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The Breakdown of Hierarchies in the Soviet Union and China: A Neoinstitutional Perspective

Why did modest attempts to decentralize the centrally administered Soviet system lead to its collapse, while more far-reaching decentralization in China left central political and administrative hierarchies intact? This article analyzes the disintegration of centrally planned organizations in the context of a neoinstitutional model of the breakdown of authority within hierarchies. An agency model of hierarchy is presented that incorporates the ambiguous property rights, authority relations, and risk-sharing conditions that prevailed under central planning and then persist during postcommunist transitions. This model suggests that decentralizing reforms could trigger an organizational “bank run,” prompting local agents to seize organizational assets under their control. The article also considers reputation-preserving strategies that central authorities might use to avert disintegration. As an application of this model, the collapse of Soviet political, industrial, and state fiscal hierarchies are considered and compared with the experience of analogous sectors in China. Reforms in both states transferred significant autonomy from the center to local field agents. In the Soviet case these agents appropriated organizational assets with little interference from the center. In China, by contrast, the center preserved both its capacity for monitoring and its reputation for disciplining transgressions; and the rise of hybrid ownership forms made expropriation of state and Party assets far less attractive.