Patron-client relationships in a restructuring economy: An exploration of interorganizational linkages in Vietnam

Abstract

Asymmetric information and asymmetric dependency form the bases of two explanations for suboptimal performance in organized economies: managerial control loss and rent seeking. Both posit a loss of collective efficiency, but they differ in their assessment of the source of that loss in efficiency, information costs, or the possibility for arbitrary exercise of power. Both agents and principals have resources at their disposal, but the capacity of agents to engage in collective action (point 4) may have an important role in determining the distribution of benefits. Although usually discussed in dyadic terms, asymmetric information and asymmetric dependency, as explored in agency theory, imply networks of information and exchange with mutually inconsistent structures. Therefore, the problems of transitional economies can be understood by observing the formal and informal linkages among bureaucratic officials and enterprise managers. Moreover, interventions in the structure of those networks of linkages may be able to address the performance problems of postsocialist economies more effectively than macroeconomic adjustments and broad-based legal reform. This article's aims are, first, to bring the literatures on control loss and rent seeking together and to relate both to a wider literature on social networks and social institutions; second, to outline a methodology showing how the structure of social networks aids in the gathering of benefit and, therefore, how it can be used in the measurement of relative power; and, third, to document the networks of exchange among nearly 60 ministry officials and enterprise managers in heavy and light industry in one postsocialist economy, Vietnam, where state enterprise ownership persists. Specifically, we examine the nature of the relationships between (1) ministry officials and enterprise directors, (2) ministry officials and their coworkers, and (3) the managers of different enterprises. Because each of the two mechanisms of inefficiency rests on distinct social network patterns, we are able to assess the salience of each explanation. The nature of these relationships is important for understanding the past performance of the state sector in the economy of Vietnam and is key to understanding how to successfully restructure economies worldwide.