7 - Variation in Strategies across Firms

Summary

The previous two chapters offered insights into the factors contributing to the transformation of Russian firms’ property security strategies over time. Naturally, this transformation has occurred unevenly. In part, this is because the factors analyzed in Chapters 5 and 6 – tax compliance, coordination dilemmas, ownership consolidation, banking development, and integration into the international economy – affect sectors of the economy, as well as individual firms, to differing degrees. Yet beyond these lines of division, there are also systematic differences across the property security strategies employed by different types of firms. This chapter examines the firm-level characteristics that affect the extent of demand-side barriers faced by specific types of firms, or that influence the effectiveness with which certain types of firms can employ illegal strategies.

Examination of variation in property security strategies across different types of firms is important for several reasons. First, variation across firms provides insights into the types of firms that are most likely to be pioneers in adopting legal strategies, which in turn has significant implications for building effective state institutions. As discussed in earlier chapters, firms that use illegal property security strategies undermine and destabilize formal institutions; firms that use legal strategies reinforce the effectiveness and relevance of formal state institutions. But beyond their direct effect on institutional development, property security strategies may also be tied to firms’ preferences for legislation and political change. Consequently, variation in strategies offers clues into what types of firms constitute the societal foundation for institution building. Finally, variation across firms bolsters one of the central claims of this book: Changes in the level of state legal capacity offer at best an incomplete explanation for firms’ increasing use of legal strategies. Rising legal capacity would presumably affect all firms in a relatively equal manner, meaning that legal capacity cannot account for the types of cross-firm variation analyzed in this chapter. On the other hand, such variation is directly in line with a demand-side analysis: Firms facing distinct types of demandside barriers or with particularly effective means of using illegal strategies should employ different profiles of property security strategies from their counterparts.