Contract Enforcement

Main Uses and Theoretical Relevance

The notion of contract enforcement is used by scholars critical of neoliberal economic analysis to emphasize the indispensability of violence-wielding agencies in the construction of markets and the protection of economic exchange. Because the function of contract enforcement is usually fulfilled by organs of the state, such as the courts and the police, discussions around this concept also highlight the centrality of political power in the construction of deregulated, free markets. Where the organs of the state that are officially [Page 148]commissioned to enforce contracts are unable or unwilling to fulfill this function, other organs of the state or private actors and organizations may assume this role, with or without official sanction to do so. Contract enforcement can be undertaken illegally by organs of the state with coercive, violence-making capacities but without the legal authority to do so. These functions can also be performed by private protection agencies that are legally authorized to dispense coercive violence in the service of their customers within the bounds prescribed by the law. Finally, contract enforcement can be carried out by private agencies operating illegally, such as the so-called Mafia.

Contract enforcement is a contested notion in the debates between institutionalist and neoclassical (neoliberal) economists. Institutionalist scholars accuse neoliberal economists of underemphasizing the role of coercive violence in contract enforcement, which in turn underpins market exchange and property relations. The neglect of institution building necessary for contract enforcement, institutionalists claim, is responsible, in part, for the newly liberalizing economies' failure to live up to the expectations of neoliberal analysts. For example, the idea behind postcommunist reform in Russia was to implement economic reforms first, and perhaps engage in some political institutional development afterward. Another assumption was that the institutions would naturally emerge once the prices are liberalized and the markets are deregulated in general. Institutionalists claim the neglect of coercive organs of the state by the liberal politicians during Russia's transition from planned economy to market economy to be partly responsible for the disappointing performance of Russian economy in the 1990s. Other examples where nonstate or illegal organizations took over the function of contract enforcement include some other postcommunist countries and some African countries.

Following the global restructuring of the relationship between the state and the economy along neoliberal precepts, there was a limited delegation of state's authority as a contract enforcer to legal private agencies, along with an unofficial devolution of the same authority to extralegal public and illegal private agencies. The apparent erosion of some states' monopoly over the uses of violence since the 1970s led some neo-Marxist scholars to speculate that global capitalism has reached an impasse. This new stage of capitalist development is dubbed Mafioso capitalism by its critics for its reliance on extralegal and nonstate agencies for coercive violence in protecting property and exchange relations.

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