Brokerage (Global)

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Brokerage
Location: Worldwide
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Author: David Jancsics
Affiliation: School of Public Affairs and Administration, Rutgers University

Original text by David Jancsics


In general, brokerage involves the flow of valued resources from one actor to another via an intermediary (Gould and Fernandez 1989[1]; Stovel and Shaw 2012[2]). Any brokered relation requires at least three actors: a ‘giver’ and a ‘receiver’ who are the parties of the transaction, and the broker serves as the connection between them.

Brokerage is central to informal transactions in particular (Jancsics 2015[3]). In many countries informal arrangements provide a low-cost and low-risk infrastructure for a whole range of activities, from everyday informal practices such as helping friends to build their house in a village to bribing public administrators. Under communism in Central and Eastern Europe, informal social networks served as a survival tool and means of ‘getting things done’ under the strict, over-centralised socialist bureaucratic system (Lomnitz and Sheinbaum 2004[4]; Ledeneva 1998[5]; Hankiss 2002: 248[6]; Heinzen 2007[7]). Following the collapse of old communist regimes in the 1990s, the capitalist market economies that emerged in the region brought new uncertainties, emerging inequality and high levels of unemployment. Accordingly, the use of informal networks has survived, adapted and even proliferated under post-communism (Sík and Wellman 1999[8]). Although mutual favours, once widespread in the socialist economy, have been partially replaced by monetary-based informal exchanges (Ledeneva 1998[9]), brokers still play an important role in these multi-player transactions in many countries (Szántó et al. 2013[10]).

Photograph of László Kutrucz and László Baráth taken in 2006 by Gergerly Tury to document a stroman case in Hungary. Both Kutrucz and Baráth were CEOs of several fake companies; this fake companies were used to procure a significant amount of public funds and served as intermediaries for the Hungarian subsidiary of Siemens. The homeless CEOs' jobs was to withdraw money from the fake companies' bank accounts in order to give it back in cash to their shadow principals.

Brokerage practices can be categorised according to the form of the exchange (market vs. reciprocal) and according to the mechanisms through which the broker manages the transaction (catalyst vs. middleman) (Jancsics 2015[11]). Generally, in any market-type exchange, the exchanged resource is mainly cash and the players are not socially close, resulting in a precise balance and an equivalent return without delay between the players (Sahlins 1965[12]; Gregory, 1982: 42[13]). By contrast, in a reciprocal exchange the actor who gives something expects to be get something of value in return, but what exactly and when is not spelled out (Sahlins 1965: 147[14]). In the case of catalyst brokerage, the broker connects the client with the agent by introducing them to each other, but then steps aside (Stovel et al. 2011[15]). In contrast, middleman brokers control the transaction throughout and remain the only link between the otherwise unconnected actors. These two variables – the form of informal exchange and the brokerage mechanism – give rise to four different types of brokerage: (1) representative brokerage, (2) entrepreneur brokerage, (3) gatekeeper brokerage, and (4) multiple insider brokerage.

Representative brokerage is probably the most widespread form of informal brokerage. Here a social group ‘delegates’ one of its members to establish contact (weak ties) with outsiders and communicate or negotiate with them or obtain resources, often from formal organisational settings (Gould and Fernandez 1989[16]; Granovetter 1973[17]). A range of culturally-specific forms of representative brokerage are described in the entries in this volume: wāsṭa (Arabic speaking countries), tapş (Azerbaijan), torpil (Turkey), pulling strings (UK), raccomandazione (Italy), stróman (Hungary). Here the middlemen are usually catalyst brokers who are willing to share a contact with their fellows and thus establish a new relationship. Since they ‘just help’ their group members – relatives, friends, acquaintances, neighbours, ex-classmates or colleagues – they are not interested in controlling the transaction and holding back or manipulating information between the parties. This is a reciprocal exchange between the broker and his/her group member where the broker creates a gift-debt, a reciprocal dependence, which, eventually, should be returned (Gregory 1982: 42[18]; Graycar and Jancsics 2016[19]). Here the counter transfer may take the form of another favour, or simply the broker’s enhanced status and loyalty within his close-knit group.

An entrepreneur broker is a neutral middleman who benefits from the situation by controlling the flow of resources and information between actors who do not know each other (Gould and Fernandez 1989[20]; Boissevain 1968[21]; Burt 1992[22]; Marsden 1982: 206[23]). An entrepreneur broker, for example, can help acquire counterfeit documents such as fake passports, driving licences, high-schools diplomas etc., which may even be officially registered. Such diplomas are in demand on the black market since they are often required by employers for particular jobs (Jancsics 2015[24]). This is a form of middleman brokerage where the broker does not let the two parties directly meet with each other; he/she extracts commission (typically cash) from the market-type exchange.

Another photograph of Lászlo Kutrucz and László Baráth taken in 2006 by Gergerly Tury. This case was explored by an investigative journalist, Annett Sipos; it was later published in the Hungarian economic maganize HVG in 2006. Both Kutrucz and Baráth agreed to be photograph and they also gave permission to use their names. The article can be found: http://hvg.hu/itthon/20061211_siemens.

In gatekeeper brokerage the broker and the agent are members of the same social group (Gould and Fernandez 1989[25]) – or in many cases, the same organisation or political institution – while the client is an outsider. The political practice of ‘cash for access’ in the UK is an example of gatekeeper brokerage. Here, individuals give monetary payment to the broker (who may be a party official, MP or parliamentary aide) who in exchange secures a meeting with an office-holder – often a senior minister or Cabinet member. On the broker-client side this is a market-type exchange (as indicated by the name ‘cash for access’); however, there is a possible reciprocal exchange on the broker-agent side where fellow members of the same formal institution can share the profit of the deal or repay each other with favours. For example, in one form of ‘cash for access’ the money paid by the client is given to the political party of which the agent is a member, which helps to fund the political resources which guarantee the agent’s career.

Multiple insider brokers are people who are simultaneously members of different groups (i.e. they have multiple formal organisational or social group memberships). This brokerage type often results in a strained relationship, because both groups are suspicious that their group member (the broker) may serve the other group’s interest (Simmel 1950: 142[26]; Stovel et al. 2011[27]; Vedres and Stark 2010[28]). For example, in Germany externe Personen (‘external persons’) are individuals who maintain an external employment relationship in the non-state sector while working temporarily in the federal administration. These brokers serve ‘two masters’ at the same time and thus often have conflicts of interests. Externe Personen may influence laws affecting their private sector ‘home’ organisation or leak confidential government documents to them. Insider traders provide another example of multiple insider brokerage. These brokers gain access to exclusive information about financial markets and provide tips to friends or relatives who can take advantage of it.

Brokered informal transactions are complex social phenomena. Brokers make informal (and sometimes illegal) deals possible across formal organisational boundaries and facilitate the ‘smuggling out’ of organisational resources through such boundaries. In this respect, informal brokerage may be seen as socially undesirable. On the other hand, brokerage is also a means of establishing or maintaining personal relationships and reproducing socio-cultural systems inside and outside of formal organisational structures.

References and Bibliography

  1. Jancsics, David 2013. ‘Petty Corruption in Central and Eastern Europe: The Client’s Perspective’, Crime Law Social Change 60: 319–41
  2. Smith, P. B. 2016. Pulling Strings. Global Encyclopaedia of Informality.
  3. Sajó (eds.), Political Corruption in Transition: A Sceptic's Handbook. New York: Central European University Press.

Notes

  1. Gould, R. and Fernandez, R.M. 1989. ‘Structures of Mediation: A Formal Approach to Brokerage in Transaction Networks’, Sociological Methodology 19: 89-126.
  2. Stovel, K. and Shaw, L. 2012. ‘Brokerage’, Annual Review of Sociology 38: 139-58.
  3. Jancsics, David. 2015. ‘“A Friend Gave me a Phone Number”: Brokerage in Low-level Corruption’, International Journal of Law, Crime and Justice 43: 68-87.
  4. Lomnitz, L. and Sheinbaum, D. 2004. ‘Trust, Social Networks and the Informal Economy: A Comparative Analysis’, Review of Sociology 10: 2-26.
  5. Ledeneva, Alena V. 1998. Russia's Economy of Favours: Blat, Networking and Informal Exchange. Cambridge: Cambridge University Press.
  6. Hankiss, E. 2002. ‘Games of Corruption: East Central Europe, 1945-1999’, in D. Kotkin and A.
  7. Heinzen, James. 2007. ‘The Art of the Bribe: Corruption and Everyday Practice in the Late Stalinist USSR’, Slavic Review 66: 389-412.
  8. Sík, E., Wellman, B., 1999. ‘Network Capital in Capitalist, Communist and Post-communist Countries’, in B. Wellman (ed.), Networks in the Global Village: Life in Contemporary Communities. Oxford: Westview Press.
  9. Ledeneva, Alena V. 1998. Russia's Economy of Favours: Blat, Networking and Informal Exchange. Cambridge: Cambridge University Press.
  10. Szántó, Z., Tóth, I.J. and Varga, Sz. 2013. ‘The Social and Institutional Structure of Corruption: Some Typical Network Configurations of Corruption Transactions in Hungary’, in B. Vedres and M. Scotti (eds.), Networks in Social Policy Problems. Cambridge: Cambridge University Press.
  11. Jancsics, David. 2015. ‘“A Friend Gave me a Phone Number”: Brokerage in Low-level Corruption’, International Journal of Law, Crime and Justice 43: 68-87.
  12. Sahlins, M. 1965. ‘On the Sociology of Primitive Exchange’, in M Banton (ed.), The Relevance of Models for Social Anthropology. New York: Praeger.
  13. Gregory, C.A. 1982. Gifts and Commodities. London and New York: Academic Press.
  14. Sahlins, M. 1965. ‘On the Sociology of Primitive Exchange’, in M Banton (ed.), The Relevance of Models for Social Anthropology. New York: Praeger.
  15. Stovel, K., Golub, B. and Milgrom, E. 2011. ‘Stabilizing Brokerage’, Proceedings of the National Academy of Science 108: 21326-32.
  16. Gould, R. and Fernandez, R.M. 1989. ‘Structures of Mediation: A Formal Approach to Brokerage in Transaction Networks’, Sociological Methodology 19: 89-126.
  17. Granovetter, Mark. 1973. ‘The Strength of Weak Ties’, American Journal of Sociology 78: 1360-80.
  18. Gregory, C.A. 1982. Gifts and Commodities. London and New York: Academic Press.
  19. Graycar, A. and Jancsics, D. 2016 Gift Giving and Corruption. International Journal of Public Administration. DOI:10.1080/01900692.2016.1177833.
  20. Gould, R. and Fernandez, R.M. 1989. ‘Structures of Mediation: A Formal Approach to Brokerage in Transaction Networks’, Sociological Methodology 19: 89-126.
  21. Boissevain, Jeremy. 1968. ‘The Place of Non-groups in the Social Sciences’, Man 3: 542-56.
  22. Burt, Ronald. 1992. Structural Holes: The Social Structure of Competition. Cambridge: Harvard University Press.
  23. Marsden, P. 1982. ‘Brokerage Behaviour in Restricted Exchange Networks’, in P. Mardsen and N. Lin (eds.), Social Structure and Network Analysis. London: Sage.
  24. Jancsics, David. 2015. ‘“A Friend Gave me a Phone Number”: Brokerage in Low-level Corruption’, International Journal of Law, Crime and Justice 43: 68-87.
  25. Gould, R. and Fernandez, R.M. 1989. ‘Structures of Mediation: A Formal Approach to Brokerage in Transaction Networks’, Sociological Methodology 19: 89-126.
  26. Simmel, Georg. 1950. The Sociology of Georg Simmel. New York: The Free Press.
  27. Stovel, K., Golub, B. and Milgrom, E. 2011. ‘Stabilizing Brokerage’, Proceedings of the National Academy of Science 108: 21326-32.
  28. Vedres, B. and Stark, D., 2010. ‘Structural Folds: Generative Disruption in Overlapping Groups’, American Sociological Review 115: 1150-90.