Alejandro Portes is Professor of Sociology and Founding Director of the Center for Migration and Development at Princeton University. He is the author of several UC Press books, including Legacies, Ethnicities, Immigrant America and City on the Edge. Lori D. Smith is completing her doctorate in Sociology at Princeton.

Institutions Count

Their Role and Significance in Latin American Development

By Alejandro Portes, Lori D. Smith

UNIVERSITY OF CALIFORNIA PRESS

Copyright © 2012 The Regents of the University of California
All rights reserved.
ISBN: 978-0-520-27353-5

Contents

List of Illustrations, vii,
Preface, ix,
Acknowledgments, xiii,
1. Institutions and Development: A Conceptual Reanalysis Alejandro Portes, 1,
2. The Comparative Study of Institutions: The “Institutional Turn” in Development Studies Alejandro Portes and Lori D. Smith, 24,
3. Institutional Change and Development in Argentina Alejandro Grimson, Ana Castellani, and Alexander Roig, 39,
4. Institutional Change and Development in Chilean Market Society Guillermo Wormald and Daniel Brieba, 60,
5. The Colombian Paradox: A Thick Institutionalist Analysis César Rodríguez-Garavito, 85,
6. Development Opportunities: Politics, the State, and Institutions in the Dominican Republic in the Twenty-First Century Wilfredo Lozano, 113,
7. The Uneven and Paradoxical Development of Mexico’s Institutions José Luis Velasco, 130,
8. Conclusion: The Comparative Analysis of the Role of Institutions in National Development Alejandro Portes and Lori D. Smith, 167,
Appendix: Investigators, 191,
Contributors, 193,
Index, 195,

CHAPTER 1

Institutions and Development

A Conceptual Reanalysis

Alejandro Portes

Recent years have brought a significant change in the evolution of economics and sociology, including an unexpected convergence in their approach to issues like firms and economic development. This convergence has pivoted around the concept of “institutions,” a familiar term in sociology and social anthropology but something of a revolution in economics, dominated so far by the neoclassical paradigm. This development has been accompanied by confusion about what the new master term means and, importantly, by a failure to mine prior theoretical work that sought to order, classify, and relate the multiple aspects of social life that are now brought under the same umbrella concept.

This chapter seeks to reverse these trends by recalling key concepts and distinctions in sociological theory and illustrating their analytic utility with examples from the recent literature on economic development. The argument is that recourse to these concepts and distinctions enhance our ability to analyze economic and “economically relevant” phenomena (Weber [1904] 1949).

THE NEW INSTITUTIONALISM

As Peter Evans (2004b) has pointed out, the long-held consensus in economics that equated increasing capital stocks with national development has given way to an emerging view that the central role belongs to “institutions.” He approvingly quotes Hoff and Stiglitz (2001: 389) to the effect that “development is no longer seen as a process of capital accumulation, but as a process of organizational change.” Sociologists of development, including Evans himself and several nonorthodox economists, have been saying the same thing for decades without their arguments succeeding in swaying the economic mainstream (Evans 1979, 1995; Hamilton and Biggart 1988; Portes 1997; Hirschman 1958, 1963). Not until two Nobel laureates in economics, Joseph Stiglitz and Douglass North, elaborated the same arguments were some of those in the mainstream convinced. When North declared that “institutions matter,” other analysts started to take them into account.

By 2004 the development economist Gerald Roland (2004: 110) declared that “we are all institutionalists now.” Sociologists have generally welcomed this “institutional turn” (Evans 2004a; Nee 2005) as a vindication of their own ideas, albeit with a critical omission. Swayed perhaps by the promise of interdisciplinary collaboration in the wake of the new ideas, they have overlooked a fundamental fact: economists do not routinely deal with the multiple elements of social life or their interaction, and, in their attempts to do so, they often confuse them, producing impoverished or simply erroneous perceptions of reality.

Other observers have noted the same problem and put it in still more critical terms. Geoffrey Hodgson (2002: 148) states, “The blindness may be partial, but the impairment is nevertheless serious and disabling. What is meant by this allegation of blindness is that, despite their intentions, many mainstream economists lack the conceptual apparatus to discern anything but the haziest institutional outlines…. [They] have not got adequate vision tools to distinguish between different types of institutions, nor to appraise properly what is going on in them.”

This judgment may be too harsh because, after all, institutional economists have taken the first steps toward incorporating key elements of social reality into their analyses. However, the level of interdisciplinary collaboration needed to do this optimally is still lacking. The first question is what institutions actually are. The answer that emerges from economics is a disparate set of factors that range from social norms to values and all the way to “property rights” and complex organizations such as corporations and agencies of the state (Haggard 2004; Williamson 1975, 1985). North (1990: 3) defined institutions as “any form of constraint that human beings devise to shape human interaction,” a vague definition that encompasses everything from norms introjected in the process of socialization to physical coercion.

From this thin definition, all that can be said is that institutions exist when something exerts external influence on the behavior of social actors: the same notion that Durkheim identified as “norms” more than a century ago and not sufficient to capture the dynamics of communities and societies.

Neoinstitutionalism has also traveled to the realm of politics, where it has been used, as in economics, to denote the constraints that the social context puts on the actions of “rational man,” thus leading to “bounded rationality” (Dolsak and Ostrom 2003; Elster, Offe, and Preuss 1998). While itself unimpeachable, this assertion leaves open the question of what are the features of social context that actually “bound” rational action. Saying simply that everything depends on time and place leads us nowhere theoretically, as this statement is nonfalsifiable.

Moving things further, Elinor Ostrom has proposed a neoinstitutional analysis of the “Commons,” seeking to solve the dilemma between self-interest and the collective good among users of the same readily available, but exhaustible common property resources. Ostrom (1990; Ostrom et al. 2002) argues that neither the state nor the market does a very good job in these situations, since they seek to impose external rules on the relevant actors. Rather, actors can devise their own enforceable institutional arrangements (i.e., norms) to escape the tyranny of atomized self-interest. These norms again vary with time and place. As we will see shortly, Ostrom’s analysis is compatible with a sociologically informed analysis of institutional development, but the latter has the advantage of going beyond the simple assertion that such arrangements vary with the local context.

In sum, development economists and neoinstitutionalists seek to flesh out North’s insight that social constraints matter. But in the absence of a solid theoretical framework, the practical results of this institutional turn have been what might be expected. In the hands of development practitioners, the new consensus has led to the attempted export of legal codes and organizational blueprints to the global South. The dismal results of such attempts have already been recognized (Evans 2004b; Hoff and Stiglitz 2001). However, we can do more than point out that such efforts are doomed from the start. Economists and other social scientists can draw on established theoretical traditions to sharpen their conceptual tools and devise a more sophisticated and useful mapping of social life. Sociologists can contribute to this enterprise by refining their own conceptual legacy. The resulting “thick institutionalism” seems preferable, in most instances, to the “thin” version now making the rounds in several disciplines.

The basis for interdisciplinary collaboration is already at hand and consists of a body of knowledge containing key elements for the analysis of what actually takes place in society and for the proper placement of the concept “institution.” These elements include (1) a distinction between the symbolic realm and the material reality; (2) an understanding of the hierarchical character of both realms; (3) an identification of the linchpin concepts linking both; and (4) a theory of social change that goes beyond current institutionalist understandings of this process.

CULTURE AND SOCIAL STRUCTURE

From its classical beginnings, modern sociology developed a central distinction, consolidated by the mid-twentieth century, between culture and social structure. There are good reasons for this distinction. Culture embodies the symbolic elements crucial for human interaction, mutual understanding, and order. Social structure is composed of actual persons enacting roles organized in a status hierarchy of some kind. The distinction is analytic because only human beings exist in reality, but it is fundamental to understand both the motives for their actions and the consequences. Culture is the realm of values, cognitive frameworks, and accumulated knowledge. Social structure is the realm of interests, individual and collective, backed by different amounts of power. The symbolic distinction provides the basis for analyzing the difference between what “ought to be” or “is expected to be” and what actually “is” in multiple social contexts (Merton 1936, 1968a).

The diverse elements that compose culture and social structure can be arranged in a hierarchy of causative influences from “deep” factors, often concealed below everyday social life but fundamental for its organization, to “surface” phenomena, more mutable and more readily evident. Language and values are the deep elements of culture, the first as the fundamental instrument of human communication and the second as the motivating force behind “principled” action, individual or collective. The importance of values can range, in turn, from fundamental moral imperatives of a society to traditions prized mostly out of custom. In every instance, values point toward a clear continuum between the good and desirable and the bad and abhorrent. “Neutrality” is the exact opposite of this basic element of culture (Durkheim [1897] 1965; Weber [1904] 1949). Values are deep culture because they are seldom invoked in the course of everyday life. Values come to the fore only in exceptional circumstances (Weber [1904] 1949; Merton 1989). Yet they underlie, and are inferred from, aspects of everyday behavior that are the opposite of unrestrained self-interest, the “constraints” that North, Ostrom, and others refer to.

Norms are such constraints. Values are not norms. The distinction is important: values represent general moral principles, and norms embody concrete directives for action (Newcomb, Turner, and Converse 1965; MacIver and Page [1949] 1961). Values underlie norms, which are rules that prescribe the do’s and don’ts of individual everyday conduct. These rules can be formal and codified into constitutions and laws, or they can be implicit and informally enforced. The concept of norms has been used, at least since Durkheim ([1901] 1982), to refer to this restraining element of culture. Neglect of these classical analyses has led to lumping norms with the term institution, which has another, and important, connotation, as seen below. The significance of the values embodied within norms is reflected in practice in the level of sanctions attached to the latter. Thus life in prison or the death penalty awaits those found guilty of deliberate murder, while loud protest and insulting remarks may be the lot of those seeking to sneak ahead of a queue (Cooley 1902, 1912; Simmel [1908] 1964; Goffman 1959).

Norms are not free floating but come together in organized bundles known as roles. This sociological concept has been neglected in the institutionalist literature, which thus deprives itself of a key analytic tool. For it is as role occupants that individuals enter into the social world and are subject to the constraints and incentives of norms. Roles are generally defined as the set of behaviors prescribed for occupants of particular social positions (Linton 1945; Newcomb 1950: chap. 3). Well-socialized persons shift from role to role effortlessly and often unconsciously as part of their daily routines. The normative blueprints that constitute a role generally leave considerable latitude for their individual enactment. An extensive literature in both sociology and social psychology has analyzed roles as the building blocks of social life and as one of the linchpin concepts linking the symbolic world of culture to real social structures. The same literature has examined such dynamics as the “role set” enacted by given social actors and the “role conflict” or “role strain” created when normative expectations in an actor’s role sets contradict each other (Cottrell 1933; Linton 1945; Merton 1957; Goffman 1959, 1961; Goode 1960). None of these concepts has made its appearance in the sociology being created in economics. Roles are an integral part of institutions, but they are not institutions, and confusing the two terms weakens the heuristic power of both concepts.

Along with normative expectations, roles embody an instrumental repertoire of skills necessary for their proper enactment. Language is the fundamental component of this repertoire for, without it, no other skills can be enacted. These cultural “tool kits” also contain many other elements—from scientific and professional know-how to demeanor, forms of expressions, manners, and general savoir faire suitable for specific social occasions. In the modern sociological literature, these elements are referred to by the concepts “cultural capital” and “skills repertoires” (Bourdieu 1979, 1984; Swidler 1986; Zelizer 2005).

POWER, CLASS, AND STATUS

Parallel to the component elements of culture run those of social structure. These are not made up of moral values or generalized do’s and don’ts but involve the specific and differentiated ability of social actors to compel others to do their bidding. This is the realm of power, which, like that of values, is situated at the “deep” level of social life influencing a wide variety of outcomes. Weber’s classic definition of power as the ability of an actor to impose his or her will despite resistance is still appropriate, for it highlights the compulsory and coercive nature of this basic element of social structure. It does not depend on the voluntary consent of subordinates, and for some actors and groups to have power others must be excluded from access to it (Weber [1922] 1947; Veblen [1899] 1998; Mills 1959). While values motivate or constrain, power enables. Naturally, elites in control of power-conferring resources seek to stabilize and perpetuate their position by molding values so that the mass of the population is persuaded of the “fairness” of the existing order. Power thus legitimized becomes authority, in which subordinates acquiesce to their position (Weber [1922] 1947; Bendix 1962: chaps. 9, 10).

In Marx’s classic definition, power depends on control of the means of production, but in the modern postindustrial world this definition is too restrictive (Marx [1939] 1970; [1867] 1967: pt. 7). Power is conferred as well by control of the means of producing and appropriating knowledge, by control of the means of diffusing information, and by the more traditional control of the means of violence (Weber [1922] 1947; Wright 1980, 1985; Poulantzas 1975). In the Marxist tradition, a hegemonic class is one that has succeeded in legitimizing its control of the raw means of power, thus transforming it into authority (Gramsci [1927–33] 1971; Poulantzas 1975). Power is not absent from contemporary institutional economics, but the emphasis is on authority relations—what Williamson (1975, 1985) calls “hierarchies.” Although these analyses are important, they neglect more basic forms of power. This omission supports Hodgson’s argument on the lack of tools in modern economics to understand what institutions really are. For, as we shall see shortly, actual institutions are molded, to a large extent, by power differentials.

Just as values are embodied in norms, so power differentials give rise to social classes—large aggregates whose possession of or exclusion from resources leads to varying life chances and capacities to influence the course of events. Classes need not be subjectively perceived by their occupants in order to be operative, for they underlie the obvious fact that people in society are ranked according to how far they are able to implement their goals when confronted with resistance (Wright 1985; Wright and Perrone 1976; Poulantzas 1975). Class position is commonly associated with wealth, but it is also linked to other power-conferring resources such as expertise or the “right” connections (Hout, Brooks, and Manza 1993; Bourdieu 1984, 1990; Portes 2000a). As emphasized by Bourdieu (1985), dominant classes generally command a mix of resources that include not only wealth but also ties to influential others (social capital) and the knowledge and style to occupy high-status positions (cultural capital).

The deep character of power seldom comes to the surface of society, for its holders aim to legitimize it in the value system in order to obtain the voluntary consent of the governed. For the same reason, class position is not readily transparent, and it is a fact, repeatedly verified by empirical research, that individuals with very different resources and life chances frequently identify themselves as members of the same “class” (Hout, Brooks, and Manza 1993; Grusky and Sorensen 1998). Legitimized power (authority) produces, in turn, status hierarchies. Most social actors actually perceive the underlying structure of power on the basis of such hierarchies and classify themselves accordingly. In turn, status hierarchies are commonly linked to the performance of occupational roles (MacIver and Page [1949] 1961; Newcomb, Turner, and Converse 1965: 336–41; Linton 1945).

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