Institutional theory in political science
Institutions have been referred to as "the roots of political science” (Peters, 2012, p. 1). Old institutionalism was based on two theoretical foundations: behaviouralism and rational choice. Both imply that individuals make their decisions autonomously, regardless of formal and informal institutional intervention. However, formal rules and regulations are necessary to control human behaviour and are integral to institutional governance and the wider effects of institutions on societies (Peters, 2012). March and Olsen (1984) argue that new institutionalism emphasises the relative autonomy ofpolitical institutions, the possibilities for inefficiency in history, and the importance of symbolic action to an understanding of politics. Nevertheless, Immergut (1998) observes that suggestions of a new institutionalism are met with substantial scepticism by some scholars given that institutions “have been a focus of political science since its inception ... and, hence, plans to ‘bring it back in’ do not seem especially innovative” (Immergut, 1998, p. 5).
Further confusion has arisen because the new institutionalists do not propose one generally accepted definition of an institution, nor do they appear to share a common research program or methodology. In fact, three separate branches of scholarship - rational choice, organization theory, and historical institutionalism - all lay claim to the label, seemingly without adhering to an overarching theoretical framework.
(Immergut, 1998, p. 5)
Nevertheless, the different varieties of new institutionalists are all "concerned with the difficulties of ascertaining what human actors want when the preferences expressed in politics are so radically affected by the institutional contexts in which these preferences are voiced” (Immergut, 1998, p. 25) and they therefore provide valuable insights into the development ofinstitutions and the state. Table 2.2 summarises some of the key perspectives in the shift from old to new institutionalism in political science.
One key perspective of old and new institutionalism is legalism. Pioneering studies (e.g. Damaska, 1986; Wilson, 1898) are solely concerned with formal institutions, laws, and regulations and their influence on the governance process of creating a state (Peters, 2012). The law serves as a foundation for analysing political knowledge. However, new institutionalists argue that this school of thought only provides the starting point for future analyses, because the law is a human creation and an evolutionary process (Evans et al., 1985). People make their choices based on
Table 2.2 A summary of old and new institutionalism in political science
Source: After Peters 2001, 2012.
Disciplinary foundations 19 institutional availability that emerges over time. Thus, while formal institutions are important, their use is not limited to formal settings, as they surround people and various actors contribute to their development.
Another perspective is structuralism. Old institutionalism contends that political structure shapes the behaviour of various actors, and that individuals within the government have no effect on its structure (Wilson, 1898). In old institutionalism, the focus is on the description of major institutional features that are usually used in formal settings (Peters, 2012). By contrast, the new school of thought critiques this, suggesting that such an extreme type of formalisation ignores important informal institutions and makes the study of political science too ethnocentric (Macridis, 1968). Instead of focusing simply on features of the political environment, their functionality and stability become the focus for examining institutional environments (Levitsky & Murillo, 2009; Peters, 2012). However, without knowing what the features of a political enviromnent are, it is problematic to examine their functionality and stability. To gain a complete understanding of institutional development, identifying the features and their functionality within the institutional environment is equally important.
Holism is another perspective used to understand the development of institutions. Old institutionalism studies are predominantly comparative in nature, and compare aspects of the legal system to attain the whole picture. Conversely, new institutionalism focuses on individual legislation or constituents of institutions and how they fit into the entire political system. The pioneering studies are descriptive as opposed to comparative, as the countries are considered sui generis. This does not leave much room for generalisation, which new institutionalists argue is vital if the intention is to comprehend the entire political system (Dogan & Pelassy, 1990). Although countries may have distinctive features, they may also share common elements that can help create more efficient political mechanisms.
Another critical aspect of old institutionalism is its reliance on rational choice, thus divorcing political roots from their cultural and socio-economic environment, which new institutionalists challenge (Kitschelt, 2000; Peters, 2012). The link between political and social institutions is evident, and enables the study of how organisations make choices (Kitschelt, 2000). This link also allows for greater exploration of the interactions between formal and informal institutions.
A historical perspective has been important to the development of institutional theory in political science (Peters, 2012), with history being fundamental to studying the development of formal institutions, such as the state and its functions. Similarly, institutional theory has a pronounced historical foundation - political systems are influenced by history, and this is arguably the most shared view between old and new institutionalists. However,
rational choice assumptions are also influential in new institutionalism, suggesting that individuals’ calculated behaviour is the dominant predictor of their actions, as opposed to the foundations of history. Moreover, new institutionalism views the interaction between political and socio-economic environments as moving from society to politics. The old view is that this interaction can go both ways (Peters, 2012).
Normative analysis is the final perspective illustrated in Table 2.2. Old institutionalism suggests that political science emerged from normative roots, and facts and social norms were seen as a single unit of analysis that helped investigate the government and its progress based on factual data (Dewey, 1938). New institutionalism challenges this assumption by proposing that facts and norms should be viewed as separate units of analysis to better understand the functions of the government. Both views have biases, although new institutionalism uses different and more complex language to obscure them. While the normative aspect is important, new institutionalism advocates for collective action and the importance of institutions and organisations in unfolding the puzzling notion of political life. Thus, there is a need for flexibility in the analyses and methodologies of political science (Peters, 2012).
Old and new institutionalism both offer valuable insights for examining institutional environments within and between states. While old institutionalism focuses on concrete laws and regulations that determine a state’s institutional infrastructure, new institutionalism introduces the importance of people in examining institutional environments. Because governments comprise a group of people who govern the state, their part in creating and enforcing formal institutions is crucial; informal institutions are created and enforced as a result of different actors' political and social interactions.
In political science, legitimacy is viewed as a “moralization of political authority” (Crook, 1987, p. 553), which means that the existing rales have a moral connotation, and compliance with these rales is based on the public perception of what is right and wrong (Beetham, 1993). The public builds its perception on the ability of the political system and the government to engrain into society the belief that existing institutions are appropriate (Lipset, 1959). The government’s ability to persuade the public is driven by the effectiveness of policy development and performance (McDonough et al., 1986). The judgement of policy development and performance is based on whether the government acts in the public's best interest. The challenge the government faces is to ensure that policies target a wider range of groups with different perceptions and legitimacy judgements. This is important for the government and the state to gain and maintain political legitimacy.
The focus in political science is on legitimacy at the macro level, particularly the political legitimacy of the state and government (Allee &
Disciplinary foundations 21 Huth, 2006; Crook. 1987; McDonough et al., 1986). The state's political legitimacy is built on the historical development of the governance system (McDonough et al., 1986). For example, the changes in the governance system in Africa from colonial administration to parliamentary government in 1951 divided the perception of the legitimacy of that country. The groups that pushed for preserving existing laws and regulations challenged the legitimacy of the new legal system, while other groups of society supported the more liberal approach. As a result, Africa’s legitimacy grew stronger, because the groups that favoured a more liberal approach expected that the new policies would offer the public economic and societal benefits (Crook, 1987). Changes to a political system can thus affect a state’s political stability by enhancing or weakening its legitimacy (Gilley, 2006). Politically unstable states are more likely to experience weakening legitimacy because of negative public perception (Gilley, 2006). The government can influence society’s perception by manipulating the necessary policies and institutions to create a more positive image of their implementation (Barnett, 1990; Mulaj, 2011).
The state’s legitimacy can also change, and consequently affect governmental legitimacy (McDonough et al., 1986). Government legitimacy is judged by the effectiveness of policy development and enforcement and its outcomes for society (O’Kane, 1993). Beetham (1991) states that the quality of subordinates' performances determines a government’s effectiveness. The government can achieve the same outcomes for society by engaging in military actions and/or sanctions, which can also affect its effectiveness (O’Kane, 1993). Simply obeying government requirements because it is considered a more powerful actor within a state’s political system does not strengthen government legitimacy (Gilley, 2006). When enforcing policies, the government must decide which actors those policies should most affect (Beetham, 1991). Some actors may view the government as legitimate because they favour a policy that works to their advantage, but if the political system negatively affects the state's economic development, those actors can, in turn, view the state negatively (Gilley, 2006; O’Kane, 1993).
Political science scholars often view the government as holding legitimation power over decision-making and policymaking (Beetham, 1991; Crook, 1987). This is true to a degree, although to achieve legitimacy, the government has to establish relationships with the public, because the public evaluates and judges the government’s actions (McDonough et al., 1986). This evaluation and judgement are often driven by the information available to the public, although information availability can also be tailored by the media to suit the desired outcome. Furthermore, the relationship between the public and the government can be influenced by the development of the state, which significantly affects public perception (McDonough et al., 1986). Forexample, during the Soviet era, Stalin and Lenin were strong leaders whom many Russian people respected and idolised. They served as legitimacy symbols for Russia and built its political legitimacy by creating a personal legitimacy in which people believed for decades (Gilison, 1967). This illustrates that the government has the power to not only establish the state’s political legitimacy, but to ensure that its ideology is carried through history.
Legitimacy in political science literature is often associated with power and authority (Beetham, 1993; Crook, 1987; Smith, 1951; Mulaj, 2011). Smith (1951, p. 693) explains power as “the capacity to effect results”. The government is seen as a powerful actor with the capacity and authority to influence results by developing and manipulating appropriate policies, which helps shape public perception (McDonough et al., 1986). Power should be exercised according to existing rales, and political authority can enhance the government’s political power if used rightfully (Beetham, 1991). However, if the government engages in illegitimate behaviour, breaching the rales, the consequences can destroy the political system's order in a state through crisis or riots (Beetham, 1991). O’Kane (1993) argues that the political power of the government alone is not enough to examine legitimacy. A government’s experience and past performance can contribute to explaining its behaviour, and this includes its capacity to build and sustain appropriate institutions (Evans, 1995).
The state’s political legitimacy can be sustained by the appropriate institutions, despite changes in the government. In theory, the government holds legitimating power by making sure that the institutions it creates are adequate for public wellbeing (O’Kane, 1993). In practice, institutions can also influence the government’s legitimation power (Mulaj, 2011). Traditionally, political scientists considered institutions to be very formal structural entities (Macridis, 1968). This assumption was applicable to Western countries because of differences with, or lack of constitutional structures in, less developed countries. The development of post-communist formal institutions in countries, such as China and Russia, illustrates the weight informal institutions had on the transformation of formal institutions (Grzymala-Busse, 2010). Although the government creates formal institutions, it does not hold the absolute power to sustain appropriate institutions because of the emergence of different actors, including organisations and non-govern-ment organisations that challenge existing institutional beliefs (Macdonald, 2008; Peters, 2012). This is important, because political science examines the government’s wider role in the development of the institutional environment, but also acknowledges the involvement of other actors in this process (Macdonald, 2008; O'Kane, 1993).
Institutional interplay is defined as a collection of norms that shape patterns of behaviour (Fadda, 2012). Fadda (2012) distinguishes between
Disciplinary foundations 23 formal and informal rules, contending that both have similarly functioning structures. Informal rules are not codified, but they may have formal structures - for example, religion or the church. Helmke and Levitsky (2004) note that scholars often treat informal institutions and informal organisations as the same, although the authors distinguish between the two, defining the former as shared beliefs and the latter as including clans and illegal organisations, such as the mafia. Shared beliefs emerge as a result of the state’s institutional development (Cudworth et al., 2007; Kôllner, 2013). This does not imply that informal organisations and institutions collide (Grzymala-Busse, 2010; Peters, 2012). By contrast, informal institutions can be readily incorporated into informal organisations (Grzymala-Busse, 2010). This is evident when personal networks are used in mafia circles, enabling them to run their operations (Helmke & Levitsky, 2004). Informal institutions can also be incorporated into formal organisations (Evans et al., 1985). For example, organisations use personal relationships to overcome the bureaucracy of the institutional environment (Tsai, 2016). Formal and informal institutions are intertwined, and their interaction is a large part of organisations’ everyday behaviour.
Helmke and Levitsky (2004) provide a typology of informal institutions consisting of complementary, substitutive, accommodating, and competing categories. The first dimension of the typology is the effectiveness of formal institutions, which is measured by the extent to which written rales and procedures are enforced and obeyed in practice. The second dimension of the typology is the level of the outcome at which formal and informal institutions converge or diverge. That is, if actors follow informal rales, will the expected outcome be similar or different compared with if they obey formal rales? Since informal rales are unwritten (North, 1990), it is challenging to assess whether they have been followed. Formal rales are created by the government, and are easier to measure because they are written (Lauth, 2004). However, organisations can also influence policy creation (Lawton et al., 2013). Both institutions are an integral part of institutional environments, and their interplay is influenced by the effectiveness of their use by different actors, including governments and organisations (Lawton et al., 2013; Scholz & Wei, 1986).
For the interplay between formal and informal institutions to be complementary, both types of institution have to be effective (Figure 2.1). Fadda (2012) states that formal and informal rales can coincide; that is, there is no conflict that arises between them, and they co-evolve simultaneously. When the institutional environment is stable, institutions develop simultaneously and co-exist (Fadda, 2012; Helmke & Levitsky, 2004). Formal and informal institutions complement one another’s existence and functions. This implies that the mechanisms the government uses to create and enforce regulations
Figure 2.1 The interplay of formal and informal institutions. Source: After Fadda, 2012.
are well established and effective. As a result, regulations have a positive effect on MNEs’ development. Moreover, the relationship between the government and actors who are part of institutional environments is deployed to achieve a common goal and make the institutional environment more stable (Helmke & Levitsky, 2004; Kollner, 2013). Therefore, informal institutions can also be effective.
The accommodating type of interplay occurs when formal institutions are effective and informal institutions are ineffective. As with complementary interplay, the government plays an important role in creating and enforcing the rules and regulations. Informal institutions are usually established by actors who do not like the outcomes of formal rules and cannot openly change those rules (Helmke & Levitsky, 2004). These actors use personal and business connections to overcome stable formal institutions to achieve their goals; this suggests that they ignore existing rules and advance their interests by manipulating existing formal institutions. Although regulations exist and many MNEs follow them, they do not necessarily help MNEs reach their targets, which are often set by the home government or other key stakeholders. Informal institutions can be inefficient but can accommodate formal institutions and enable actors to reach their goals.
In the scenario where formal institutions prevail over informal, the latter can be modified (Fadda, 2012; Tsai, 2006). The stability of the institutional environment can influence the effectiveness of formal institutions by being more structured (Helmke & Levitsky, 2004). The prevalence of formal institutions is often associated with developed countries, such as the US, where the legal system is strong. Consequently, if different actors use
Disciplinary foundations 25 informal institutions ineffectively, they can be modified to accommodate the formal institutions (Azari & Smith, 2012; Tsai, 2016).
Another type of institutional interplay is substitutive, which implies that formal institutions are ineffective and informal ones are effective. When this type of interplay occurs, informal institutions prevail over formal ones (Fadda, 2012). Rules and regulations exist, but their enforcement is lacking, usually because the government does not have efficient mechanisms in place to achieve this (Helmke & Levitsky, 2004; Lauth, 2004). Therefore, different actors, including MNEs, employ informal institutions to substitute these missing formal mechanisms so they can achieve their goals (Grzymala-Busse, 2010). Governments also use informal institutions, particularly established relationships, to overcome poorly executed mechanisms (Evans, 1995), and they can deploy informal institutions to enhance the formal institutional environment.
When the institutional interplay is substitutive, informal institutions can be adaptive if they are used creatively to reform existing formal institutions (Tsai, 2006). If formal institutions remain ineffective following this reformation, political actors may turn to illegal actions to pursue their agenda (Tsai, 2016). This can directly affect existing formal institutions by undermining and/or replacing them (Grzymala-Busse, 2010). As a result, in such cases, the institutional environment can become unstable over time (Tsai, 2016).
Another type of interplay presented in the typology is conflicting: where formal and informal institutions are ineffective. Both types of institution exist, but key actors do not enforce and implement them systematically because there are no mechanisms in place (Helmke & Levitsky, 2004). These actors might follow one rule, but to do so, they break another (Helmke & Levitsky, 2004). The use of informal institutions is also ineffective because the interests of different actors, such as government and MNEs, conflict, which negatively affects their relationships. This also negatively influences the development of the institutional environment as a whole. Therefore, the relationship between formal and informal institutions is conflicting.
The four types of institutional interplay present a key aspect of the institutional environment (Fadda, 2012). Each type of interplay illustrates that governments and organisations enable the development of the institutional environment. In fact, the way organisations use informal institutions can illustrate the flaws in existing regulations, because informal institutions are often used to fulfil incompetent and formal regulations (Tsai, 2006). Understanding the way each type of institutional interplay influences the dynamics of the institutional environment can facilitate an examination of its nuances.