Veblenian concept of habit and its relevance to the analysis of captured transition.

Author:Klimina, Anna

The experiences of transforming East European countries, including the former Soviet Union, reveal divergent paths in transition from plan to market. In current economic literature successful transition toward well-functioning market economies and liberal democracies is associated with the experience of most former socialist countries in Central and Eastern Europe as well as the Baltics; while unsuccessful transition toward rent-seeking societies dominated by a small oligarch clique and characterized by the state capture is linked to all but the Baltic Republics of the former Soviet Union (Havrylyshyn 2006, 3, 137-138; Gabrisch and Holscher 2006, 171-175).

Presently, the most challenging issue in transitional economics is whether the clannish path of post-socialist transformation is a transitory one due to its sub-optimality or it is a long-lasting one and represents an institutional lock-in due to the forces of cumulative causation and positive feedbacks. Another important problem concerns the obstacles that continue to prevent the democratic market from functioning well in clannish, oligarchic transition.

Within this context the paper intends to elucidate that Veblen's concept of habit that substantiates the path-dependent, cumulative and largely undetermined character of social changes, is fundamental for understanding the nature and longevity of clannish transition. The author considers four features of Veblen's concept of habit to be of prime importance here: firstly, it recognizes the significant role of economic factors in the formation of habits; secondly, it regards habits as being foundational to economic institutions, both formal and informal; thirdly, it considers informal constraints ("old habits") as being mostly inefficient and interfering with economic development; and fourthly, it emphasizes that habits are only propensities, or inclinations to act in a particular way, rather than actions of direct behavior. The latter notion implies that the strengthening or weakening of individual proclivity to act depends on prevailing socio-economic structure, since individuals are socially situated. The paper argues that Veblen's understanding of habit as propensity also provides the path of transforming transition economies from an oligarch-dominated circle to democratic markets.

The arguments in this paper proceed as follows. The next section examines Veblen's vision of habituation as evolutionary acquired trend behavior that reveals itself in economic institutions; after that the character of institutional equilibrium in captured transition is explored and the ingrained model of rent-seeking nontransparent behavior as an analytical model of transitional institutional lock-in is discussed. Conclusions are provided in the final section.

Veblen's Vision of Habitual Character of Economic Institutions

Behaviorist psychology defines habit as "learned sequences of acts that become automatic responses to specific cues," and considers it to be merely a passive and non-intentional aspect of human behavior (Verplanken and Aarts 1999; Bargh 1994).

Veblen was the first who incorporated the notion of habit to Economics in order to substantiate the habit-based conception of human nature. Contrary to the neoclassical concept of human rationality, Veblen considers habits to be a perpetually evolving part of human nature, since, to him, man "is not simply a bundle of desires," but "a coherent structure of propensities and habits which seeks realization and expression in an unfolding activity" ([1898] 1947, 74). Veblen views habits as cumulative manifestations of past experiences of an individual, as "elements of the existing frame of mind of the agent," "outcomes of his antecedents and his life up to the point at which he stands," "products of his hereditary traits and his past experiences, cumulatively wrought out under given body of traditions, conventionalities, and material circumstances" (74).

The present paper argues that Veblen's vision of habitual actions as well, reflects apparent ex-post rationality, which is rooted in the economic life of an individual.

The author agrees with the point of view that Veblen's understanding of institutional structure is quite close to ideas of economic--particularly technological--determinism, despite the fact that it is articulated in a much softer way compared to Marxist thinkers (Walker 1977; Seckler 1975, 61; Rutherford 1994, 57).

Veblen's work shows that he considers technology (the process of production) as the major factor of changes in the economy, which are further accompanied by the evolution of social institutions. To him, "the forces which make for a readjustment of institutions, are ... almost entirely of an economic nature" ([1899] 1961, 145), so the whole process could be explained "in the matter of fact terms of cause and effect relationships" ([1904] 1975, 66-67).

Consequently, "evolutionary economics," to Veblen, "must be the theory of a process of cultural growth as determined by the economic interest" (Veblen [1909] 1947, 163), since established economic institutions, as "prevalent habits of thought," are "the outcome of habits of life" ([1919] 1942, 314), and, therefore, are rooted in acquired individual habits of participating in economic activity. Veblen stresses the important role of the...

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