Tuesday
Feb112014

Peddlers and Princes

Clifford Geertz wasn’t just interested in the nature of the Balinese state, he was also interested in central problems of economic development.

In his book Peddlers and Princes, he examined the comparative development of two towns, Tabanan in Bali, the capital of a pre-colonial state with the same name, and Modjokuto in Eastern Java.

The overarching agenda of the book is to show how social structure influences the possibilities for creating economic development and Geertz shows historically how and why these two towns ended up with very different social structures. By this, Geertz means that even if the basic economic challenge was the same the problems that stopped it being solved were very different.

But what was this economic challenge?

Geertz explains:

Sociologically speaking, perhaps the major difference between a modern economy and a traditional one is that the former is marked by a very large number of social structures, institutions and roles specifically adapted to fulfill economic functions as opposed to others, while for the most part the later is not: … The firm is an excellent sociological benchmark of development … precisely because it is such a specifically economic institution, a miniature social system specialized to perform economic functions and integrated in terms of economic values. And it is such firms that the entrepreneurs of both Modjokuto and Tabanan are trying to create. (p. 137).

So Geertz focuses on the problem of creating firms. 

This is of course well-trodden territory within economics. There are many interesting and empirically relevant theories of how efficient firms may emerge to solve problems that markets cannot, or why such efficient organizations may not emerge because of credit market imperfections, holdup problems or incomplete contracts.

But Geertz has in mind more sociological constraints on the formation of firms. He argues that

the construction of a viable firm … requires two very difficult and somewhat contradictory achievements: a sufficient degree of independence of the – from an economic point of view – non-rational pressures of institutional custom, and the establishment of an accepted normative code in terms of which completely economic activities can be regulated. Without the first, business firms sink into the inefficiency with which those of Tababan are usually threatened; without the second they flounder on the shoals of mistrust, as Modjokuto’s tend to do. (p. 138)

In the next two posts, we will see how budding entrepreneurs in Tabanan and Modjokuto were trapped between the Scylla of non-rational pressures of institutional custom and the Charybdis of lack of an accepted normative code.

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