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Key Text The New Institutionalism

Author: J Lane
Date: 2000
Size: 13 pages (1.5 MB)

Summary

The institutionalist paradigm has grown as a reaction to the reductionist attempt to explain how political organisations work by looking at non-political factors. This chapter critiques the new institutionalism and asks whether its theories can help us to understand and model the public sector. It criticises the holism of the new institutionalim, arguing that both interests and institutions affect social outcomes. Furthermore it argues that both political and economic interests need to be understood.

Traditional welfare economics has stated that market failures, such as economies of scale or justice in the distribution of income and wealth, constitute the conditions for the making and implementation of public policy. The new institutionalism argues that public institutions are not neutral and that institutions, loosely defined as the human-created constraints on interactions between individuals, really do matter. In fact, institutions shape individuals wants and preferences, as well as their behaviour.

The new institutionalism is a response to the need to be able to discuss the elementary forms of political institutions without methodological rigour. Whilst the theory that public institutions are as important as individual preferences is plausible, there are some difficulties with the idea that institutions matter in the public sector.

In relation to sociological institutionalism:

How do we single out political institutions from the general set of institutions? New institutionalism argues that state is crucial in designing those institutions, but the concept of the state remains undefined.
Is an institution a set of behaviours or a set of rules, or both? Do they comprise action phenomena, as well as normative, cognitive and symbolic orders? The new institutionalism risks over-emphasizing the formal aspect of organised collective action.

In relation to Economic neo-institutionalism:

The two key components of this theory are interests (goals and preferences) and transaction costs (the costs of engaging in exchange) but the concept of transaction costs remains unclear.

One problem in the analysis of the public sector is to understand the balance between interest theory (that tries to understand the interests that people or groups try to further through political institutions) and the new institutionalism. In relation to this:

Sociological neo-institutionalism argues that public institutions are as important as individual interests or preferences, and that institutions determine interests. However, social outcomes should be understood as depending on both interests and institutions, so it is essential to distinguish between institutions of a social system and individual preferences.
Understanding that rules and norms on the one hand, and the interests that motivate people on the other, are two fundamental components of a social system, and that both politics and economics affects interests as well as outcomes, should be the starting point.
A radical separation between politics and economics is unjustified. Both the market and individual interests offer rules for interaction between people and institutions.

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Source: Lane, JE., 2000, 'Chapter 10: The New Institutionalism,' in The Public Sector: Concepts, Models and Approaches, SAGE Publications, London