Institutions, Social Infrastructure and Equality

The other day I was describing my honours research to someone (namely James Farrell), which started me churning some of the frustrations I have had with the empirical institutional literature of the past 10 years and I stumbled upon another issue I hadn’t considered before – if institutions can increase the output of a society, who can claim this increased output?

The link above covers it in slightly more detail, but to recap: The fact that institutions – that is the “rules of the game”, both formal laws and how they are enforced and social convention and practice – matter in economics has been known since the times of the  hero ancestor Adam Smith. Difficulties in formalising them in mathematics, testing them empirically or giving policy recommendations meant they had limited influence in published work (with some marvelous exceptions). The experiences of the 1990s, especially the transition and developing economies that failed to prosper when first best, Washington Consensus policy was implemented, led some (mainly US) economists to adapt institutional rhetoric, but also to attempt to empirically test the influence of institutions, with many flaws.

What I chewing over today is one particular flaw – the tragically limited views of what institutions are. Take this excerpt from Hall and Jones (1999) – a paper which seeks to explain differential output per worker between countries and which is a mandatory citation amongst the literature I described.

A social infrastructure favorable to high lev-
els of output per worker provides an environment that supports productive
activities and encourages capital accumulation, skill acquisition, invention,
and technology transfer. Such a social infrastructure gets the prices right so
that, in the language of North and Thomas (1973), individuals capture the
social returns to their actions as private returns.
Social institutions to protect the output of individual productive units
from diversion are an essential component of a social infrastructure favor-
able to high levels of output per worker.

Institutions “get the prices right”. The institutions, “social infrastructure” they describe don’t create or productivity in any way, they just make sure that the return on factors of production is what theory says it should be so that people have enough incentive to be or become productive. The institutions merely prevent returns to factors of production being appropriated rather than actually contributing to their growth. They stop brigands and crooks, but they do not invent or generate.

Think about this a bit more. This implies there is some kind of ideal set of institutions that ensures that the prices are perfect. Each  (land, labour capital) gets payment that reflects exactly what they contribute to output and are thus motivated correctly. Humanity was wallowing around in a huge variety of bad instutional set up until Britain and The Netherlands got close enough to this ideal set that output could start increasing via fundamental markets. Once we get to this ideal set, we can no longer improve institutions – they are doing all they can – only increasing or improving the productivity of the factors of production can increase output. This ideal state is where institutions result in the absence of a wrong (distorted prices) rather than any actual good.

[I freely admit I partially fell into this trap (albeit somewhat consciously) with my own work, where I only attempted to measure a certain type of "bad" institution, rather than any kind of "good one".]

I think they’re probably a bit beholden to their models which has blinded them a bit. With Cobb Douglas in their minds, they can only imagine land, labour or capital increasing output. Anything else can just avoid getting in the way.  But I think institutions are rather like technology, with no such upper bound or ideal state. Like technology they can keep evolving, through trial and error, and continually improving the productivity of these factors. In fact the bearer of technology, science, is in itself a large set of institutions and social practices that have evolved over time (I am embracing a rather Kuhnian notion of science here). Markets themselves are deeply embedded in institutions rather than just using them as enforcement mechanism – these include norms that increase trust, or create standards or increase informational flows. Even now we see the development of online social norms such as those in blogging that contribute to the process of informational discovery. They have contributed immensely to the increased output of our societies without any notion that they are just “getting the prices right”. They are a plus in their own right, not just the absence of a wrong.

Hall and Jones use interesting terminology without being aware of it’s implications – “social infrastructure”. We often think of infrastructure in terms of public goods like roads and bridges etc.  A good with public benefits that will not be provided privately because a private provider will not be compensated can be provided by the public, either informally (through convention and cultural practice) or through a formal agent such as the state. Everyone then contributes, output as a whole is thus increased, but contributers are not directly compensated and they are motivated by other enforcement mechanisms.

Institutions are social infrastructure in this fashion. They are an input that increases productivity and output, and the costs of creating and maintaining them are spread across the public. The public does this by following them themselves and offering approbration and disapprobation, praise and censure when required. This is costly, but is itself rewarded by pro-social tendencies. Those who bear the cost of maintaining this social infrastructure, just like those who bear the cost of maintaining physical infrastructure, are not directly rewarded.

Who is then? If the productivity of a worker is improved through the institutions in which they are embedded, they would roughly speaking see an increased return – higher wages. In fact, if we take a worker from the developing world and put them in Australia, we expect their productivity to increase and they also receive higher wages. There’s no increased virtue on their part. The productivity increase is in the institutional  environment they, and previously resident Australians, are lucky enough to be in and which they are now bearing the costs of maintaining. However the virtue of this institutional environment cannot be attributed to any individuals in it even though they all contribute to it.

I’m finding this a bit difficult to describe ( blogging is for discussions and not for theses). Let’s try an analogy. Imagine a society without a basic institution like language – lets call them Ferroneans. When a language appears and becomes a standard the productivity of Ferronean society and any given Ferronean will increase. But no Ferronean can really claim credit for this. A language is only useful when others are using it, and a language needs to be maintained and developed through use by the broader population to be of any use. A Ferronean will lose their productivity when they leave the language society, but a neighbouring non-language Balonean will gain some if they move to Ferronea and start using language.

If some institutions create rather uniform increases in productivity and rather uniform increases in wages, then there’s no real issue. The cost of creating an maintaining the institution is shared across society and rewarded through pro social incentives, but the benefits are also distributed fairly evenly.

But this is rarely the case. A given institution or set of institutions will increase the productivity of a given kind of input, such as workers with certain attributes or character types, more than others. For instance, someone who is a good verbal communicator relies on the institutions or language to have any use – a born orator only has virtue where there is a tradition of public speaking. If the neurodiversity advocates are right, the success of certain neurological types is contingent on the social setting institutions have created (such as our current schooling system) and the internet may well create institutions in which ADHD or autism has greater productivity than “normal” neurology. The productivity of the physically infirm is far greater under the institutions that provide an informational society than they are in a farming society.

The benefits of an institutional set up that requires public maintainence can be privately appropriated if the increased productivity increases wages for that group.

This isn’t a problem in the  Tragedy of the Commons fashion or public goods problem fashion, since maintaining the institution is being rewarded by pro social tendencies already. It’s not strictly speaking a rent either. But “getting the price right” for these wages also doesn’t make much sense, since the differential features that are resulting in differential productivity did not require incentives to be produced. They existed naturally, the institutions are what are increasing output, and they were provided already.

But there is obviously an equity issue. If society at large contributes by maintaining  institutions but in which no individuals can claim credit, by some moral considerations society at large should reap the reward, and the fact that the features rewarded differentially are not provisioned based on price means that a tax system is fairly capable of doing this efficiently.

But there is a long term dynamic. If an institutional set up increases the productivity and reward to a certain group, even if this increases productivity overall, they then have the resources to create an institutional set up that cements their relative position. For instance, take later form Samurai in Japan. Institutional set ups towards the beginning of the Tokugawa shogunate rewarded a type I would describe as a martial bureaucrat over sheer warrior talent or the patience required from a farmer. This did increase overall productivity (by creating stability), but rewarded the martial bureaucrat type who then began to create institutional developments to prevent institutional developments that would favour further productivity increases that might favour rival groups – namely merchant classes. Thus whilst the immediate result was increased productivity in Japan (reflected in higher living standards than elsewhere), the long run involved the adoption of parts of Confucianism to help keep market institutions undveloped even whilst a merchant class was champing at the bit and thus lower overall productivity than may have otherwise been the case.

A more contemporary example might be the way the groups of social norms and legal practice has created the institution of the company, or corporation. This isn’t a creation of the market, but an evolved institution. It has produced greater productivity by allowing new means of informational discovery and collaboration as well as economies of scale. To this extent society as a whole has benefited. One group it has particularly rewarded has been managers, who thrive in the hierarchal environment and possess enough narcissism to put themselves forwards. But they can, and have, used those resources to promote institutions that promote themselves. This isn’t a conscious plot, it is only natural to believe oneself is virtuous and they are already narcissistic types, but they now have the resources to do so. This can be by the lobbying for laws and formal institutions that favour CEOs and corporations and protect them from legal censure. It is also present in the stories they tell about themselves that are widely distributed not just because the media is controlled by similar people, but because, as Galbraith put it, “Wealth, in even the most improbable cases, manages to convey the aspect of intelligence. “.

This enforces the current corporate institutions in many ways that are damaging to overall productivity only one of which is confusing men (and it’s almost always men) who seem like existing managers for the virtuous and placing them in positions where other people (including many women) would be just or more able. The examples here are legion and well discussed.

So the distribution of returns from an institutional set up may have implications beyond mere equity. It is important in terms of the dynamics that shape further institutional development and further output.

This is a very long and muddled post, so if you’re still here, thanks. There’s a number of “placeholders” for concepts I haven’t really defined (my use of productivity is one example) but I think this is an interesting and somewhat overlooked issue. If institutions do increase output, rather than just acting as an absence of diversion, then they do entail some return as a social investment. The distribution of this is important for both equity reasons and the long term dynamics of a society and economy. Hopefully by throwing this out to the 6 people who will read this far we’ll be able to figure out just how we can think about these implications clearly.

22 thoughts on “Institutions, Social Infrastructure and Equality

  1. Some great ideas that I hope reaches these pages in the future as these ideas offer great promise to articulate problems with our organisation of society.

    Some of the basic ideas I got out of the collection was the distorting influence of wealth on organisation, the power of corporations to reduce information/technology sharing thus productivity, under attribution of profit to social factors (thus, missing part of the argument to pay rents to the government for later gain; especially for language and infrastructure), and attribution of value to systems of mutual dependence.
    This might not have been the intended ideas but thanks for sharing these insights and I look forward to seeing the fruits of these ideas.

    As a side note, on the issue of equity (probably not directly related) do you (or anyone else) know of any ideas/organisational principles that would gravitate wealth towards an average to provide equity and enhance incentive to work (high wealth holders to maintain position, lower wealth holders to raise their wealth, and with policies that give opportunities to lift out of poverty cycle). As a consistent reader just looking for info.

    Thanks

  2. I do, but I’m not providing it because I don’t like the way I presented it at the time. Do partake in this 3 part blof summary instead. 1, 2, 3

  3. Will have a read. I think these posts must have passed me by at the time… I think I was on Rottnest Island!

    I too cringe at the thought of someone reading my honours thesis now

  4. What bothers me, and I recall it bothered me with those previous posts, is the meaning of “institution.” For example the paragraph “Institutions are social… …are not directly rewarded” is too abstract. I don’t understand it.

    I take it that corporation law is an institution but not a particular firm? Would the road network be an institution? A single road surely would not – it is “infrastructure.”

    Think of a single sealed road in the rainy New Guinea highlands. While it is maintained a woman can put her child on the back of her bike and her vegetables on the front and ride to the district market and lo! there is productivity and an economy. When the road is not maintained the vegetables rot in her village and so does she and so does her child.

    The road is not an institution but it does what “language” did in your example. What actually is the point of the term “institution”. Good habits would contribute to prosperity but they are not an institution. Laws and norms, too. Are they “institutions”?

    An “institution” to me would be a formal structure with some sort of more or less distinct boundaries. In literal terms it is a building (which could house the insane for example); by extension, in metaphoric terms it is some long-standing agreed arrangement of responsibilities – which will actually be located in physical buildings.

    It seems to me that there are levels of institution. At the highest level there is a parliament and an executive government. They are definitely institutions. They are not habits or infrastructure or norms. They are institutions and they make decisions affecting all other institutions, infrastructure, norms and even habits.

    It follows that if THOSE institutions are got right then THEY will decide correctly on the inferior ones. If they are right then no one will appropriate anything. They will ensure benefits are spread more or less equally and no one will be much concerned for who gets credit and reaps the reward. If corporations are over-rewarding their managers then a well structured government would hasten to change the law. If the PNG government was properly structured it would maintain that highlands road but it isn’t and it doesn’t.

    What makes me think of this is Julia’s post about the Nauruan argy-bargy. If they had their parliamentary institution set up right they wouldn’t be in their present fix (mendicant with no prospects). Institutions have to be got right but you must get ’em right at the top because if you don’t get the top ones right then the lower level institutions will never be right.

  5. Laws and norms, too. Are they “institutions”?

    In short, yes. “Good habits” as well, if they are socially conditioned, reinforced and an anticipated part of social interaction rather than being mere character. The nomenclature here can be very confusing. I first came to the modern, Wahington Consensus saving style literature after being familiar with the meaning of institutions as used in older institutionalist literature (say, Clarence Ayres for instance – though I haven’t read much of him directly) or in evolutionary game theory. It took me a while to realise just how astonishingly narrow the new literature’s conception was, given they had appropriated the vocab used.

    A vocab which could be much improved actually.

    Institutions are culture, but not as we used the term generally. It’s culture in the sense that it’s not genetic or inate but situational behaiviour, even though it may be internalised into self expectation. A migrant to Australia can retain their “culture” but will generally adapt their behaviour.

    Say there’s a country (and there are several real life examples of this) with no punctuality. This is bad for business, but it’s also a self perpetuating thing even if everyone in the country bemoans it. They’re not embracing it as their “culture” in the normal sense, it’s just a bad game they’re stuck in. I expect you to be late, so I’m late. You’re late because you expect me to be late. If a German who is used to punctuality moves to the country, the adapt because it’s how you have to operate unless you want to wait around all the time. Everyone does it even though the situation is suboptimal and lateness is institutionalised, even though it can mutate and change, and mobile phones for instance add new etiquette. Likewise, when punctuality is in a country, people are mainly doing it because everyone is punctual because everyone else is punctual. This is also an institution in the nomenclature I’m using.

    That’s a simple example and doesn’t go into the other enforcement mechanisms besides simple prisoner’s dillemma type games.

    The formal institutions which you (quite naturally given the normal usage of the word) are thinking of cannot be easily seperated from the less formal institutions, social norms etc. in the general society. They are reliant on them and built on them. Rather powerless if not supported by them, and they adapt and change in their actual operation as a result, although the influence can run both ways. I am visualiing a causality that is mostly opposite to the direction you are proposing, yours seems quite similar to the position say, Fukuyama. In all my understanding of history, the state and other formal institutions are shaped far more by the non formal ones than the converse.

    The fact that the one’s we have are great for economic growth is more or less accidental, except in an evolutionary sense. They weren’t designed for the purpose. Compared to most societies over history, countries that have industrialised in the past 200 years did “get them right”, but only by accident.

    Alex – I’m not sure what you mean about gravitating wealth to an average. Is this just reducing

  6. “The formal institutions which you (quite naturally given the normal usage of the word) are thinking of cannot be easily seperated from the less formal institutions, social norms etc. in the general society…”

    Why not? Formal structures like parliaments and departments seem totally distinct from habits and conventional practices. The formality alone separates them.

    “…They are reliant on them and built on them. Rather powerless if not supported by them”

    Sounds like a truism but is it so? What would convince you otherwise?

    All over the world there are democratic parliaments and governments; the basic design is everywhere the same. Irrespective of the traditions, habits, norms, one size fits all. Twenty years ago we used to hear how Asians weren’t suited to democracy. You don’t hear it now. Not long ago a Brazilian was telling me how South Americans aren’t able to be democratic. Heaven help them if he, and you, are right.

    Fortunately all evidence is the other way and at a finer level too, not just at the rather sweeping “democracy” but at the finer design of democratic institutions. For example where there is just one house of parliament (not two as in Australia) its members must be elected by (the formal institution of) proportional representation. Otherwise the polity will not function and this holds whether it is Northern Ireland or Papua New Guinea. It seems your lower level “institutions” are irrelevant.

  7. Great comment Mike (#5). I can see Richard’s point at #6, but I think the utility of the word “institution” is severely reduced if we employ it to include habits and social norms as well as what we would normally classify as institutions. The fact that the way institutions actually function is heavily influenced by the social norms, habits etc of members of that institution and the broader community doesn’t lead to the proposition that we should just collapse the distinction.

    Nevertheless, institutional design and culture/habit manifestly interact in complex and changing ways, and it usually won’t be enough to alter institutional design without paying attention to the culture and habits that make the institution work the way it does. That may involve some social engineering as well as institutional design.

    For example, the Nauru parliament situation you mentioned is quite a good example. The institutional design features of Nauru’s parliament are almost identical to Australia’s in the relevant sense (deadlock). Nauru’s current deadlock results from a parliament with an equal number of seats and a speaker who has only a casting vote in the event of deadlock but no ordinary deliberative vote. Australia’s parliament has exactly the same features. One relevant distinction is that Nauru’s parliament has only 18 seats whereas our H of R has 150, thus it’s statistically less likely that we’ll end up in a situation of insoluble deadlock because there are many more combinations and permutations that may change and resolve a looming deadlock. However there is also, I would argue, an evolved cultural willingness in Australian political institutions to negotiate and compromise in a relatively good faith manner (while posturing about the bastardry of one’s opponents) which seems entirely absent in Nauru. The account in Julia’s post also suggests that the level of treachery and deal-breaking in Nauru is much more extreme than (say) Abbott’s reneging on the “paired speakers” agreement.

  8. Does the institution create the culture or does the culture create the institution? Of course in general it will be both.

    But the local culture did not create the structure of the Nauru govt. That was created in Westminster or Canberra.

    Nauru’s problems might be attributed to its culture of pig-headedness or lack of punctuality or heaven knows what. Or that it is 10000 people and is a parochial back-biting small-town environment. Or just that it is stony broke. Or it might be bad luck in having a particularly gross bunch of pollies right now. (But I reject as explanation that they have a nastier political culture than we do.)

    What can be done about those things? Nothing. That’s the serious thing. If once I say, regarding a country’s troubles, “Oh it’s their culture,” all is lost. Since there is nothing to be done, what is the use of talking about it (as everyone does)? I can see only one use: to shore up a self-serving complacency. It isn’t my fault that they are in a pickle and there is nothing I can do about it. It’s just too bad. (Mind you, we could help them out by running seminars on how to govern nicely which will entail flying pollies and administrators to Australia and flying our academics and bureaucrats to these tropical islands.)

    You can’t do anything about the alleged culture but something can be done about institutions. (Mark the distinction!) An institution made in Westminster can be remade. In their particular instance they have a unicameral parliament and effectively single-member electorates. That works nowhere. Why would it work in Nauru? Sure the level of treachery is high but what else would you expect? Fixing the institution wouldn’t guarantee a cure – their ghastly culture will still be there and maybe too much damage has been done and the place may just have to be abandoned – but not fixing it guarantees chaos.

  9. I think Mike is closest to the mark on Nauru. Nauru’s key problem is that it has institutions, but that a Parliament is not really one of them – they just go through the motions of a Parliament.

    They don’t really have traditional institutions either since these have been so diluted, first by alcohol, then by disease and latterly by wealth and the phosphate companies.

  10. Mike – Our disagreements are coming down mainly to flawed nomenclature. If there was a better word than “institution”, as far as the wider public understands the word, I’d use it. Unfortunately, “institution” is the word used by several decades of institutionalist literature (Veblen coined it I believe). To invent a new word would make me as incomprehensible to instutionalists as to you.

    I kept putting “culture” in inverted commas because its equally flawed. It’s “Culture” because it’s not genetic, but it’s not philosophy or world view or anything that we consider “CULTURE”. Afterall, I actually devoted part of my honours thesis to talking about how absurd the notions that Asians (and muslims) were unsuited for economic growth was (and is) – my same logic goes for democracy.

    My problem in giving you a decent definition is that, like many fields, there can be a huge body a work that uses terms in an established meaning so that everyone in the field knows what is being talked about, but it’s usually a undergraduate tutor many years later than provides a money quote that defines it in a paragraph. This hasn’t happened yet.

    This is wikipedia on New Institutionalism, but comptemporary new institutionalists are those I am reacting against. My own definition can be much more clearly explained in game theoretic terms (in this kind of tradition), but that’s unlikely to enlighten. Nonetheless, maybe “game” is still a better word than institution.

    Maybe “dance” would be better. It’s still about expectations of the other dancers actions and the expectations they will have of your own actions based on your expectations of them and each of your prior experiences. You can be two great dancers wanting to tango, but you’ll receive a sub optimal outcome if the dance expected from the other by each of you is a club footed affair so you spend your time guarding your own feet. You can fix this with rigid formal rules, but you can have a fine dance with informal rules if the you’re lucky enough to have good expectations of each other based on prior and continuing experience.

    I’ll see if I can find a good 1-2 paragraph definition without using game theory.

  11. “You can fix this with rigid formal rules, but you can have a fine dance with informal rules if the you’re lucky enough to have good expectations of each other based on prior and continuing experience.”

    I heartily agree. Maintain that road in the PNG highlands and keep it up year in year out. This will supply a crucial component in encouraging good expectations. People will rely on it. The economy will blossom. No rules are required, rigid, formal, or otherwise.

    If you don’t get the top institutions right you won’t get that road maintained and you won’t get the build-up of confidence that leads to good expectations. It’s not a matter of luck. Get the governing institutions right and eventually confidence and positive expectations will flourish. Or at least they MIGHT flourish. Get them wrong and they’ll NEVER flourish. If the parliament is a private Milchkuh for politicians then the country will be a shambles. That is the result of having an unviable political structure in PNG. Where was I reading that in PNG they no longer have the ability to conduct air crash investigations? That country has gone downhill ever since independence in 1975 ? for one single, clear reason. It’s a tragedy.

    In Nauru having the same unviable parliamentary structure sent a fabulously wealthy country broke. The present stymied parliament is frippery by comparison. In Northern Ireland the same unviable unicameral parliament led to civil war. There the introduction of proportional representation has solved the problem (fingers crossed, third time lucky).

    Richard, for me you’re a bit too abstract. You give an example which is an analogy about dance but it’s not feet-on-the-ground. What about roads and women who can’t get to market?

  12. I said earlier that Mike was on track with respect to Nauru. I think I misread his comments.

    I don’t think Nauru’s going broke was anything to do with their parliamentary structure. I think it was more to do with insufficiently sophisticated investment management. I don’t think there was the capacity anywhere on the island to manage such wealth appropriately – ultimately it was exceedingly irresponsible of the Aus/NZ governments to allow them to become independent in the manner in which they did and to transfer so much money to them in the same manner.

    The closest-to-home comparison is probably Aborigine communities here in Australia!

  13. So, Patrick, blame the culture.

    Look, of course they were unsophisticated investors. If you have an unviable govt structure they are bound to be incompetent investors.

    If a man has a heart attack is it because he climbed the stairs? Or is it because he lives off junk food?

  14. Mike – This also gets at why I find it difficult to distinguish between formal and informal institutions. [I have some other issues with Rodrik though, he's not very far from the people he is critiquing here].The institution, or dance here is the road rules. Well followed but informal norms in Hanoi. Formal rules that at odds with the informal norms, and you can add Australia which has formal rules that fairly strongly align with informal norms (afterall, mostpeople still follow the rules even when there’s no cops around). The formal rules have had mutual influence on the informal rules here, but if they were at odds, getting the formal rules “right” won’t help by itself.

    Nonetheless, yes, things are frustratingly vague, but as I see it, there are three options.

    a) Ignore the institutions/dances. Useless

    b) Accept a very limited definition of institutions – This helps clarity and helps progress in a limited field, but it means we will only be seeking enlightenment under the lamp post.

    c) Keep hamering away at the vagueness and hope we get somewhere.

  15. The traffic flow in Hanoi and in St Petersburg? This affects their economies?

    Both these places are dictatorships. Their economies are dependent on the whims of the ruling clique ? the top institutions. Hugely dependent. Forget traffic flow; the salient informal institution is bribery. The way to improve those economies is to radically change the top formal institutions.

    Does the alignment of our formal and informal road rules have nothing to do with the fact that our top institutions are democratic? Are there democracies where the formal and informal rules do not line up?

    Yes, look under the lamp-post if the alternative is to stumble about in the dark.

  16. Mike, they were never going to be ok on their own. If a teenager dies of overconsumption because I pluck him out at random and give him $100m, wtf would you think of me?

    I’m not trying to denigrate institutions, I think they are absolutely vital. But they aren’t the be-all and end-all and in fact they aren’t much more than a pimple on a bull’s arse if there is not the plain old-fashioned capacity underlying them. Nauru demonstrates this, if you like, and it is hardly the only place in the world that does.

  17. Institutions “aren’t the be-all and end-all and in fact they aren’t much more than a pimple on a bull’s arse if there is not the plain old-fashioned capacity underlying them.”

    Nope. That’s just prejudice. I’ll give you maximum chance to prove offer some actual evidence.

    I already said, and I think it probably true, that having the right governing institutions is not the be-all and end-all. However, for the sake of clarity I will revise this to the following: A proper top institutional set-up is the be-all and end-all; it alone is a guarantee and nothing else counts at all.

    Now if my extreme view is wrong and you are right then there should be cases which DO have a proper institutional set up but which failed because of lack of “old-fashioned capacity.” Do you have any examples?

    On the other hand, if I am right then there will be cases that DO have your old-fashioned underlying capacity but not the proper institutions and which failed. Okay? I submit Northern Ireland. I have more cases but that will do. It is a nice case because fixing the institution fixed the problem.

    Moreover, if I am right then there must be NO case where the top institutions are not proper yet the polity functions well. Got any examples?

  18. Patrick, I take it that you can’t come up with any supporting example.

    Your confident opinion that Nauru’s problems lie with its culture put you in the best company. The Australian academic-bureaucratic Pacific politics industry fully agrees with you and they are prospering. They dismiss as irrelevant the fact that no country has ever succeeded with a non-PR unicameral parliament. No, they say, that is not the reason PNG, Vanuatu, Solomon Islands, Nauru (and Tonga maybe) are basket cases. The real reason is their culture. Education is the key and what we need to do is send out some fact-finding missions and invite groups of their politicians to Canberra for seminars on how to govern properly. And they are just as evidence-free as you are.

    Does every country with the right set-up succeed? Is there no counter-example? Perhaps Greece. Greece is immensely better off than before it went democratic in 1975 but it is not well governed. The case is instructive. The unicameral PR there is said to be “reinforced” by which is meant the system has modifications to strengthen the two major parties. And that is exactly the institutional problem. With a single chamber you need that proportional representation. Lijphart’s (Patterns of Democracy, 1999) index of disproportionality has Greece at 8.08. The rest of PR Europe varies from 1.3 to 4.9 except for Spain which is 8.15.

    It’s not hard to divine why PR saves the day. In Greece the two entrenched major parties vie with each other at pork-barrelling (which is a sort of way of seeing PNG, index 10.06) and they have steadily undermined the economy. PR inhibits this since a party that cannot govern alone cannot make, or effect, such election promises.

    We had a tiny taste of it in Australia when the Lib-Nat coalition got a majority in the Senate in 2004. Our bicameralism partly broke down and many observers think it was an overweening attempt to exploit this that cost the government office in 2007. It wasn’t culture, it was simply that the institution could no longer constructively inhibit ordinary political tendencies.

    Just as it can’t inhibit them in PNG, Vanuatu, the Solomon Islands and Nauru. You have to wonder what the model was for the colonial powers who set up this system a generation ago. Plenty of colonies had gone independent but never before with that structure. What was suddenly wrong with the Australian, Canadian and Indian independence models? The only countries with that structure were Northern Ireland and New Zealand, both of which were in a mess. What were they thinking of? It was an invitation to certain disaster as subsequent events have proved (though I suspect in PNG we haven’t seen anything yet). Meanwhile NI and NZ have both gone over to PR and are recovering.

    Those unfortunate Pacific countries need to go to PR or go bicameral. This is not going to happen and things will get worse. The Australasian Axis of Solicitous Paternalism will get ever bigger and write more papers and have more portentous conferences about “governance” and the “Pacific arc of instability.” At morning tea everyone will discuss the cultural problems such as ethnic tension or fishing practices or crime or lack of technical expertise or deforestation or the Chinese immigrants or… anything but the real problem: the design of the governing institution.

  19. Hmm,

    I’ve only just got a chance to read this. Richard, my own stuff about public goods is supposed to address some of the things you’re talking about. And Hegel had a MUCH better conceptual apparatus for thinking about the kinds of things that are flying around in this post.

    There’s obviously something in the observation of Hall and Jones but it’s so obviously so far from the whole story that it’s not funny. And in so far as it is important, it’s pretty much in people like North way before 1999 isn’t it? (Or Adam Smith for that matter).

    In the meantime, the public goods of our institutions give the private goods a context, definition and make them functional where they might otherwise be deeply dysfunctional. (Why is ‘dysfunctional spelled with a ‘y’ as the second letter I wonder?)

    What Hegel’s probing account means to show is that the defender of holier-than-thou virtue and the self-interested Wall Street banker are making the same error from opposing points of view. Each supposes he has a true understanding of what naturally moves individuals to action. The knight of virtue thinks we are intrinsically good and that acting in the nasty, individualist, market world requires the sacrifice of natural goodness; the banker believes that only raw self-interest, the profit motive, ever leads to successful actions.

    Both are wrong because, finally, it is not motives but actions that matter, and how those actions hang together to make a practical world. What makes the propounding of virtue illusory — just so much rhetoric — is that there is no world, no interlocking set of practices into which its actions could fit and have traction: propounding peace and love without practical or institutional engagement is delusion, not virtue. Conversely, what makes self-interested individuality effective is not its self-interested motives, but that there is an elaborate system of practices that supports, empowers, and gives enduring significance to the banker’s actions. Actions only succeed as parts of practices that can reproduce themselves over time. To will an action is to will a practical world in which actions of that kind can be satisfied — no corresponding world, no satisfaction. Hence the banker must have a world-interest as the counterpart to his self-interest or his actions would become as illusory as those of the knight of virtue. What bankers do, Hegel is urging, is satisfy a function within a complex system that gives their actions functional significance.

  20. “…propounding peace and love without practical or institutional engagement is delusion, not virtue. Conversely, what makes self-interested individuality effective…”

    Hmm…

    Who are you quoting, Nicholas?

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