Book Review: Understanding Institutional Diversity

This issue of Perspectives has focused on how information and context can be made more meaningful across organizations and social networks. Alongside our customers, we've found that each new community, like the organizations they represent, operates under unique circumstances and has a unique business culture. Similar approaches in different settings often lead to very different results.  Likewise, successful projects often require a much different course than the one before.  Having embraced the importance of context, we've found it useful to turn to analytical studies of social organization in order to inform our work.

This past fall, Elinor Ostrom's research was recognized with the Nobel Memorial Prize in Economic Sciences.  Her work has focused on the variety of ways people have gone about organizing their social relationships, with a particular focus on how sustainable and robust governance arrangements have been achieved. Though Ostrom rejects the feasibility of blanket policy prescriptions for designing institutions at all layers of society, her ability to provide a general methodology for analyzing institutional dilemmas is particularly relevant for anyone concerned with improving cooperation across the boundaries of formal organizations.  Among the many reasons why Ostrom's work is significant is that it provides a means to ask the right questions and confront our assumptions across a plethora of particular conditions before attempting to apply solutions to organizational challenges.

In this book, Ostrom presents a methodology, the Institutional Analysis and Development framework, for understanding the variety of institutional arrangements people have adopted to address particular social needs.  Ostrom stresses the importance of rules in framing particular individual behaviors, but notes that these may be formal or informal, written or understood, and indeed create the institution in question.  Ostrom's call to "dig below" (p. 18) is a recognition that the variables which shape institutions may not be self-evident and that similarities in social arrangements in different contexts may go no further than appearances. Therefore, Ostrom makes clear that her framework is intended to help "generate the questions that need to be addressed when first conducting an analysis." (p. 28) She cautions against institutional design based on idealized institutional forms, since it is the particular utility of an arrangement that ought to be of greatest concern.

Ostrom's framework has sufficient room to accommodate traditional models of motivation, such as the rational egoist seeking to maximize material gain, as well as less readily quantifiable though equally significant models based on trust and reciprocity.  While this introduces a degree of complexity, for both the academic and the policy maker, Ostrom notes that "the grave hesitation of some theorists to adopt 'more realistic' assumptions stems, to a large extent, from the messiness of the alternative superstructures" (p. 103).  Indeed, "those convinced that all human behavior can be explained using rational egoist models will continue to recommend Leviathan-like remedies for overcoming all social dilemmas" (p. 120). Experience shows that this is not a particularly effective approach to formulating policy, and one might be reminded of H.L. Mencken’s statement: "For every problem, there is a solution that is simple, elegant, and wrong."

It appears that Ostrom is concerned with a tendency toward sloganeering that accompanies the desire for excessive simplification. That catch phrases like privatization, centralization, and decentralization "are used as substitutes for careful analysis" (p. 181).  In this regard, Ostrom returns to the importance of particular rules that will shape such general concepts from one context to another, and is in fact able to identify a series of design principles shared to a greater or lesser degree by enduring institutions.  As far as advocating a particular approach, however, she only goes so far as to set these principles as "a beginning point for conducting a broad search for appropriate means of solving problems" (p. 271). The measure of a social institution is therefore found in its ability to fulfill a specific purpose, namely to "improve human welfare over time" (p. 31).

If institutional participants lose focus of the specific utility of an arrangement and "substitute rote reliance on formal rules for an understanding of why particular formal rules are used" there may in turn be a tendency to rely upon "blueprint thinking" that is formulaic and lacking in context (pp. 273-275).  More than just being an important factor, context is the reason for institutional diversity. Effective policy depends upon a rigorous treatment at all levels.  Enabling the kinds of cooperative behaviors needed to address the day's most pressing organizational challenges depends upon more than just meeting requirements.  It depends upon our ability to recognize the usefulness of our assumptions, the limits of our influence, and the social dynamics of the relationships we seek to support.