The Role of Fear in Economic Behavior Today after the Triumph of Democracy

Abstract

Petr Orekhovsky — Leading Researcher, Institute for Economy, Russian Academy of Sciences. Address: 32, Nakhimovsky Ave., Moscow, 117218, Russian Federation. E-mail: orekhovskypa@mail.ru

This article addresses the factor of fear in economic (business) behavior. Within this conceptual framework, a nation state is viewed as a form that helps to reduce the fear of citizens against other countries and hostile environments, but at the same time it itself becomes the source of certain fears. These depend on certain types of power — 1) administrative or political, 2) economic, i.e. the risk of property loss and/or income, 3) reputational.

The role of political organizations in society is to minimize such fears. By following the logic presented by North, Wallis and Weingast in their recent work, two distinct types of societies are distinguished — the open access society and the natural state. These social orders are essentially different. The degree of violence and fear exerted by the open access societies is sufficiently lower than that of the natural states.

As Ch. Tilly shows, to have a transition to developed democracy, i.e. a political regime of an open access society, certain conditions have to be met: 1) the destruction of patron-client networks, 2) the inclusion in the legal political process and institutionalization of existing autonomous informal sources of power, 3) getting rid of categorical inequalities. This article then analyzes the current state of these aspects in Russia. It is argued that a great amount of fear and decentralized criminal violence associated with patron-client networks and categorical inequality is the major factor affecting the economic behavior of Russian firms. Putin’s regime was expected to cope with crime and violence, but it has, in fact, failed to do so.

In the 1960s and 1970s, the Soviet Union was marked for a relatively high amount of centralized political violence. However, decentralized violence was low and so was inequality. Today, a democratization process has diminished the violence exerted by the state, yet it has produced the unfavorable side effect of boosting the rates of crime and differentiation of income, which has in turn produced categorical inequality. Thus, the greatest danger in shifting from a natural state to an open access society today is an inevitable rise in crime rates.

For technological and social innovations to spring, one requires close and intense interaction between business and universities. However, in Russia, especially in its provincial parts, there is a great reputational risk for professors and scientists undermining the authority of powers. Moreover, there is no demand for such research from businesses themselves. Consequently, science is organized in the model of sharashki — separate zones for creative people are being constructed. Within these zones, a safe social pseudo-reality emerges. And such is the Skolkovo project: it may bring some positive technical results, but the whole institutional environment is doomed to stay the same.