Beyond Continuity: Institutional Change in Advanced Political Economies

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Another important method of institutionalist theorizing is the identification of types by virtue of which institutional arrangements a state or a firm , periods e. Classical Antiquity or Feudalism or geographically specific forms of organization e. German or Japanese Capitalism can be categorized in a way that conveys meaning and information Hodgson , 2.

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Examples of such types are the stages of developments of states e. It is important to notice in this context that categories will always be impure and fuzzy. Furthermore, while the categories or types are attempts at distillations of some essential properties of the analyzed phenomena, they do so at the epistemological level, which faces the problem of being fallible. Also, changes on the ontological level might make old typologies obsolete cf. Sayer , — On the other hand, the ongoing development of theories of these different types makes it possible to engage in theory building regarding possible transitions from one dominant type to another in a historically and spatially confined setting.

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Regarding the testing of theories and concepts for their validity, a unique epistemologically justified scientific method is rejected in favour of a pragmatic approach, which generally asks which insights are provided for a particular political response to a socially relevant problem.

Henceforth, as already noted in the previous section, a kind of what-works-best methodology is chosen that links science to practice. Although — as noted above — institutionalists require the knowledge they produce to be socially useful, it is difficult to identify a specific policy agenda. This does not mean that they are not political: Historically speaking, scholars affiliated with the institutionalist schools have been overtly normative and policy-oriented.

Whereas some US Institutionalists have been very active in the New Deal period Elsner et al , ; Elsner , some members of the German Historical School produced elaborate plans for the national development of Germany. Some German historicists such as Friedrich List and Bruno Hildebrand, who apart from their scientific work, served in political office Rieter , — Specific policy positions have varied widely, but some general traits are identifiable: Most scholars take a skeptical position towards the development of capitalist economies and advocate social and political intervention in the economy Milonakis and Fine , 75—78, , ; Elsner Interventions have often been advocated with reference to the nation state Milonakis and Fine , 75 , even though approaches advocating the mobilisation of social groups or classes also exist.

Viewing social and institutional change as slow and often also path-dependent — meaning that initial conditions which often might be random will define trajectories that are non-reversible — as well as the economic system as fundamentally embodied within broader social structures, revolutionary change seems to be an unlikely and risky option. Dugger, H. Sherman or P. Beyond these general orientations, more concrete proposals vary even further given that institutionalists attempt to formulate policy in accordance with the concrete situation and context rather than based on abstract principles.

In the following, some exemplary research themes are presented regarding both the historical antecedents as well as more recent investigations. Other research themes that cannot be explored here for reasons of space include the dominance of ceremonial institutions and related economic and social instability; uneven distribution; crises and injustice in race, ethnicity and gender; the theory of the firm; innovation and technological change; or economic democracy.

One research theme that is closely related to the work of Karl Polanyi is the question of embeddedness. According to this concept, economic activities and the market are embedded into a larger set of social arrangements and institutions such as culture, customs, law or the state. If policymakers, however, decide to apply the market logic of monetary gain and commodification to society as a whole this will have disastrous consequences Polanyi More recently the concept of embeddedness has been taken up by the economic sociologist Mark Granovetter , who stresses the importance of social networks regarding economic decision making.

Garcia-Parpet Rogers Hollingsworth and Robert Boyer Hollingsworth and Boyer, , elaborates on the critique of the market as the default economic institution by arguing that there is no single best institutional arrangement for organizing modern societies, and that markets should not regarded as the ideal and universal arrangement for coordinating economic activity. The authors of that volume find that the successful capitalist experiences have been those in which markets have been embedded in social institutions such as networks.

Historically the relation between law formal institutions and economics has received special emphasis in this context e. Today, work on property rights in general and intellectual property rights in particular continues this train of thought Elsner et al , ; Hodgson , —; Elsner Scholars associated with the OIE perspective also have ties with ecological economics and have integrated work on institutions with issues related to environmental degradation; the works of Nicolas Georgescu-Roegen and Karl W.


Kapp are examples of this integration. Kapp focused on the issue of the limited liability of corporations, which would allow them to enjoy the profits of their undertakings while shifting the costs to other systems. Whereas scholars of the German Historical School were concerned with different stages of economies, which often would develop historically from less advanced to more complex arrangements, more recent literature has focused on different economic configurations from a more descriptive and less teleological standpoint.

Japan, Germany. Each of these ideal types is characterized by a specific institutional setup regarding, for example, labour regulations, education and vocational training and the relations between government, trade unions and industry. Schmidt introduced a third variety of typology of capitalism, the State-Influenced Market Economies SMEs , whose paradigmatic example is the french variety of capitalism.

The French Regulation School, a variant of institutionalism stemming from Marxism, has always delved deeper into such different institutional constellations making up varieties of capitalism. Another classification that has a similar analytical focus, which also stresses cultural aspects is the further differentiation into Anglo-Saxon, Continental and Asian economies Kesting and Nielsen ; Groenewegen et al , 88— Another major theme of OIE is the role of big corporations. The concern with giant corporations arose from the reality that institutionalists found themselves in during the Gilded Age.

Berle were the leading figures of the empirical analysis of the new corporate realities and their micro- and macro-consequences from the s through the s. The leading figure of analyzing such planned capitalism was John K. Galbraith with his books, among them the New Industrial State. Gregory Hayden. In the following decades the relevance of big corporations seemed to fade as small enterprises gained importance and flexible and entrepreneurial firms were celebrated, while giant bureaucratic corporations were considered to become obsolete Amin , 85— Yet this assessment turned out to be premature.

A corollary to this is corporate hegemony theory as developed by William Dugger. This theory argues that a powerful corporate sector will thwart the pluralism of beliefs and a variety of social institutions such as the school, the family or religious associations. If the beliefs, the practices and the necessities of the corporate sector are emulated by other institutions and hence crowd out competing beliefs and practices, this leads to a hegemonic social structure Dugger , 91— Encapsulation, as mentioned, refers to the process, by which an institution that was initially created to help in the solution of a problem e.

Elsner et al. An important theme that has been tackled by scholars of Original Institutional Economics is the importance of industrial policy and the Developmental State as powerful institutions to support economic change. In the same direction, another important conclusion is that, contrary to the mainstream view, who sees those successful experiences as irreplicable due to the vested interests of local political elites, pro-growth institutions can be molded if, in a certain critical juncture, those political elites show the necessary political will to do it Chang and Evans, When that will exists - for instance as was the case of South Korea - a big variety of possible combinations of developmental institutions can be crafted.

In that vein, Evans makes the case for looking beyond the "institutional monocropping" that is so dominant in mainstream reasoning. First of all, the relation of the institutional OIE approach outlined here with New Institutional Economics shall be explored. The main separation of this approach is ontological as it starts from the presumption that individuals with their predefined preference sets build institutions in order to reduce transaction costs or commitment problems cf.

North , 27— This does not have to result in socially efficient institutions, since certain individuals in prominent positions such as rulers might have incentives to create inefficient ceremonially dominated institutions from which they derive extra rents.

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In summary, though sometimes modifications in the direction of greater influence of culture or beliefs are made, by choosing to start and abstract from the individual, NIE might more aptly be grouped within neoclassical economics, since one of the central tenets of neoclassical economics is methodological individualism and static marginalistic calculus cf. Arnsperger and Varoufakis , 7. Another related yet separate field is cultural economics; this has close proximity to cultural studies and the humanities.

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Instead of understanding institutions broadly, cultural economics zooms in on cultural phenomena, while — at least relatively — neglecting the independent effects or even existence of material factors. Scholars working in this tradition either focus on linguistic or other forms of representation e.

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Whereas, empirically many overlaps persist with institutionalist economists, larger differences persist in relation to epistemology and methodology. Cultural economists question and scrutinize the participant-observer link more radically, tend towards strong notions of constructivism and highlight the role of interpretation and subjectivity in empirical research. This means that they are more clearly rooted methodologically in an interpretative or hermeneutical framework.

Reinhold Hedtke identifies this field as being defined by a focus on the embeddedness of the economy in other systems, the existence of historicity or historical specificity, the multidimensional motivations of economic actors i. Cox for example.

While some Institutionalists have emphasized the role of conflict and dominance in the economic sphere, where institutions such as laws, values and traditions are created to formalize power imbalances and hierarchies Reuter , , scholars from political science have taken this as their main or sole entry point to inquiry. The treatment of institutions and culture is of course also an issue in sociology and a clear-cut disciplinary boundary between institutional economics and economic sociology is often difficult to draw cf.

Kapp , , who denies that a separation between the economic and the social is even possible, as the economy is the prototype of an open, metabolic sub- system, increasing its complexity at the expenses of the social and the natural sub-systems. The study on routines and habits has close ties also to psychology. When assessing formal institutions such as property rights, transactions and regulations, there is of course a close proximity to legal studies in the tradition of J. Commons, as mentioned. Lastly, it should be emphasized that Institutional Economics in general shares a common history and many concepts with Evolutionary Economics.

American Institutionalism had its starting point, as mentioned, exactly in the very evolutionary idea Veblen Modern evolutionary economics has put more emphasis on biological and complex physical non-mechanical metaphors and systems and populations. This is subject to another perspective site link. Also, more recent work in Complexity Economics link perspective site often builds on analyses of institutionalists and adds new concepts and methods to earlier scholarship e.

As already noted in the discussions on ontology and on the differences of Institutionalism OIE and NIE, one of the key differences of OIE is the focus on institutions as things that have an ontological existence independent of individuals and hence can be conceived as actors with their own powers.

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As such they do shape interdependently with individuals the ways in which economic activity is organized. This stands in strong opposition to the methodological individualism of much of mainstream economics. Another difference that is situated on the level of ontology is the emphasis on dynamics, evolution, history and the social and ecological spheres, each of which is essential to institutional analysis.