Answer to Question 8 (and the discussion about France)
Great comment. Yes, I agree that we should think about the way in which laws are developed in countries, how people see laws and the process of change, what political structures look like, how powerful the Minister of Finance is, etc. These are all contextual factors that are important in determining what kind of change is needed and what kind of change is possible. They are not the full set of contextual factors, however. I would argue that the kind of problem being addressed matters as well (some problems require and facilitate more radical change than other, for instance), as do a set of cultural variables, and a host of variables related to capacities etc. It would be great if the PFM Board could construct a list of the 'cvontextual factors' that impact reform, and start developing stories about these.... There is a lot of experience to capture here because, frankly, we know these things matter but don'[t always know how, why, and under what conditions.
I have developed my own theory about how institutional change happens, and how context matters, and I will add a discussion on it here, for those suffering with late night sleeplenessness.
This is an excerpt from my book, discussing contextual issues and change opportunities.
Complex institutional structures always exist
‘Institutions’ entered the world of development largely because of Douglass North’s historical analytical work linking such to growth. North showed that even the most rudimentary social structures (like small scale villages) have rules of the game, even though these rules differ in size and shape across contexts and through time. This basic observation is an important starting point for thinking about context. Institutions always exist in all contexts, in many different forms. There are no such things as clean slates on which to write change scripts.
Regulative mechanisms are the most commonly studied form in new institutional economics. These include laws and shaming practices that are often established, monitored and enforced by third parties. They promise reward or punishment in response to different behavioral choices, constraining behavior through extrinsic means. These regulative devices differ from normative mechanisms emphasized by new institutional sociologists. These include norms and values and communicate what is considered socially acceptable. They manifest in behaviors one would call ‘acceptable’ or ‘appropriate’ and influence agents intrinsically by evoking feelings of honor or shame with compliant and resistant actions. A third kind of institutional manifestation is what anthropologists call cultural-cognitive mechanisms. These manifest in ideologies and scripts that are reflected in symbols of group affiliation and belief like religion, nationality, or language. They create frames through which agents interpret the world, structuring the way information is received, processed and given meaning. Such frames bias agents to making specific choices, regardless of the extrinsic and intrinsic incentives created by regulative and normative mechanisms.
Many authors refer to individual regulative, normative and cultural-cognitive mechanisms as ‘institutions’. Where World Bank studies discuss ‘Institutional context’, for example, they typically provide lists of laws and other regulations. In contrast, Richard Scott does not call any one of these mechanisms an ‘institution’ on its own. Rather, he refers to all three as ‘elements’ of institutional structures, arguing that “Institutions are comprised of regulative, normative and cultural-cognitive elements that, together with associated activities and resources, provide stability and meaning to life.” A law on its own is not an institution. Neither is a norm, nor is a cultural-cognitive script. An institution emerges as a mix of all three. It is like an omelet, produced when someone combines eggs, cheese and milk into a bowl, with a whisk, over heat.
Various scholars have embraced Scott’s approach to thinking about institutions, positing that the three elements (with supporting practices and resources) combine to form ‘rules of the game’. Other variants of such multi-dimensional constructs are evident across the literature as well. Greenwood and Hinings speak of “interpretive schemes” for instance, which comprise “values, norms, beliefs and rationalizations,” that, “provide both a logic and a propellant” for action. An even broader set of authors refer to ‘institutional logics’ in describing structures of material practices and rules that emerge from and reinforce entrenched assumptions, values and beliefs. Such approach has been used to examine a wide set of topics in particular fields of social engagement—“clusters of organizations and occupations whose boundaries, identities and interactions and defined and stabilized by shared institutional logics.” The role of cultural-cognitive and normative mechanisms is central in such conception of an institution. These mechanisms give durability to the institutional structure and form a foundation for other elements. Evincing such thought, authors have referenced the importance of “widely shared assumptions and values” underpinning institutional structures and also presented these elements as “master principles” and “taken-for-granted, resilient social prescriptions.”
Figure 3.1 illustrates the institutional structure implied in such work. It shows the institution—or logic—as an iceberg. Normative and cultural cognitive mechanisms form a base atop which regulative devices operate. Together, the three elements establish a rule that shapes the way agents think, weigh decisions, and behave. It is important to note that this kind of structure incorporates both informal and formal elements—not one or the other. The iceberg metaphor reflects this, suggesting that a large part of any institutional logic is unseen or below the water line because it is informal—implicit, unwritten and seldom visible. The inference is that informal elements are not bad or inferior. Informality is rather a fact of institutional structure—and a fundamental one at that.
Multiple institutional structures always exist
Research further relates the idea of ‘inter-institutional’ contexts that comprise multiple institutional structures. Studies show that these exist across domains, varying between the marketplace, state, corporation, profession, religious community, and family. Agents split their lives across these domains and thus continually face multiple logics. For example, doctors in religious hospitals have their perceptions, choices and behavior shaped by rules of the market, state, medical profession and religious order. Institutional structures can vary within domains as well, and in fields and organizations. Meyer and Hammerschmidt explain that Austrian civil servants are influenced by a traditional public sector logic emphasizing process and a new managerial logic stressing results. Purdy and Gray find two logics shaping behavior in state dispute resolution offices in the United States. A judicial logic emphasizes clearing case loads while a public policy logic focuses agents on facilitating better-quality decisions.
In all cases logics comprise multiple elements, having some cognitive basis, normative expression and regulative form. As such, they all resemble ice-bergs like that suggested in Figure 3.1. They combine as institutional contexts that one could compare with a sea of icebergs. Some institutions in this sea may be more prominent than others, and some may be more closely related—even clashing at times. Researchers look for such characteristics when describing institutional contexts. Studies note particularly whether and to what degree some logics dominate their context, how competitive alternative logics are, and if logics seem to co-exist or clash. The Austrian study, for instance, describes the traditional public sector logic as dominant but also sees the new managerial logic as competitive. Greenwood and Hinings explain that British municipalities conform to either of two competing logics, one favoring “corporate bureaucracy” and the other “professional bureaucracy.” Purdy and Gray find the judicial logic co-existing with the public policy logic in dispute resolution practices. In all examples, agents must navigate these contexts given such patterns of dominance, competition and co-existence.
Context shapes change opportunities
One wonders how institutional change happens in places where dominant institutional logics prevail. Explanations of such change vary, but most authors posit that opportunities are created—or limited—by the interplay of incumbent institutional structures or logics. Some approaches describe an equilibrium-seeking dynamic where institutions shift between logics. Others suggest that change is driven more by political contests that may or may not bring stability, depending on whether there is consensus on a logic or mix of logics. Both perspectives emphasize the importance of pre-existing institutional orders, interruptions to such, and power plays involving agents. Both perspectives also suggest that change is most commonly limited.
Studies commonly examine change in contexts where one structure dominates the institutional order. This structure could be a singular logic or a stable amalgam of co-existing logics. Such structures typically undergo what Bartunek calls first order change, “consistent with already-present schemata.” In essence, adjustments reinforce the incumbent logic rather than replacing it. This is a key element of path dependence theory, which posits that future institutions typically reflect those of the past. Cognitive and normative foundations of dominant mechanisms become entrenched in new scripts and symbols over time, for example, and embed themselves through repeated behavioral patterns of expanding sets of agents. Regulative mechanisms are fine-tuned to reflect such logic as well. These changes alter power relationships and capability mechanisms, locking-in the dominant logic. This logic can appear irreversible when many agents invest heavily in it over long periods. These investments become like sunk costs and decrease the willingness or ability to switch to alternative institutional structures, even though these may continue to exist.
Unless there is a disruption. This could take the form of an exogenous shock like the recent global economic crisis, or destabilizing endogenous jolts like demographic adjustments. These can be once-off events or gradually emerging disturbances. They create change opportunities if incumbent institutions cannot facilitate the resolution of emerging problems. In such situations agents are confronted by weaknesses and contradictions in their pre-existing rules. Faced with failing incumbent rules of the game, agents may look for second order change— replacing an incumbent logic with another alternative.
Disruptions do not always foster radical change, however. The degree of change depends on the severity of disruption, how much it tests the legitimacy of pre-existing dominant logics, whether viable alternatives exist, and if agents are in place to struggle for and facilitate a transition. Different conditions yield different scenarios, shown in Figure 3.2:
1. Dramatic shifts in logics—or switches—are possible when faced with disruption, but only where the legitimacy of pre-existing institutional orders is tenuous (a condition one could call weak dominance) and alternative logics are present and competitive, supported by agents capable of challenging the old order.
2. Where one or other condition is not met, change will be more limited. It could foster coexistence or hybridization where elements of an alternative institutional logic are introduced alongside elements of the incumbent dominant logic. This can cause uncertainty about rules of the game, supporting and motivating differing choices and behaviors. Mixed conditions could also facilitate the emergence of a new logic altogether, however, where elements of the dominant incumbent merge with elements of new alternatives.
3. If conditions are not met one should expect even more limited change. This could involve a limited version of layering, where visible elements of alternative logics are introduced ‘on top of’ less visible norms and cognitive scripts of incumbent structures. This layering could lead to more significant change if new elements are actually implemented and reinforced over time as additional layers of similar change. Conversion is another option, where the pre-existing logic is preserved but power is moved from one group to another. Incumbent structures are re-directed to serve the interests of different agents and agendas in such situations.
These three scenarios suggest that different conditions affect the degree to which institutional change emerges, even through disruption. In all cases more disruption allows more change. Change is greatest in the Logic Switch scenario given weak dominance, competing alternatives and powerful change agents. Change is more limited in the Coexistence and Hybridization scenarios, given mixed conditions. Change is most limited in the Layering or Conversion scenarios where conditions are not conducive to significant short-term adjustment. As argued, layering could lead to deeper change if reinforced by similar reforms over time, where new layers actually create room for additional change.
Most authors would argue that these last two limited change scenarios are a more likely outcome of institutional adjustment when a dominant logic is in place, even in the face of significant disruption. This is partly because informal dimensions of incumbent logics change slowly, if at all. Mauro Guillen notes such in stating that logics are “deeply rooted in collective understandings and cultural practice, and resilient in the face of changing circumstance.” As a result, one is likely to find informal elements of incumbent logics holding on even when regulative mechanisms appear to change.
External reformers commonly overlook context
There is reason to believe that many external reform designers will discount the influence this kind of contextual complexity has on reform, at least in the design phase. The very idea of institutional reform assumes “that institutions can be purposefully created or re-created by rational agents.” This is an intoxicating assumption for those working in development, who may consider themselves the ‘rational agents’ capable of manipulating the way developing countries work. Such thinking is implicit in the ‘Cargo Cult’ concept discussed by some postcolonial theorists. This refers to a belief “that development is something that flies in from the outside” to overwhelm and improve the inefficient ways of developing countries. All that is needed to effect change is the superior outside idea and influence.
Such thinking is reflected in Peter Evans’ description of how reforms work in development: “International organizations, local policy makers, and private consultants combine to enforce the presumption that the most advanced countries have already discovered the one best institutional blueprint for development and that its applicability transcends national cultures and circumstances.” Such thought runs through many discussions of institutional reform in development, and the mechanisms used to assess governments. Reforms are typically presented in overwhelmingly positive ways, as initiatives where “the right institutional framework [can] unlock a nation’s wealth potential.” Constructs like the World Governance Indicators give the same message, promoting a confidence in outside ideas as powerful, generic solutions. This confidence helps to explain chapter one’s finding that reform designers advocate more and more reform when evidence suggests a less than 50-50 chance of success. Contexts in which reform does not work are disparaged as having weak leadership, but not given more attention. The assumption is that superior externally sourced solutions will eventually prevail if local leaders allow them to.
This idea of a Cargo Cult does not hold across all development, however. Many designers of external reforms do see the importance of local context in the change process. The push to introduce contextualized Poverty Reduction Strategy Papers is one indication of this, as is the continued emphasis on country ‘ownership’. Institutional reform strategies, handbooks and evaluations produced by organizations like the World Bank also routinely cite the important influence context has on reform.
Contextual factors are seldom detailed, defined, or deciphered in such references, however. This is partly because of an inability to see and map context. There is something to be said for the fact that a large part of any institutional logic is informal and difficult to see. One cannot expect external reform designers to identify informal institutional elements falling below the iceberg’s water-line given the limited engagement they enjoy in target countries. Reform projects in organizations like the IMF and World Bank are designed with limited budgets in periods ranging from six to eighteen months, often by ‘experts’ with limited country experience who fly in and out of the reforming context every six months. Their government counterparts are often in narrow technical agencies at the head of economic agencies like the Ministry of Finance. It is questionable how much these agents can speak to the country’s political and cultural contexts, partly because these contexts usually stretch beyond their reach and also because many institutional elements are invisible even to those affected by them. This is particularly the case for most dominant structures, which are taken-for-granted and hence enjoy low visibility. Furthermore, reform engagements typically focus on the solutions and not the problems, with pressure to finalize program documents for specific, ambitious, and linear reform programs. This constrains discussion about contextual problems or the cultural roots of such. As Peter Evans says, “Arenas that are less accessible and less transparent … are ignored, almost of necessity.”
Getting serious about context
There are many stories where external reform designers overlook contextual factors that ultimately limited the space for change. Consider Andrew Wilder’s account of recurring failure in Pakistani civil service reform. Citing a former finance secretary, he notes that external agencies working in Pakistan treat civil service reform as “a technical exercise” in which “problems are reduced to boxes and then solutions are found to fit into the boxes.” The finance secretary concludes that, “The political and cultural contexts are lost in these exercises” which is a problem because of the “inherently political nature of civil service reform.” Consider also Indonesia’s insolvency law, which suffered premature failure because it was never “socialized” into the context. Bemoaning such results, Melbourne University’s Roman Tomasic notes that “multilateral agency expectations and timeframes may not always be in accord with local realities.”
In these and other situations reforms ran into trouble when they encountered a cluttered institutional context comprising multiple logics—iceberg-like structures combining regulative, normative and cultural-cognitive mechanisms. Contexts with strongly dominant logics and weak alternatives failed to accommodate the intended institutional change, even though there was disruption that many may have thought always facilitates adjustments. The problem was that contexts actually provided limited space for change. The conditions were much like those in the left column of Table 3.1, which shows ‘small hole conditions’ that limit the size of a potential reform peg. When external agents overlook contextual conditions, they assume that all situations have large holes, shown to the right, and accommodate a high degree of change. Unfortunately, this is often not the case, and small hole conditions undermine reform attempts.
There are various ways in which reforms would be improved if context was better considered in design. One could imagine that the selection of where and when to do reform would be sharpened, for example. Fewer institutional reforms would be initiated in contexts with small-hole conditions—where governments and societies may not be ready for change. A greater sense of context could also help inform expectations of reform, and help guide processes of implementation and oversight. Reform designers aware of the importance of context could factor in regular assessments of the factors named in Table 3.1, for instance, monitoring context and not just progress with technical content in reforms. Finally, one could imagine a sense of context assisting in defining reform content itself. Reforms initiated in large-hole settings would be fashioned to support viable alternative logics that have emerged in such contexts, for instance. Reforms initiated in small-hole conditions could be shaped to increase the size of the reform space itself—introducing alternative ideas, gathering potential agents of change, or helping to interpret disruptions as sources of change.
Indonesian insolvency reforms discussed in the introduction might have focused on strengthening informal dispute resolution mechanisms instead of creating more formal laws, for instance. Informal mechanisms were ostensibly a more viable and accepted mechanism given the context, and their medium-term use could have bought time for government to properly develop a more legitimate court system. Similarly, Malawi’s anticorruption activities could have stressed the role of agencies promoting the new anticorruption logic (churches, for instance) rather than betting on change in the traditional conservator of the old corruption logic (the executive). External agencies could have required that Argentina’s legislature actively debate the causes of fiscal profligacy instead of just rubber stamping reforms proposed by the executive.
An awareness of context could also help external reform designers ensure that their interventions do not undermine change opportunities. A sizeable literature argues that the international aid community impacts the politics of development when it engages in institutional reforms. Some argue, for instance, that loans from international organizations can contribute to and reinforce dominant logics of soft budget constraints. Others suggest that external funding for reforms can strengthen a logic of corruption by adding to sources of cheap rent. These perspectives are controversial. They need not be, however. If one considers the theory of institutional change behind Table 3.1 it is obvious that external engagements can shift a situation from potentially large-hole to small-hole conditions. Loans can stabilize an otherwise disrupted context, for instance, reinforce a dominant logic that would instead be tenuous, or support agents who are unlikely to change the status quo. A mix of these effects was arguably evident in Argentina and Malawi, where donors tempered the severity of disruptions and ultimately facilitated layering or conversion instead of more far-reaching institutional change.
Such argument suggests that external reform designers should better account for context than they have done in the past. Think, perhaps, of project preparation processes that allow one to assess the size of the hole in which reform pegs are planned to fit. This, arguably, is the role political economy analysis is slated to play in project design. Such analysis is surely a good thing, and it is positive to see increasing numbers of reforms informed by perspectives on politics. There are some high quality analyses emerging in this tradition, but many emphasize contemporary politics only, ignoring the historically embedded logics that may be driving behavior. There is also a tendency to focus on political figures or parties, and not the systemic structural mechanisms in which such actors are embedded. One wonders how political economy studies could actually comment on such mechanisms in even the best case scenario, given their hidden, taken-for-granted nature. Studies can only speak about what is seen, so should be expected to overlook ‘below the water’ content in this institutional icebergs driving behavior.
The value of external contextual assessments is also questionable because of inevitable external bias in such, which can reinforce an ignorance of the real context. In discussing this point, Kate Kenny notes that external agencies are increasingly recognizing the importance of considering context when designing reforms. She points to a widely held belief that “despite the many differences” it is fully possible for external reform designers to come to know and understand “the Other.” Often, she notes, this understanding is slated to be “achieved through the project methodology.” Methods involving categorization, quantification and sense-making are always tinged with bias, however. Kenny speaks of a bias towards having ‘binomial’ representations in development. There are experts (in the aid agencies) and non-experts (in the countries), for instance, and good politicians (who support external reforms) and problematic politicians (who do not). Kenny argues that analyses fostering such biased perspectives “ensure that organization members [in external entities] remain blind to their inherent assumptions.”
Given such problems, this book argues that written studies by outsiders are probably not the best entry point for concerns about context. Chapter seven suggests a different course of action. Reforms should focus on the disruptive problems that emerge in particular countries, and designs should allow contextual complexities to reveal themselves while addressing these problems. This requires an approach to institutional reform that acknowledges the endogenous nature of such and seeks to develop and implement designs actively, through a problem solving process, in the context, with local agents occupying the driving seat. This is proposed as the only way in which contextual factors can really be effectively accounted for in institutional reforms.
Even when context is accounted for, however, externally influenced reforms could yield limited results—especially if they still emphasize ‘reform as signals’. The next chapter argues that such reforms do not only overlook context. They also over-specify externally sourced practices as generic solutions, but over-simplify what these require to work.