M-form hierarchy with poorly-diversified divisions: A case of Khrushchev’s reform in Soviet Russia

Journal article: We test the premise of the theoretical literature that M-form political hierarchies are effective in creating yardstick competition between regional divisions only when those divisions have sufficiently diversified or similar industrial composition. The reason for this is that the competition among poorly diversified inter-related divisions creates incentives for regional leaders to pursue policies that inhibit industrial growth in neighboring regions in order to make their own region look better from the point of view of the center. We use a unique episode in Soviet history, when a traditional Soviet unitary-form (U-form) hierarchy was replaced by a multidivisional-form (M-form) organization, namely, Khrushchev's Sovnarkhoz reform. First, we demonstrate that during this reform regional leaders were subjected to relative performance evaluation, which created incentives to generate industrial growth. Second, we show that these career concerns resulted in higher growth in regions with sufficiently diversified and, therefore, self-contained economies, and lower growth in highly specialized regions.

Author(s)

Andrei  Markevich, Ekaterina Zhuravskaya

Journal
  • Journal of Public Economics
Date of publication
  • 2011
Keywords JEL
D73 H7 J63 N44 P3
Keywords
  • M-form hierarchy
  • Yardstick competition
  • Soviet economy
  • Diversification
Pages
  • 1550-1560
Version
  • 1
Volume
  • 95