banking Reform,Municipal Financial Management

Seeds of corruption - Do market institutions matter?

Ten years into the transition, corruption is so pervasive that it could jeopardize the best-intentioned reform efforts. The authors present an analytical framework for examining the role market institutions play in rent-seeking and illicit behavior. Using recently available data on the incidence of corruption, and on institutional development, they provide preliminary evidence on the link between the development of market institutions, and incentives for corruption. Virtually all of the indicators they examine appear to be important, but three are statistically significant: 1) the intensity of barriers to the entry of new business. 2) The effectiveness of the legal system. 3) The efficacy and competitiveness of services provided by infrastructure monopolies. The main lesson emerging from their analysis: a well established system of market institutions - clear and transparent rules, fully functioning checks and balances (including strong enforcement mechanisms), and a robust competitive environment - reduces opportunities for rent-seeking and hence incentives for corruption. Both the design, and effective implementation of such measures are important if a market system is to be effective. It is not enough, for example, to enact first-rate laws if they are not enforced. The local political economy greatly affects whether a given policy reform will curtail corruption. Especially important are the following factors in the political economy: a) the credibility of the government's commitment to carrying out announced reforms. B) The degree to which government officials are captured by the entities they regulate or oversee. C) the stability of the government itself. D) The political power of entrenched vested interests. Economists in the field of industrial organization, antitrust, and regulation have long recognized these factors as potent determinants of opportunistic behavior, corruption, and"capture"of government officials. Only now are they becoming conventional wisdom among specialists in economies in transition.Decentralization,International Terrorism&Counterterrorism,Economic Theory&Research,Environmental Economics&Policies,Legal Products,Governance Indicators,Legal Products,National Governance,Economic Theory&Research,Environmental Economics&Policies

How does bribery affect public service delivery ? micro-evidence from service users and public officials in Peru

When seeking a public service, users may be required to pay in bribes more than the official price. Consequently, some users may be discouraged and choose not to seek a service due to the higher price imposed by the bribery"tax."This paper explores the price and quantity components of the relationship between governance and service delivery using micro-level survey data. The authors construct new measures of governance using data from users of public services from 13 government agencies in Peru. For some basic services, low-income users pay a larger share of their income than wealthier ones do; that is, the bribery tax is regressive. Where there are substitute private providers, low-income users appear to be discouraged more often and not to seek basic services. Thus, bribery may penalize poorer users twice - acting as a regressive tax and discouraging access to basic services. The paper explores the characteristics of households seeking public services. Higher education and age are associated with higher probability of being discouraged. Trust in state institutions decreases the probability of being discouraged, while knowledge of mechanisms to report corruption and extent of social network increase it, suggesting that households may rely on substitutes through networks. The study complements the household analysis with supply-side analysis based on data from public officials, and constructs agency-level measures for access to public services and institutional factors. Econometric results suggest that corruption reduces the supply of services, while voice mechanisms and clarity of the public agency's mission increase it.Governance Indicators,Public Sector Corruption&Anticorruption Measures,National Governance,Public Sector Management and Reform,Public Sector Economics&Finance