Douglass North: Institutions and Social Transformation
The ideas of economic historian Douglass North are mentioned in a couple of recent posts (see: "Indigenous Knowledge Management" and "Human Culture, an Evolutionary Force"). His writings on institutional economics offer a structural analysis of social transformation.
From North's 1993 Nobel Prize speech (economic sciences in memory of Alfred Nobel):
Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, and self imposed codes of conduct), and their enforcement characteristics. Together they define the incentive structure of societies and specifically economies. ...
It is the interaction between institutions and organizations that shapes the institutional evolution of an economy. If institutions are the rules of the game, organizations and their entrepreneurs are the players.
Organizations are made up of groups of individuals bound together by some common purpose to achieve certain objectives. …Belief structures get transformed into societal and economic structures by institutions- both formal rules and informal norms of behavior. The relationship between mental models and institutions is an intimate one. Mental models are the internal representations that individual cognitive systems create to interpret the environment; institutions are the external (to the mind) mechanisms individuals create to structure and order the environment. …
Learning then is an incremental process filtered by the culture of a society which determines the perceived pay-offs, but there is no guarantee that the cumulative past experience of a society will necessarily fit them to solve new problems. Societies that get "stuck" embody belief systems and institutions that fail to confront and solve new problems of societal complexity. ...
It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide "legitimacy" to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated.
