November 11, 2020 Reading Time: 7 minutes

Now that social order seems to decay all around us, let’s talk about governance. No, not “government,” the formal institutions that comprise the state, the highest office of which Democrats and Republicans fight over, but governance: how any social system orders itself. 

To be interested in economics is to be interested in social order. Economics is about that order and about social harmony: only trades that are mutually beneficial ex ante take place ‒ we both say “thank you” when a transaction is finished. What’s so amazing about our modern world is that we don’t have to like each other to enrich each others’ lives; we don’t even have to know ‒ or know of ‒ each other for the emergent order of flourishing market economies to work its magic. 

David Skarbek, a governance scholar and a political scientist at Brown University, just released a follow-up to his hugely successful The Social Order of the Underworld from 2014. His new book, The Puzzle of Prison Order: Why Life Behind Bars Varies Around the World, takes the argument of The Social Order internationally, and tries to examine informal institutions in prisons across more varied settings. Showing Skarbek’s characteristically clear, careful, and dispassionate voice, this sequel is shorter than the 2014 book, even though the topic is broader and more complicated. 

There is much to like, much to learn, and a fair amount to critique.  

How ‘doing time’ differs 

Being incarcerated is very different in different places, yet share many similarities. Prisoners are not free. On a basic level, prisoners all over the world are deprived of freedoms, stripped of their liberty to move about and engage in certain activities. They are usually “more violent, less patient, less trusting, and less educated than the population outside the prison.”

Yet, they’re not all the same: every prison system establishes order in different ways, the rules of their constrained societal games generated and upheld in stark contrast. By incorporating experiences of imprisonment in several different countries (Brazil, Bolivia, the Nordics, England, and male, female, and gay and trans prisons in California) and across time (Andersonville prisoner of war camp; California male and female prisons in the 1960s), Skarbek bravely attempts to tease out how these constrained orders are formed. 

It is the relationship between official governing and extralegal ‒ private ‒ governance that fascinates Skarbek. It is precisely in going to the extremes of human coexistence that we might learn something general about social order: prisoners share with the rest of society the basic political economy problems of controlling who uses violence and for what purpose, how resources are used and who gets what. Prisoners, like every society, must establish institutions that “are strong enough to protect property rights” but constrained enough “so that political power is not used to violate people’s rights.”

Incredibly clear and well-structured, his argument takes us on a journey from Latin America to the Nordics and England and of course the California prison gangs that first brought Skarbek a modicum of academic fame.  

He tries to advance several arguments, the most crucial of which is the negative relation between official governance and private governance: when prison officials govern less, prisoners govern more. The trade-off, like in other parts of political economy, is not between public regulation and chaos, but between public regulation and private regulation. He shows this by contrasting the Nordics ‒ where officials provide a lot of resources and the number of staff often match the number of inmates ‒ with two prisons in Bolivia and Brazil, where officials are absent from the day-to-day activities. Nordic prisons don’t have gangs; they don’t, in Skarbek’s parlor, “invest significantly in producing extralegal governance.” Convicts leave each other alone; there are no markets, no centralized organization, and money plays no role in distributing goods and services ‒ almost none of which are produced by the inmates. 

San Pedro in Bolivia is the exact opposite. Officials provide next-to-no resources and limit their activities to guarding the perimeter. Instead, prisoners privately provide every good and service demanded. The economy runs on basic capitalist principles (one prisoner jokes that it is probably more efficient than all of Bolivia’s economy). The first thing a new convict must do is purchase (or rent) his own cell; if he is not able to, he sleeps in the corridor. As residual claimants to their cells, which they sell upon release, any valuable improvements made accrue to the inmate himself: “San Pedro prisoners can better themselves by bettering their environment.”

And they do that a lot. Voluntary housing associations govern the behavior of the commons. Established committees and courts uphold order. The proof of whether this is good or bad, argues Skarbek, is in the pudding: spouses and children often move to the prison with the convicts. 

Along other dimensions than resources and official governing, Skarbek tries to tease out social networks and reputation in accounting for the presence of gangs. California’s male prisons are ruled by gangs along racial lines; half a century ago they weren’t and women’s prisons in California aren’t today. And in England, whose penal system shares many practices with California’s, they don’t emerge either. To Skarbek, this fits well into his governance theory. While not as extreme as San Pedro, Californian prisons don’t provide many resources to inmates: law and order, and most certainly the enforcement of contracts in trades of illicit goods, must be organized privately. Women’s prisons run on gossip, reputation, and ostracism. This isn’t a gendered thing, Skarbek says, as the English do it too: by imprisoning convicts close to their hometowns, prisoners are able to draw on pre-prison knowledge to establish reputation. They know each other, or know of each other, enough to function. Californian convicts don’t, and resorted to a clear and difficult-to-fake signal of belonging: race. Gang leaders disciplined their members internally and, as every member is liable for other members’ actions, have a strong incentive to comply. 

Not all that glimmers is gold

There are many limitations to Skarbek’s study. To his credit, he is well aware of them and enunciates several ‒ even though most of them are relegated to an appendix on methods. He does not explain why institutions vary and he is not able to tease out causality; he cannot substantiate that the outcomes he observes stem from the variation in institutions that he discusses. Perhaps I’m demanding the impossible here, as almost no social scientist can. 

A plausible-sounding theory is advanced, with derived predictions for the observable world: a theory predicts x, and voilà, that’s what our carefully selected case studies show. This practice is circular, as the theory was made and calibrated on the very case studies Skarbek uses to advance it. If they hadn’t, he wouldn’t write a book about it ‒ and no publisher would publish it. Several layers of selection are casting doubt on the validity of this otherwise impressive application of governance theory to prisons.

Some of the predictions are also unfalsifiable, i.e. whatever observed outcome supports his theory. Take the predictions he derives from the governance theory, which he writes are “predictions about the degree to which these mechanisms are centralized, but not about the specific manifestation that emerges.” Consider the leeway this gives a researcher. In England, he could have found established gangs that, like in California, centralize governance; it would be easy to chalk this up to size and insufficient resources. If he doesn’t find California-style gangs, that’s also evidence for his theory that English prisoners draw on other institutional resources to establish order. 

Most of his argument is underdetermined. After considering gangs as extralegal governance mechanisms among men’s prisons in California in Chapter 1 and how they are absent from women’s prisons in Chapter 5, he prudently asserts that a confounding factor might be gender rather than size of the prisons. So, to “address this concern,” he invokes men’s prisons in England that are smaller but don’t have gangs. Trying to solve one undetermined variable along a gendered dimension, he introduces another dimension (country, culture, language ‒ yes, Britain and America are two nations separated by a common language) along which things may differ. The problem, as Skarbek repeatedly admits, is that other things also differ in the English penal system. 

The deeper problem in this kind of institutions-only view of economics and economic history is what we in financial economics call the “joint-hypothesis problem.” Whenever we test for market efficiency, we’re also testing an explicit asset pricing model: a resulting mismatch with observed reality could reflect an inefficient market, the wrong asset pricing model ‒ or both. 

Skarbek is testing the market rationality (whether prisoners fail or succeed in their governance) together with a specific asset pricing model (the governance theory). In his field of comparative institutional studies, some of the strongest critiques against this approach come from economic historian Sheilagh Ogilvie, now Chichele Professor of Economic History at Oxford. Not a stranger to institutional analyses and someone directly cited in Skarbek’s book (but opposing a different point), Ogilvie argued in an influential article from 2007 against the dominant economistic idea that institutions emerge because they’re efficient. 

Two major problems face people who think that. First, “institutions,” however defined, don’t just do one thing: a researcher must specify which institutions mattered, and how those specific institutions overcame the problem at hand as well as the negative side effects of other institutions. Secondly, institutions can emerge for all sorts of reasons beyond efficiency, and be kept in place by transaction costs or path dependency that both undermine the efficiency claim. If you, like Armen Alchian and those who follow him, want to incorporate that into the definition of efficiency, the disputes collapse into redefining terms. 

I have no doubt that Skarbek knows this, as indicated by his humble caveats throughout the book and moreso in the appendix. Still, that casts serious doubts on his substantive results. His careful analysis does not quite save him from these problems. I mostly buy his story of prison governance in the select countries, not because Skarbek has proved it, but because I share his fundamental attachment to private order institutions weighing heavily on our lives.

How, then, do we account for differences in extralegal governance? Skarbek, well aware of the limitation to his study, has no good answer to this. There are too many dimensions (gender, prison size, national culture, local knowledge, official resources) along which Skarbek’s selected prisons differ ‒ not to say anything about the countries and prison systems he doesn’t consider.

At best Skarbek has illustrated how governance institutions can be analyzed, providing us with a fascinating case study of prison life in a dozen settings. A bit more charitably, governance theory applied to prisons is not falsified by the examples he uses. Whether he has proven the usefulness of the theory, or its ability to explain the observed world, is much less clear.

Joakim Book

Joakim Book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019.

His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other outlets. He is a regular contributor and co-founder of the Swedish liberty site, and a frequent writer at CapXNotesOnLiberty, and

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