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...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/01/891733/disorganization-or-self-organization-emergence-business-associations-transition-economy http://hdl.handle.net/10986/19713 |
| Summary: | 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. |
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