Institutions and the social construction of organizational form: The development of Russian mutual fund organizations, 1992-1997

Theories of social construction emphasis the manner in which the broader social environment is the result of historical social and political processes, instead of an outcome of "natural" competitive or market forces. I use the idea of social construction to add to the debate in organizational sociology over the relative role of institutionalization and competitive processes in the development of new organizational forms. In a case study of the formation of mutual funds in post-privatization Russia, I identify the social and political forces driving the evolution of this new organizational form in the first five years of its existence. Russian market reformers initially developed mutual fund organizations under the assumption that competitive and market forces would determine the subsequent evolution of this new organizational form. However, subsequent market regulators identified the need to develop effective institutions as a primary goal in the development of mutual funds in Russia. These new regulators argue that the institutionalization of trust among the population is more important than the development of a competitive marketplace in the development of a new organizational form. The subsequent socio-political battles over the establishment of effective institutional rules over mutual funds has pitted multiple interest groups against each other to ensure that the new rules benefit their own interests.; The economic and socio-political challenges faced in the development of mutual funds in Russia provides important insights into the role of social construction processes in the development of new organizational forms. Most research that focuses on the "natural" selection properties of markets or the "taken-for-grantedness" of organizational forms is undertaken in developed economies in which the basic forms of economic coordination are already well established. However, the Russian example highlights the challenges involved in the initial institutionalization of new forms of organization. The social construction processes through which collective rules, procedures and expectations are developed and maintained have important, long-lasting effects on organizational forms. The construction of collective institutions is at the foreground of attempts to develop new economic structures in Russia and other transitional economies.