In this book, Stefan Hedlund has produced a thought-provoking and wide-ranging book that examines how markets work, why social scientists come up short in explaining systemic failure, and what the Russian experience can teach about these things. The breadth of the discussion and the many topics covered by Hedlund ensure that all readers will learn something from the book.

Despite Hedlund's ambitious overarching prescription to break down the barriers between the social sciences, though, some readers—and particularly political scientists—are likely to think that he does not go far enough. The author speaks from the perspective of an economist and, consequently, of a discipline rooted in rational actor theories. To that approach, he wants social scientists to add attention to cultural norms, but he appears to overlook the equally important role played by politics and power differences. To Hedlund, efforts to explain systemic failure are grounded in conversations between economics and sociology, with political science addressed only peripherally. The reason is that he seems to imagine that political science operates almost exclusively within the same rational actor approach that, to his mind, has proven problematic in economics.

First, the compliments. Invisible Hands, Russian Experience, and Social Science is highly erudite and expansive. Within the first few pages, Hedlund quotes Gordon Gekko, the fictional corporate raider, as well as Thomas Aquinas, Dante Alighieri, Adam Smith, Kenneth Arrow, F. Scott Fitzgerald, Thorstein Veblen, and Milton Friedman. The narrative skips rather quickly from the failure of poor countries to catch up with richer ones, to early Kievan Rus settlements, then to a discussion of Enlightenment thinkers, then to the nature of markets under central planning. The depth of the author's expertise and the spread of the narrative make the book enjoyable reading, and readers are likely to feel propelled forward, if only to begin to figure out how the various threads of the argument will fit together. The complete argument only becomes clear in the last third of the book, when the multiple themes begin to cohere.

Because Hedlund is tackling so many different issues, any short summary is not likely to do justice to all of them. He makes three main points: 1) In pursuit of theoretical sophistication, neoclassical economic theory has left behind earlier recognition of the role of beliefs and internalized norms in explaining human motivation and how markets actually operate. 2) At least partly for that reason, economists are not very good at explaining systemic failure. 3) Consequently, social scientists should strive to bring together “perspectives from economics, sociology, and anthropology, in focused studies of actual developments at times of great dislocation, that we may increase our understanding of human motivation” (p. 275).

Hedlund's case for greater attention to beliefs and internalized norms is more fully developed in his explanation of the difficulties that occurred in the effort to construct markets in Russia after the collapse of the Soviet system. That is where I will concentrate my remarks. What the author means by systemic failure is that the Russian markets that emerged after the dismantling of the command economy were characterized by predation and looting instead of behavior that, though self-interested, ultimately advanced the good of all. Describing what happened as central planning was dismantled in Russia, Hedlund says (p. 154) that

From this excellent description of the nature of the problem, Hedlund concludes that the cause of these outcomes was that that Russians operate under the wrong set of social norms, norms that equate entrepreneurship with speculation and that resent wealth derived from such activities. He concludes: “The point, rather, is to emphasize the crucial role that was played by such beliefs, expectations, and internalized norms that were carried over from the Soviet era, and to some extent from the deeper recesses of Russian history” (p. 165).

Since this historical example—expounded at length in the book—is critical to the author's overarching conclusions that social scientists cannot understand systemic change from within their disciplinary silos and that economists in particular need to focus more on the cultural norms that contribute to explanations of human motivation, it is important to assess whether Hedlund is getting the explanation right for what he sees as systemic failure in Russia.

It is not clear that he is. Certainly, social norms may figure into the reason that Russian markets went awry. But it is not obvious that norms were the main problem. A number of the formal institutions needed for markets to function well were missing in Russia in the 1990s, from the right of private property to the independent judiciary that could protect that right, and the absence of those formal institutions goes a long way toward explaining how markets worked out in practice. Hedlund stresses that good institutions require more than good formal rules, which leads him to the importance of social norms; but good institutions do require good formal rules, and those formal rules were missing in Russia in the 1990s.

The political institutions with which Russia emerged from the Soviet Union were characterized by strong tensions between a weak executive and a strong legislature; Boris Yeltsin's solution to this problem was to shell the legislature and establish an unchecked executive that provided the constitutional basis for Vladimir Putin's later shift toward autocracy. Yeltsin's government was not able to maintain basic law and order and certainly was in no position to protect property rights from people willing to use force or barely legal mechanisms to take what they wanted. Yegor Gaidar and Anatoly Chubais, the architects of Russia's privatization program, deliberately set up a system that would lead to highly concentrated ownership, while arguing that speed of economic transformation was more important than its fairness.Footnote ¹ All this does not seem to accord with Hedlund's assertion that the Yeltsin administration put in place all the main components of formal democracy and the fundamentals of a rules-based market economy, while lower-level actors “overwhelmingly preferred to remain with coping strategies of blat [informal connections and patronage] and networking, accepting fuzzy property rights as a license to engage in predation, and demonstrating much tolerance for the autocratic ambitions of the president” (p. 254). A more direct explanation is that people did the best they could within a set of rules that seriously distorted economic behavior.

In telling the story of the ways in which Russia's markets went wrong, Hedlund particularly seems to downplay the role of power, whether it be the power to set the rules that benefitted a few or the power imbalance that resulted when the bulk of state assets ended up in the hands of a few well-connected oligarchs. Acting rationally, the people who got most of the goods early in Russia's economic transformation later had no incentive to encourage the entrepreneurship of the many and the diminishment of their monopoly that would have resulted. Nor did they have a reason to favor the continuation of efforts to build democratic institutions. Hedlund blames Russians for having the wrong norms, but it could also be argued that most Russians simply had the wrong opportunities. Without available credit, in an environment of widespread corruption, and without the protections of individual rights that democratic institutions provide, it was extraordinarily difficult for most Russians to start their own businesses, even if they had the requisite entrepreneurial spirit. So, instead, they sold their own personal possessions on the street corner. It seems more reasonable to blame Russians' behavior on the environment in which they found themselves than on norms inherited from medieval Muscovy. Social norms may have contributed to the construction of that environment, but so did the self-interest of the few.

If Hedlund's account of the problems with Russian markets is not entirely convincing, what does it tell us about the ability of social scientists to understand systemic failure? For one thing, the author may be a bit too hard on economists. Perhaps some economists have too much faith in markets and their ability both to operate for the good of all and to emerge inevitably and without assistance, no matter what the political or cultural context. But, certainly, many economists do understand the limits of markets and the general inapplicability to many empirical circumstances of the discipline's underlying assumptions of equal resource distribution, fair competition, and full information. Mancur Olson's final book, Power and Prosperity (2000), for instance, clearly explained the economic effects of different types of government and offered a more concise and compelling discussion of the distortions of central planning and the difficult development of markets in Russia than Hedlund's does.Footnote ²

Second, any social scientific approach to big questions of systemic failure will need to incorporate attention to formal political institutions as well as the social and cultural norms that Hedlund favors. In Power and Prosperity, Olson makes the case that democracy is the form of government that is most likely to produce prosperity and the greatest social good. As a result, Hedlund wonders why Russia's governors could not make this rational choice and instead headed off to autocracy. But here, there is a vast literature that he does not cite: all the work that describes why and how democracy sometimes emerges but often does not. Here again, attention to power differentials quickly leads to a recognition that what is good for the many is not necessarily good for the few who hold the reins of government. History shows that even in cases where the cultural norms supposedly were correct, it has taken revolutions and other forms of popular pressure to wrest power from a determined few. While there are many arguments that could be mentioned here, given Hedlund's focus on the inadequacy of economics, it is worth referring to Daron Acemoğlu's work on the effect of income and wealth inequality on whether democracy develops.Footnote ³

Third, if social scientists are to focus more on the role of social and cultural norms, as Hedlund would have us, then it would have been helpful for him to provide more guidance on how to do so. His own approach rests heavily on history, drawing out the norms that people must have had to explain the behavior that we can observe. This is a complicated project, open to considerable error, especially in places, like Russia, where governing structures historically have not been responsive to the popular will. People respond to the choices available to them, and their behavior is affected by what institutions permit and encourage. Just because people lived with autocracy for centuries does not establish that they liked it and that popular beliefs were the foundation for continued autocracy.

In sum, it is not clear that social scientists are unable to explain systemic failure, even as they remain unable to prevent it. While there is nothing to be lost by reaching across disciplinary divisions in the social sciences, as Hedlund recommends, it is important to recognize that a great deal of that work is already proceeding. And it will not be sufficient for economists to extend a hand only to sociologists and anthropologists and pay more attention to social and cultural norms. It seems safe to hypothesize that systemic failure usually rests, at least in part, on the distribution of power, and political science has a great deal to contribute to understanding how power works.