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Institutions
Term Paper ID:27747

Essay Subject:
Examines the nature, value, & need for institutions in society.... More...

4 Pages / 900 Words
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Paper Abstract:
Examines the nature, value, & need for institutions in society.

Paper Introduction:
Institutions are defined by Douglass C. North as "the rules of the game in a society" and more formally as "the humanly devised constraints that shape human interaction" (3). Another way of saying this is that institutions constitute the rules by which we live in a given social setting. Institutions have many consequences as they shape human interactions in a wide variety of social encounters, and institutions matter because of their consequences. Institutions clearly embody certain values which are prized by a society and which are then necessary for the proper functioning of that society. A number of the reasons for this can be indicated along with the ways in which institutions matter in society. North notes first that institutions reduce uncertainty because they provide a structure to everyday life:

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He notes that organizations also provide a structure forhuman interaction. He notes how theprimary effect of institutions is to reduce uncertainty by establishing astable structure to human interaction. New York: Cambridge University Press, 199 . At the same time,it should be evident that certain ideas can reshape institutions, much asthe idea of democracy did two centuries ago. ReferenceNorth, Douglass C. Many entrepreneurs inrecent years have looked to the Japanese economic success and haveconsidered how best to borrow from that system to influence our owneconomic institutions, often finding that what works in the culture ofJapan simply does not work in America because the underlying institutionsare too different. It is clear thatan understanding of comparative public administration requires anunderstanding of institutions and how they operate. Another way of saying this is thatinstitutions constitute the rules by which we live in a given socialsetting. A number of the reasons for this canbe indicated along with the ways in which institutions matter in society. Institutions shape the social, political,and economic structures of a society, and clearly these differ from onesociety to another and can be seen as differing because the underlyingvalues differ. Insome cases, our awareness may be more direct, while in other cases we mayinfer certain past history from what we know of our own time and earliereras. Organizations are of various types and includepolitical bodies, economic bodies, social bodies, and educational bodies: They are groups of individuals bound by some common purpose to achieve objectives. We know our political history and how we arrived where we are todaybecause much of that institutional history exists in documents which serveas guides, such as the Constitution or our body of laws. The behavior of organizations isalso dictated by the institutions which shape a society. The whole is anongoing process that is self-perpetuating. The issue is made more complex by the fact, noted above, thatorganizations also shape institutions over time, producing changes which inturn come back to produce changes in the organizations. (118)Institutions have been utilized by human beings to maximize the behavior ofeconomic organizations by guiding institutional change: The institutional framework dictates the maximizing opportunities for the organization and even in the most productive economies in the modern world the signals generated by the institutional framework are mixed, as is shown in even the most casual scrutiny of the formal rules and enforcement characteristics of the present U.S. economy. Institutions are defined by Douglass C. (78) Institutions clearly differ from one society to another. North makes an important distinction between institutions andorganizations. . They developover time based on values prized in a given social setting, and what isprized will change with time. North notes how institutions affect the performance of the economy bytheir effect on the costs of exchange and production. At one time, North subscribed to the efficiencytheories of institutions, but he abandoned this in view of clear evidencethat efficiency was not necessarily a result of institutional action. Otherinstitutions may be more custom than written rules. We continually export ourinstitutions in various ways, and over time the different institutions ofthe world interact and change one another. This does not mean the structure isefficient, and the fact that it is stable also does not mean that it is notsubject to change. North notes first that institutions reduce uncertainty because theyprovide a structure to everyday life: They are a guide to human interaction, so that when we wish to greet friends on the street, drive an automobile, buy oranges, borrow money, form a business, bury our dead, or whatever, we know (or can learn easily) how to perform these tasks. Both what organizations come into existence and how they evolve are fundamentally influenced by the institutional framework. When we drive a car down the street and reach a stop sign, westop. We rely on others to do the same, for if they did not, there wouldbe accidents at every streetcorner. Henotes that institutions provide the basic structure by which human beingshave created order throughout history: Together with the technology employed, they determine transaction and transformation costs and hence the profitability and feasibility of engaging in economic activity. We may be disappointed now and then assome people fail to stop for the sign, but we expect that they will andfeel less uncertainty about our ability to drive down the street withrelative safety as a result. Ourunderlying values come from a long history and become so ingrained thatthey pervade every aspect of life and of human behavior. North as "the rules of thegame in a society" and more formally as "the humanly devised constraintsthat shape human interaction" (3). Institutions are pervasive and as a result may often be ignored as weanalyze different organizational structures, but we should always be awarethat institutions exist, are operating to shape organizations andinteractions, and have both positive and negative consequences. . In turn they influence how the institutional framework evolves. Even if we understandinstitutions, we are limited in the degree to which we can shape them. (5)Institutions are, however, the underlying rules of the game and notdirected toward any specific objective except maintaining social cohesion. Institutions, Institutional Change and Economic Performance. We sawthis a few years ago with the demonstrations in Tiananmen Square in Chinaas it seemed democratic institutions were taking hold and then were crushedby a very different set of indigenous institutions. This same effect is apparent in other areas of human interaction, fromeconomic exchanges to interactions with government, from expectations abouthow we will be treated by others to how we expect members of our family tobehave. Institutions have many consequences as they shape humaninteractions in a wide variety of social encounters, and institutionsmatter because of their consequences. Institutions have histories of which we may be vaguely aware. They connect the past with the present and the future so that history is a largely incremental story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. (3-4)We also know that others are following the same rules and that we can relyon this. Comparative public administration concentrates first ondifferent organizational structures, and these are influenced by thedifferent institutions of each society. Institutions clearly embody certainvalues which are prized by a society and which are then necessary for theproper functioning of that society. We hope that our democraticinstitutions are exportable and are having an effect on different parts ofthe world, but often institutions from different societies clash.

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