Sunday, April 06, 2014

A thought about institutional change

There are people -- calling themselves conservatives but I think of them as reactionaries -- who seem not to understand that institutions change. I suspect that institutional changes that survive do so because the are useful, at least to those who have the power to accept or reject the changes.

The United States of America was founded not only as a new political institution, but a new kind of political institution. It was explicitly created to guarantee the human rights of (a class) of its citizens. Its leaders were neither hereditary monarchs nor hereditary aristocrats; they were to be elected. U.S. political institutions have changed beyond recognition. Political parties were established. Senators came to be popularly elected rather than chosen by state legislatures. Suffrage was extended broadly. The functions of government were greatly expanded, and correspondingly the number of government functionaries grew to be greater than the original number of citizens of the USA. "Small d" democracy has since spread to many countries.

The Industrial Revolution led to machine based manufacturing, and economies of scale; the more a factory produced, the lower the cost per item produced. Combined with the invention of the steam engine, railroads and steam ships as well as mass circulation magazines and newspapers led to huge markets for cheap manufactured goods. The institution of the business corporation responded with the creation of more and larger corporations as nations went through the industrial revolution. This in turn led to the the extension of the role of government institutions to regulate large corporations.

The institution of slavery existed in every colony at the start of the American Revolution; while northern states abolished slavery themselves and the nation as a whole abolished importation of slaves, it took the Civil War to emancipate the slaves. While some of the ideology of the abolition movement was that favoring "free labor", many supposedly free workers were indeed "wage slaves" in the 19th century, living in desperate poverty with little real freedom. Eventually new institutions -- unions and the labor movement -- were created to empower workers in response to the growing power of the corporation.

The U.S. economy experienced boom and bust cycles from the foundation of the country, culminating in the stock market crash of 1929 and the Great Depression. There was then a major reform of the financial system and decades of relative economic stability until deregulation occurred starting in the late 20th century. The Crash of 2008 and the Great Recession lead to new regulation. Thus U.S. economic institutions have been in flux. Note too, that the Breton Woods System for international finance was created in the aftermath of World War II.

We have seen the growth of a global telecommunications infrastructure, the Internet, and the infrastructure of computers and smart phones induce major changes. Production systems and markets have globalized. Corporations have focused on core competencies, tending to outsource functions via new markets. Industries have been restructured; enterprises re-engineered.

A lot of these institutional changes have tended to benefit the average person. A lesson of history is that progress is not a necessary attribute of institutional change.

I have been reading Russia under the Old Regime by Richard Pipes. The book analyzes the evolution of the Russian society from the 9th century to the 1880s. The empire expanded very rapidly. The story is of a decentralized society becoming centralized, under a theory that the tsar owned everything. Almost all people were reduced to roles of servants of government, serfs or slaves, deprived of freedom of movement and required to provide taxes and service to the state controlled by the tsar.  Laws enforced by the tsars sought to assure the flow of taxes and services; failing to inform on someone breaking those laws was itself a criminal offense. I can only assume that the long term effect of these institutional changes was a grave reduction of human rights of the average person living in (what became) imperial Russia.

So how do we respond to institutional change. Assuming that the institutions of the Roaring 20s or some other idealized ""Golden Age were suitable for today seems inappropriate; often the people proposing such revisions have overly rosy views of life in the past. Moreover, institutional models that worked adequately in the past may not be up to the challenges of modern society.

Perhaps we should do the obvious. Try out institutional changes that pass the tests of our best analysis and prediction, and see how they work. They accept those which improve the situation for a while, but reject those institutional innovations that have too many adverse side effects.

I also recently read The Reformation: A History by Diarmaid MacCulloch. In the context of this blog, the book can be seen as a discussion of changes in religious institutions in Western Europe, primarily in the 16th century. A number of Protestant churches emerged from the Reformation, each based on somewhat different modifications of Roman Catholicism. The Counter Reformation of the Roman Catholic Church also saw major changes in that institution. There emerged new relations between state and church, with different churches becoming the established state churches of different states. Indeed, the separation of church and state in the United States can be seen as a later result of the Reformation and Counter Reformation.

One problem, of course, is that this period of modification of religious institutions was very bloody, involving such events as the St. Bartholomew's Day Massacre and the 30 year war.  How do we invent and test institutional reforms, discarding those which seem to fail the test of progress, in a decent and peaceful way?

I think there are many examples of problems with the current operation of our institutions. Wealth is becoming more concentrated, middle class progress has stalled and there are still too many poor. The political process has elected a Congress that has gotten almost nothing done since being elected. The USA spends the most of any country on health care, but has only middling life expectancy. Far too many people are in jail, too few young people seem to excel on tests of educational accomplishment.

It is hard to realize that institutions can improve. We know that they can deteriorate, but it is perhaps hard to see that they can be different and better in the future than they were in the past. Perhaps that is because our knowledge of how institutions work is tacit rather than explicit; perhaps it is because institutions have tended to evolve slowly compared to our consciousness; perhaps it is because institutions evolve in a social context, almost always characterized by conflicting ideas of how they should be structured and how they should work. Still, our objective knowledge demonstrates that societies have managed to improve institutions in the past. There is little alternative but to try to improve ours now.

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