Capitalism without contracts versus capitalists without capitalism: Comparing the influence of Chinese guanxi and Russian blat on marketization

This paper explores the role of favor exchange practices—Chinese guanxi and Russian blat—on investment and entrepreneurship. In both societies policies which supported marketization were undermined by actual institutions, including an insufficient legal structure for enforcing contracts. But cultural resources armed Chinese and Russians differently to react to these circumstances. Guanxi practice allowed people to create networks, to build trust, and to reach out. It was a tool which could be used to build enough trust to allow business transactions to succeed—capitalism without contracts. In contrast, Russian blat devolved into corruption, and faded in importance for ordinary citizens. Without a way to build trust or extend networks, Russians retreated into defensive involution, and engaged in predatory behavior against those outside their small circles of friends. Instead of capitalism without contracts, Russia suffered the depredations of capitalists without capitalism.