Binding Ties, Binding Commitments: Evidence from Public-private Partnerships in Vocational Education

Abstract: Work on the political economy of investment emphasizes the importance of credible commitments between firms and the state for development. How can credible commitment be generated in environments characterized by pervasive state-led violence, expropriation, and weak institutions? This paper explores this question through the lens of public-private partnerships in vocational education in Russia’s regions. Research on the OECD emphasizes a strong civil society – unions and employers’ associations – along with free-markets and good state institutions as crucial for cooperative co-investment in vocational education. Yet in many Russian regions, cooperative vocational education reforms have emerged despite weak civil society, poorly functioning markets, and pervasive state predation. In this paper, I argue that absent strong formal institutions, personal ties between state officials and the business community can generate credible commitments and co-investment. Pervasive connections allow firms to acquire information about potential partners within the state and punish low-level officials for misbehavior, mitigating fears of expropriation. The state in turn can insure that firms cannot free-ride on cooperative institutions, creating credibility between firms. To test this theory I take advantage of an original dataset of all public-private partnership contracts between Russian firms and public vocational education institutions for 2013. This work has important implications for research on business-state relations and investment in violent, weakly institutionalized settings.