Open Journal of Political Science
2014. Vol.4, No.1, 23-30
Published Online January 2014 in SciRes (
Institutionality: “Institution” and “Institutions Matter”
Jan-Erik Lane*
University of Freiburg, Freiburg im Breisgau, Germany
Received November 2nd, 2013; revised December 8th, 2013; accepted December 27th, 2013
Copyright © 2014 Jan-Erik Lane. This is an open access article distributed under the Creative Co mmons Attri-
bution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the
original work is properly cited. In accordance of the Creative Commons Attribution License all Copyrights ©
2014 are reserved for SCIRP and the owner of the intellectual property Jan-Erik Lan e. All Copyright © 2014 are
guarded by law and by SCIRP as a guardian.
Theories of institutions have become very popular in the social sciences. Thus, we often encounter the
claim “Institutions Matter” in the new literature, which is called “institutionalism”. It is time to make a
critique of this theme, asking what an institution is and what it “matters” for. “Institution” stands for two
very different sorts of entities in social reality—rules and organisations—and the new institutionalism
comes in two corresponding versions, economic or atomistic neo-institutionalism against sociological or
holistic neoinstitutionalism. The notion of new logic of individual behaviour—a logic of appropriate-
ness—is flawed, as it is not in agreement with basic notions in the philosophy of action.
Keywords: “Institution” as Term; Institution as Rule or Norm; Institutionalisation as Enforcement of a
Rule; Agency; Institutions as Organisations; Outcomes of Institutions; Economic
Neo-Institutionalism; Sociological Neo-Institutionalism; EU Institutions; Motivation as
Incentives and Beliefs about Rules
In the social sciences as well as in economics, there has been
much talk about institutions lately. The relevance of institutions
is emphasized in both domestic and international political theo-
ries as well as in economic thought. This movement goes under
various labels: new institutionalism, neo-institutionalism, con-
structivism, and historical institutionalism. One encounters it in
both descriptive and normative theories. These approaches
challenge the predominance of the rational choice school (RC),
which underlines incentives or human motivation. Institutional-
ism on the other hand emphasizes the role of norms in social
life and economic affairs. What does the term “institution”
stand for?
In new theories of institutions, one encounters highly differ-
ent denotations of the word, as for instance:
1) Ground rules for competition and cooperation (North,
2) Conventions (Bromley, 1989);
3) Entitlements (Bromley, 1989);
4) Rules that minimize transaction costs (Barzel, 1989);
5) Rules of distribution of affluence and wealth (Acemoglu &
Robinson, 2013);
6) Rights, property rights (Libecap, 2004; de Soto, 2003);
7) Organisations, political structures of governance (Olsen,
8) Thoughts or beliefs (Winch, 1984);
9) Rules of coordination of incentives (Campbell, 2006);
10) Rules for agrarian production (labour contracts, inden-
tured labour, sharecropping, ownership of land) (Bardhan,
Confronted with such a diverse list of items of denotation for
the term “institution”, one may ask if there is any common core
here. Or must one conclude that the concept of institution is
complex and perhaps a source of confusion? Examining the list
of key terms above, two conceptual distinctions appear rele-
1) Agency: When can one say that institutions a re capabl e of
engaging in activities? To arrive at agency, it seems necessary
to endorse the interpretation of institutions as organisations or
political structures.
2) Normativity: To some scholars, institution is an internal
aspect of human behaviour, i.e., thoughts about what ought to
be done in various situations. To other scholars, institution is an
outer aspect of human relations, i.e., actual regularities in social
interaction or behaviour.
When testing claims about “institutions matter”, the above
distinctions are critical for understanding the nature of institu-
tions. Generally speaking, when testing models of institutional-
ity, it is vital to identify whether or not institutions are said to
have agency as well as include normativity besides actual regu-
larities in social life.
To get a glimpse of the multiple uses of the word “institu-
tion”, one may wish to consult a standard dictionary. The Ox-
ford Dictionary of English language has the following entry:
1 an organization founded for a religious, educational, pro-
fessional, or social purpose: an academic institution a cer-
tificate from a professional institution;
*Jan-Erik Lane is an independent scholar, who has been full
professor at
three universities and visiting professor at many more.
An organization providing residential care for people with
special needs:about 5 per cent of elderly people live in in-
An established official organization having an important
role in a society, such as the Church or parliament: the in-
stitutions of democratic government, a large company or
other organization involved in financial trading: City insti-
2 an established law or practice: the institution of marriage;
Informal a well-established and familiar person or custom:
he soon became something of a national institution;
3 [mass noun] the action of instituting something: a delay i n
the institution of proceedings;
Origin: late Middle English (in sense 2, sense 3): via Old
French from Latin institutio(n-), from the verb instituere
(see institute).
Here, an institution could be any organisation, private or
public, or a social practice guided by norms like the law. There
is also the very specific meaning of an organisation that takes
care of people, like a mental institution. Organisations and so-
cial practices are of course not the same kind of entities, which
entails that the term here is ambiguous. Let us consult another
major dictionary that also establishes the systematic ambiguity
of the term, meaning either rule or social practice on the one
hand or organisation on thye other hand:
1) an act of instituting, establishment;
2) a) a significant practice, relationship, or organization in a
society or culture, the institution of marriage; something or
someone firmly associated with a place or thing she has become
an institution in the theater;
b) an established organization or corporation (as a bank or
university), especially of a public character; also asylum
Source: <
Here, we encounter the same ambiguity: “institution” mean-
ing any organisation, a special organisation for caring and a
social practice backed by law or norms. Going back to the list
of denotations above, we can place the use of economic institu-
tions within the social practice definition and the political struc -
tures with the organisation definition. Could there be a general
theory of institutions encompassing the whole of organisations
as well as the entire set of social practices guided by law? I
doubt that very much.
In any case, institutions have been always central to social
science but they have not been addressed with the same empha-
sis and manner in every epoch. Before and after the turn of the
twentieth century, several scholars were writing about institu-
tions, but they had not developed a theory of institutions yet.
Most of these approaches relied heavily on the study of formal
institutions (i.e. the law). Moreover, they were highly norma-
tive and, thus, prescriptive. This is often called “old institu-
Whatever definition one may chose for “institution”, one is
bound to encounter the concept of a rule. When it is claimed
about institutionality that “institutions matter” for real social
outcomes, or that normative social or economic theories hand
down best basic foundations for an economy or polity, then
what is at stake are the rule of the games that make up social
interaction. Rules frame the acquisitive spirit in capitalism and
rules define various from of collective choice, such as elections,
parliamentary voting and ministerial competences. Institution-
alists (I) and the adherents of rational choice (RC) dispute what
is most important for explaining outcomes in social life and
social systems: rules or preferences. Rational choice institution-
alism (RCI) is an attempt to build a bridge between institution-
alism and RC.
“Institutions M atter”
The new literature on institutions and norms theorizes the
relevance of rules for both the macro and micro levels. Thus, an
institution as a rule or a set of rules is said to have effects upon
the society as a whole, whether the polity or the economy. But
institutions as rules are also claimed to somehow be a cause or
be part of the cause of an action by an individual. Norms as
rules figure in both descriptive and normative theories.
It is not difficult to find several interesting macro level hy-
potheses that conform to the format: “Institutions matter”. One
may go to the literature on comparative politics or historical
sociology and economic history. Let us below examine a small
sample of these institutional hypotheses or theories in order to
arrive at a more concrete grasp of what the thesis “Institutions
matter” stands for.
But first we may quote from North, stating that institutions
comprise the rules that constrain behaviour:
Institutions are the rules of the game in a society or, more
formally, are the humanly devised constraints that shape
human interaction. (North, 1990: 3).
Institutions have an impact upon any actors, individuals or
organisations. North makes a sharp separation between institu-
tion and organisation, stating:
Organizations include political bodies (political parties,
the Senate, a city council, a regulatory agency), economic
bodies (firms, trade unions, family farms, cooperatives),
social bodies (churches, clubs, athletic associations), and
educational bodies (schools, universities, vocational train-
ing centres) (North, 1990: 5).
The typical characteristic of an organisation is the capacity to
act in order to further objectives, i.e. rationality. Organisations
are “groups of individuals bound together by some common
purpose to achieve objectives.” (North, 1990: 5) However, the
activities of such bodies are influenced by the societal institu-
tions. And the organization may change the institutions, thus
contributing to institutional development.
For the institutional economists, the interest is much focused
upon the economic rules in a society: transformational rules for
converting inputs into outputs and transaction rules for making
contracts and enforcing them. The basic hypothesis in RC in-
stitutionalism is that some institutional set-up, like Common
Law, is more efficiency enhancing than other institutional set-
ups when it comes to economizing upon transformational and
transaction costs.
Thus, it may be underlined that North distinguishes sharply
between institutions and organizations:
“The answer hinges on the difference between institutions
and organizations and the interaction between them that
shapes the direction of institutional change. Institutions,
together with the standard constraints of economic theory,
determine the opportunities in society. Organizations are
created to take advantage of those opportunities, and, as
the organizations evolve, they alter the institutions.”
(North, 1990: 7).
In economic neo-institutionalism, an attempt is made to ex-
tend the RC model to explain institutional evolution. Thus, the
focus is upon how societies or states somehow make choices
upon institutions in the long run, often by a number of minor
decisions. These institutions that result tend to have long-run
impact. By institutional evolution is meant the long-term chan-
ges in the rules that govern a country, like property rules in the
economy or the constitution of the state. Examples: the decline
of the Spanish Empire during the 16th century and the rise of
the British Empire during the 17th century—transparency and
fungibility of private property rights, little government inter-
vention; Arab economic decline lacking the institutions of
modern capitalism, like the Western created Limited Liability
Company, as with Kuran’s hypothesis of the decline of the
Arab partnerships; Third World poverty where ownership to
houses or shacks cannot be registered: de Soto’s hypothesis
about the beneficial effects of small property and mortgages.
Some puzzles in RC institutionalism include: Is there eco-
nomic social teleology, meaning that the most efficient eco-
nomic rules tend to prevail in the long-run? One may here con-
sider Demsetz’ (1967) theory that 1) economic profitability
defines legal rights as well as that 2) the market economy re-
sults in the efficient allocation of property rights. But are pri-
vate property rights really sufficient for economic efficiency?
RC institutionalism tends to emphasize transaction costs, or
their minimization. Thus, countries with clear rules about pat-
ents and ownership rights would be the most successful eco-
nomically. But how to explain the following institutions with
the property rights argument or the transaction cost minimising
approach: Nationalized industries like petrol and mining, for
instance the successful Norwegian oil regime? Or industrial
policy mechanisms like e.g. export orientation in the South East
Asian miracles?
It should be pointed out that economic institutionalists ac-
knowledge that countries do not always succeed in finding and
implementing the most effective economic regime. Thus, RC
institutionalism takes into account the consequences of making
fatal mistakes about rules, especially for bad macro outcomes.
Below a few such examples are rendered.
Decline of Spanish Empire: The Mesta
An example is the story of the economic decline of the Span-
ish Empire. One explanation is the concentration upon the wool
industry at the expense of food production. This led to over-
grazing by the Merino sheep and the import of food from other
countries. Let us quote from an expert:
“As a result, a whole series of ordinances conferred upon
it wide privileges and wide powers, culminating in the
famous law of 1501 by which on all land on which the
migrant flocks had even once been pastured was reserved
in perpetuity for pasturage, and could not be put to any
other usage by its owners (Elliot, 2002: 119)”.
This policy of favouring wool at the expense of food led to
inefficient agriculture and costly food imports. Yet, it was sus-
tained for at least a century. Why? There has been a huge de-
bate on the topic of Spanish decline, as one would like to un-
derstand how this universal empire of Charles V could go down
the hill economically, given the immense access to silver and
gold in the new colonies in Latin America. It seems to me that
we have here an example of the Dutch decease.
Constitutional Flaws: The RSA and de Klerk’s Two
The new constitution of South Africa outlines formally a de-
mocratic dispensation, but in reality supports the drive towards
a one-party-state. Although the goal of the constitutional nego-
tiations in the early 1990s clearly was not to introduce such a
regime, the unintentional outcome was exactly that. Actually, it
is easy to predict this outcome given the bad constitutional cho-
ices made, especially relating to the presidency.
The new constitution of the RSA was negotiated for a long
time between the chief political players: the ANC (Mandela),
the NP (de Klerk) and the Inkatha Freedom Party (Buthelezi).
The player, who the most mistakes, was undoubtedly de Klerk.
He accepted in reality a one-party state under the hegemony of
the ANC against a vague promise of power sharing according
to the consociational model by A lijphart.
Mistake one: The presidency: Under the constitution, the
RSA is a presidential democracy, but the president is elected by
Parliament and not in a plebiscite. This means that the ANC
will recruit the president for the foreseeable future, because it
controls the national assembly with its supermajority.
Mistake two: The regional level of government: The new
constitution provides for a government structure with three
levels, but they are not organises according to any model of
federalism. Instead, the structure is a mishmash of federal state
and unitary state principles. On the one hand, the leader of the
provincial government is called “Premier” and the provinces
are represented in the second chamber of Parliament on the
German model of federalism. On the other hand, the competen-
cies and the taxation-budgetary powers of the provinces are
narrow. Not only is the central government powerful, but the
local governments provide many services in accordance with
central government schemes. Besides, the ANC dominates in
all provinces except Western Cape.
Constitutional democracy can only be promoted when the
key constitutional articles outline counter-veiling powers. What
the National Party that led South Africa during its tumultuous
period of Apartheid had to do in 1994 was to make sure that a
viable opposition to future ANC dominance was forthcoming.
It failed to do so, gambling instead on the naive hope that they
could continue to rule the country from the centre in Pretoria
through consociational arrangements with the ANC .
The strategy of the ruling National Party (NP) in the consti-
tutional negotiations is difficult to account for in rational terms.
Evidently, the NP believed that the ANC needed its key per-
sonalities to run a future RSA. Thus, the NP made little resis-
tance towards ANC hegemony, even amalgamating itself into
the ANC as a party section! However, consociationalism or
power sharing did not last long, as the ANC began to fill up
most key position in government and bureaucracy from its own
Economic Backwardness of Arab Civilisation
Kuran (2010) rejects common apologies for the economic
plight of the Middle East, such as colonization, or the economic
importance of the annual hajj pilgrimage. Kuran argues that the
failure of Middle Eastern economics is not due to Islam itself,
but to the fact that Muslims failed to reinterpret previously
successful economic institutions at the onset of the Middle
Ages, while the West went on with institutional innovations,
like e.g. the corporation. Several Moslem countries have aban-
doned Qur’anic economic practices they disagree with, includ-
ing the ban on interest (riba), and they have updated and re-
freshed the tax code described in the Qur’an.
Institutions and Af fl ue nce
In Why Nations Fail (2013), Acemoglu and Robinson argue
that extractive institutions destroy a country both economically
and politically, whereas inclusive institutions prom ote economic
growth on a long-run basis. One may interpret this new distinc-
tion between extractive and inclusive institutions as close to the
well-know separation between rule of law and arbitrary rule.
A political regime that runs according to rule of law would
satisfy a few conditions that constrain the exercise of political
power. Rule of law entails that power is exercised according to
the following precepts:
1) Legality;
2) Constitutionality;
3) Rights and duties: Negative human rights;
4) Judicial independence.
The theory of good governance is based upon the hypothesis
that a government adhering to these precepts will be more suc-
cessful in enhancing socio-economic development than a gov-
ernment that fails to respect these principles. Thus, economic
activity will be stimulated by legal predictability, the protection
of property, and the autonomy of j udges when testing cases for
assumed violations of legality or constitutionality.
The link between good governance satisfying rule of law
precepts 1)-4) above and socio-economic development is the
integrity of contracts, i.e. the ease with which the honouring of
agreements can be accomplished, from the making of a contract
to its enforcement in court. When e conom ic agents c an go about
their business knowing what they can contract about on the basis
of certain and reasonable expectations, then the workings of the
invisible hand is in place.
The rule of law regime off ers constraints upon political power,
whether the power of political leaders or that of bureaucrats. It
counteracts a number of vices that political power often suc-
cumbs to, including:
a) Arbitrariness:
b) Corruption and embezzlement;
c) Nationalisation of property:
d) False accusations and unreasonable search and seizure;
e) Detention without accusation:
f) Politicised court rulings.
Thus, a country which honours rule of law upholds rules that
restrain politicians and bureaucrats in an effort to promote the
outcomes a)-f), which are beneficial for both economic life and
political liberty.
Where the rules of rile of law 1)-4) are observed, one would
not always find democracy. In general it holds that democracy
implies rule of law, but the opposite may not hold. Thus, th e rule
of law set of rules anticipated the democratic regime from a
historical perspective, in both the UK and in Continental Europe .
And on the contemporary scene, one finds countries with con-
siderable amount of rule of law, although they do not practise
competi tive democracy with free and fair e lections that may be
contested by any political party whatsoever. One may map the
spread of rule of law by employing a set of indicators on the
respect for the rules 1)-4).
In the World Bank Governance project, one encounters the
following definition of rule of law”:
Rule of Law (RL) = Capturing perceptions of the extent
to which agents have confidencein and abide by the rules
of society, and in particular the quality of contract en-
forcement, property rights, the police, and the courts, as
well as the likelihood of crime and violence (Kaufmann,
Kraay and Mastruzzi, 2010: 4).
RL is explicitly separated from voice and accountability,
which is defined as follows:
Voice and Accountability (VA) = capturing perceptions
of the extent to which a country’s citizens areable to par-
ticipate in selecting their government, as well as freedo-
mof expression, freedom of association, and a free media
(Kaufmann, Kraay and Mastruzzi, 2010: 4).
Generally speaking, the rationale of the rule of law institutions
is to solve the ever present principal-agent problematic in poli-
tics, i.e. to structure the interaction between population (“peu-
ple”) on the one hand and political elites (“les dirigeants”) on the
other hand in terms of rules of governance.
Now, a few economists have presented a challenging hy-
pothesis about a crucial link between ethnic fragmentation and
rule of law that would explain th e meagr e r esults for the A fri can
continent since the year of independence (Alesina et al., 2005).
Moreover, in African societies with high ethnic heterogeneity
there would tend to be an undersupply of so-called public goods,
because the various tribes would quarrel constantly about how t o
contribute to goods and services that are indivisible. And public
goods could be allocated so that one tribe or part of the country
receives more than another. There are several hypotheses that
may account for the slow economic growth rates in many Afri-
can countries besides extractive institutions like civil war, an-
archy and anomie as well as embezzlement or corruption.
When players make institutional change, they may fail to
take the best alternative from a long-term perspective. However,
the fact that players often make mistakes about institutions does
not imply that institutional development sometimes could not
be efficiency enhancing. Take the example of global banking
regulation by means of the Basel I, II and III frameworks. One
may combine RC and institutionalism in various theories, all
claiming that rules matter besides preferences. However, ex-
treme institutionalism argues that rules determine peoples
behaviour. This thesis is not acceptable within RC institution-
alism, which claims that people change the rules in a rational
manner, calculating the value of alternative framing of institu-
tions. The difficulty with RC institutionalism is the implicit
assumption about social teleology or beneficial evolution. It
happens that countries introduce inferior institutions that ham-
per development. But why? Once they realise the mistake, why
do they not change the institution as soon as possible? Once an
institution is in place, there may exist strong interests that want
to maintain it, even if it is malfunctioning. Thus, institutional
evolution towards greater efficiency cannot be taken for
Institutions as Political Structures
of Governance
March and Olsen (2005: 4) state that “Institutionalism, as
that term is use here, connotes a general approach to the study
of political institutions··· ”, which for political science has
mean a focus upon concrete political institutions: “the legisla-
ture, executive, bureaucracy, judiciary and the electoral sys-
tem.” (March & Olsen, 2005: 7)
We have here the second meaning of institution from the dic-
tionaries above, namely institution as organisation. In what is
referred to as “sociological institutionalism” a radical theory of
institutions is presented that is aimed at challenging rational
choice. This neo-institutionalist theory suggests a whole differ-
ent conceptualization of institutions and outlines a theory of
human motivation that supposedly supplants the RC framework.
I will discuss its two tenets:
a) Institutions include more than rules;
b) Human behaviour is driven by institutions.
One may consult the many publications by Johan P. Olsen,
regarding himself as the perhaps key exponent of radical insti-
tutionalism. The first thesis is the ontological one, stating that
society consists of institutions. The second thesis is the expla-
natory one, claiming that understanding individual action en-
tails to use the “logic of appropriateness”.
The Ontological Thesis: Institution s as Real Political
“Institution” denotes a set of organisations or political struc-
tures like legislatures, cabinets or governments, the judiciary
and the bureaucracy. Political institutions are the basic parts of
the state, consisting of thousands of individuals partaking in
collaborative efforts. There are public and private institutions
besides the political ones, like universities and enterprises as
well as banks. Radical institutionalism offers a theory of all
institutions underling their wholeness, solidarity and collec-
tiveness, Thus, we read from March and Olsen, 2005:
“An institution is a relatively enduring collection of rules
and organized practices, embedded in structures of mean-
ing and resources that are invariant in the face of turnover
of individuals and relatively resilient to idiosyncratic pref-
erences and expectations of individuals and changing ex-
ternal circumstances (March & Olsen, 1989, 1995: 4).”
One may ask: What is this definition of “institution” true of?
The US Congress, the Norwegian Stortinget or the German
Reichstag? Actually, this definition leaves out the most impor-
tant feature of legislatures, namely the actors and their prefer-
ences. The aggregation of individual preferences into a social
choice is the hallmark of legislative institutions.
Political institutions, according to Olsen, have the following
characteristic properties: memory, structures of meaning (?) and
resources. But they also have: culture, rules, division of labour
and hierarchy, which make then into social systems (Olsen,
2013). Political institutions tend almost to prevail over indi-
viduals (“idiosyncratic preferences”) to such an extent that they
almost dominate the political landscape.
Thus, it is not only the case that institutions to Olsen are gi-
ant political structures like legislatures, presidencies, judicial
branches and systems of bureaux. Olson also presents a frame-
work of analysis of these public organisations that is in line
with the general organisational models of bounded rationality
and garbage can, applicable also to private organisations like
firms and joint-stock companies.
An alternative framework of analysis would look upon insti-
tutions as webs of contracts, underlining that organisations live
under a rationality assumption (Thompson, 2003; Milgrom &
Roberts, 1992). Here, the assumption is that of Quid pro Quo,
i.e. organisations must deliver or display performances in ac-
cordance with promises, expectations and cost estimates. This
approach leads to considerations of strategy and tactics as well
as principal-agent deliberations about remuneration and pun-
ishment, according to the economics of information.
The ontological commitment of radical institutionalism is a
strong one, amounting to a belief in institutions as actors be-
sides individuals. Thus, the British Parliament is something
more than the collection of MPs at any moment in time. Its
activities mould the decisions of individuals, MPs or employees,
with the result that the British Parliament has interests that go
beyond those of the involved individuals. It is not easy to see
how a complex notion like March and Olsen’s definition of
“institution” above could be translated into testable empirical
propositions about political structures. It is not on par with
middle-range institutionalist hypotheses like consensus democ-
racy (Lijphart, 1984) or presidentialism (Linz, 1994) and feder-
alism (Riker, 1975) which satisfy the criterion of falsifiability.
This doctrine is called variously holism or emergent proper-
tiesdenounced sometimes as scienticism or historicism. It is
probably untenable. Only human beings pursue objectives, as
methodological individualism claims. When organisations act
like government, the bureau, the university etc, then it is always
a group of people who act together somehow in accordance
with the rules of the organization. When the people in the or-
ganizations change, then it is probable that other actions will be
take place, reflecting new interests. To speak of Pentagon or
Wehrmacht” as if it was a single institution with own goals
and unique agency is more confusing than clarifying. Under-
standing what an “institution” does means to analyse how cer-
tain key players influence the agenda of the organization and
directs it towards these objectives. Take away the people and
their preferences and strategic behaviour, and there is nothing
left of the institution.
The Explanation The si s: “Logic of Appropriateness”
This thesis argues that people are driven by rules. It is thus
an institutionalist argument but in the first meaning of “institu-
tions”, namely rules. When “institution” stands for organiza-
tions, then there is no assumption about what drives individuals
in these organizations. The explanation of human behaviour by
means of rules militates against RC, as RC would include rules
in the conditions for actions, but place the emphasis upon the
calculation of benefits and costs.
The major difficulty with the notion of a behavioural logic of
appropriateness is that it does not square with elementary ob-
servations about how human beings relate to rules. People take
the existence of rules into account—this is no doubt true, whe-
ther in order to comply or to break the rules. However, at the
core of human behaviour is the calculus of benefits and costs in
relation to the observation or not of rules in place. Thus, people
obey rules because it is advantageous to them or because they
consider the rules legitimate. They are not merely driven by
In any action, existing rules may be taken into account by the
player, but it is his/her consideration to follow or disobey the
rule that counts. In this deliberation about what is advantageous
to do, obeying the rules is one serious consideration. Breaking a
rule may bring costs to the player that are not compensated for
by other benefits from disobeying the rule. It is not the rule in
itself that determines the action, but the weighing of benefits
and costs linked with the rule. Players figure out the rules of the
games in order to work the system to their advantage.
The new institutionalism in the social sciences claims that
besides the logic of consequentialism, typical of rational choice
modelling, there is somehow a “logic of appropriateness”. Two
major scholars in organisation theory state:
The logic of appropriateness is a perspective on how human
action is to be interpreted. Action, policy making included, is
seen as driven by rules of appropriate or exemplary behavior,
organized into institutions. The appropriateness of rules in-
cludes both cognitive and normative components (March &
Olsen 1995: 30-31). Rules are followed because they are seen
as natural, rightful, expected, and legitimate. Actors seek to
fulfill the obligations encapsulated in a role, an identity, a
membership in a political community or group, and the ethos,
practices and expectations of its institutions. Embedded in a
social collectivity, they do what they see as appropriate for
themselves in a specific type of situation. (March & Olsen,
2004: 3)
The idea that people would follow rules when considered le-
gitimate could not amount to a full theory of human motivation.
People act because they have reasons, i.e. wants and beliefs
meaning incentives. Rules, or better beliefs about rule, may fi-
gure prominently in some reasons, but rules are not in them-
selves reasons of action. In the philosophy of action, the enig-
matic problem is the link between reason and action, whether
empirical or logical (Davidson, 2006; von Wright, 2004).
Working the system: But rules may enter reasons, as in the
notion of “working the system”: People who succeed in life
know the rules in place that constrain action and they take them
into account when developing strategies in order to achieve
their goals. Better to obey the norms in place than breaking
them! But this does not imply that the rules determine the be-
haviour. The actor simply takes the belief in the legitimacy of
the rules in place into account, when developing a strategy to
accomplish his/her ends. There exists no logic of appropriate-
ness, as action ensues from incentives, not rules, or beliefs
about rules, in themselves.
Preferences, Belief s and Rules
Institutionalism, or the thesis that “institutions matter” may
be reconciled with the rational choice approach, underlining the
role of incentives. Institutions as rules that are enforced with a
certain probability restrain the set of alternatives of action,
which is highly relevant when explaining the course of behav-
iour. However, radical institutionalism offers a stronger thesis,
namely that institutions alone can explain social phenomena. In
the literature, there is one main version of radical institutional-
ism, i.e. that of March and Olsen.
Radical institutionalism speaks of rules as the explanation of
behaviour or interaction. But can a rule be the cause of an ac-
tion. A rule involves a norm stating what to do. As social real-
ity is replete with norms of various types, they are crucial for
understanding how social activity is norm based. The strong
thesis about institutionality claims that institutions offer both
necessary and sufficient conditions for an action. How is this to
be understood? And how is such a thick concept of an institu-
tion to be specified?
Preferences direct behaviour, but it takes information about
the rules into account in several ways:
1) Direct Rule Observation
Some actions like tax declarations for instance directly target
a body of rules. The player may respect these rules or attempt
to bypass them somehow. He/she may claim that they are not
crystal clear, hoping to use loopholes.
2) Indirect Rule Observation
Other actions take the existence of rules into account but the
main objective is not the observation of the rules. In a marriage
act, people marry because they want to live together, not be-
cause they wish to follow the rules in place.
Radical institutionalism wants to replace rational choice as
the main paradigm for the social sciences. It is hardly a tenable
or promising approach, as human behaviour is much deter-
mined by preferences. This is why game theory has so much to
teach social scientists, because it focuses upon choice and mod-
els the walk of life according to Kierkegaard’s notion of inde-
terminacy and personal responsibility. Actually, there is no
logic of appropriateness, because human beings as players will
always take the existing norms or systems into account when
they act, but the driving force comes from interests or wants.
Evidently, in the organisation of the Eurozone incentives have
trumped any logic of appropriateness, as several countries have
been driven by incentives to defect from the basic rules in the
Maastricht institution.
In any form of intentional behaviour, it is incentives, ex-
pected benefits and costs that constitute motivation. Rules or
norms restrain behaviour but action is never “driven by rules”,
as players decide to take them into account, respecting them or
reneging upon them, depending upon which strategy is most
beneficial to them, in view of their incentives. To be considered
“natural, rightful, expected and legitimate”, rules must be com-
bined with an enforcement mechanism. Norms are never self-
enforceable. As Weber (1907) emphasized in his painstaking
critique of Stammler, one has to be careful not to commit the
sin of social teleology, assuming that “natural” or “legitimate”
rules are simply fulfilled because they are “rightful” norms or
institutions (Weber, 1988).
Human behaviour can be analysed as intentional activity ex-
cept when it is a matter of emotional behaviour or custom. It is
a major philosophical issue whether the intention behind be-
haviour is a so-called Humean cause. The analysis of intentions
may be expanded to include not only complex means-end
chains but also beliefs. Thus, it has been argued that intentional
human behaviour falls outside of the concept of causality as
constant conjunction. Instead, the intention behind behaviour
offers a necessary or sufficient reason for undertaking an activ-
ity. And reasons are simply not Humean causes. This position
in the philosophy of action is rejected by philosophers who
adhere to the unity of science program, which argues inter alia
that the principles of causality, derivable from Hume, apply to
all domains of reality (Davidson, 2006).
Yet, whether reasons constitute Humean causes or not is cer-
tainly a major problematic for the social sciences, but the point
to be emphasized here is that human beings do not normally
have an intention to follow a rule simply because it is part of an
institution. People, whether in public or private roles, adhere or
break a rule or norm because they gain from such behaviour, at
least so they believe.
Rules of the Game: Chess as Base Mo del
Rules may be formula ted in so-called deontic sentences, stat-
ing what is allowed, obligatory and forbidden in social life. A
rule when enforced constitutes an institution. The game of
chess offers a most simple but convenient model of social ac-
tion or interaction, comprising:
1) incentives, or the will to prevail or at least score even.
2) rules, or the norms about permissible and obligatory
To enforce these rules, there is an umpire. In social and eco-
nomic interaction, human motivation varies as to the strength of
the incentives, as well as with regard to the transparency of the
guiding rules. Often the judiciary is the ultimate umpire, espe-
cially when the rules in question are to be enforced as law. The
rules of chess do not determine the course of game, nor is the
will to win a sufficient condition for such an outcome. What is
decisive besides rules and incentives is the capacity to make
strategy and employ tactics. So it is in much of social life.
In the chess model of social interaction, the institutions of
chess are the rule of the game, as laid down in international
conventions and enforced as regularities by umpires. Agency
only belongs to the players, who are motivated by the desire to
play and perhaps win. The game itself as it unfolds in each
single instance is determined by strategy and tactics.
The EU Institutions: Rules and Organisations
The institutions of the Union are made up of various entities,
corresponding to the ambiguity in the concept of an institution.
Thus, we have the structure of political organisations in Brus-
sels on the one hand and the rules and social practices making
up the integration of the member state countries on the other
hand. EU regulation comprises thousands of rules about activi-
ties in the Euroland, including the four freedoms. It is party
treaty law, legislation and court rulings, like e.g. the famous
Cassis de Dijon decision of the European Court of Justice.
European Union decision-making produces rules for the ac-
tivities of member states in accordance with its regime: institu-
tions as regulation. One may distinguish between the rules that
govern legislation in the sense of hard law, binding on the Un-
ion individual members and soft law meaning norms or policies
that are recommendations or conventions: Hard Law and Reg-
ulationthe Community Method; Soft Law and Partnership
the Open Method of Coordination. By means of the governance
regime for the EU, the activities—economic, environmental
and socialare regulated by thousands of norms.
The EU as a structure of political institutions: To what extent
is there now a theory of the European Union as a set of organi-
zations interacting in terms of a set of rules? The two main
contenders have been functionalism and inter-governmentalism.
Some institutional questions on EU include:
Is the EU a state? This is an institutional question about
the nature of EU as regional mechanism.
Is the EU a federation? Or is the EU a coming federal
Does the EU have certain institutional flaws like a “joint
decision trap”?
Is the EU multi-level governance?
How can EU be reformed?
In the debate upon the EU and its institutions it is argued that
the EU does not operate in an optimal fashion. The gist of the
critique against the EU is that it is not strong enough to engage
in community wide decision-making, either internally or exter-
nally. Some schola rs blame the institutions of the EU (Scharpf),
whereas other scholars envision changes in the operations of
the EU Parliament (Hix), becoming a strong legislative body
delivering legitimacy to the EU. Yet one may pose the question:
preferences or rules—what restrain in reality the EU policy-
In the neo-institutionalist literature on the EU, there has
emerged a key term recently: “Europeanisation”. There is ac-
tually already a handbook on Europeanisation despite the fact
that the concept(s) was constructed as late as around 2000. Exa-
mining the already large set of books and articles dealing with
Europeanisation, one arrives at the following list of topics cov-
ered by this term:
1) The impact of EU law upon the policies and rules in
member states;
2) The impact of EU institutions upon the political institu-
tions in the member states;
3) The impact of member states’ institutions upon EU law
and policies;
4) The impact of EU upon other regional organisations in the
world, like ASEAN, UNASUR, EC OWAS, etc;
5) The impact of EU upon outside states in so far as they ac-
cept or introduce EU institutions, like rules about human rights
or rule of law.
Two things may be pointed out in relation to this list of
clearly different meanings, which must give rise to ambiguity:
a) The meanings 1 and 2 above seems to make perfect sense,
as the creation of the EU is a major event in world history, in-
volving a lot: political bodies, budgets, bureaucracies, legal
order, foreign policy, the Schengen regime, etc;
b) Meaning 3 appear somewhat out of place, because it re-
verses the direction of influence postulated in means 1 and 2;
c) Behind the meaning 4, there is the hypothesis that the EU
model of regional integration is somehow the guiding one, glo-
bally speaking. Yet, this amount to a completely unfounded
belief, the EU being somehow THE model of regional integra-
d) “Europeanisation” meaning the acceptance of any state of
rules concerning human rights in particular or rule of institu-
tions in general is a misnomer. Both rule of law and human
rights constitute a universal patrimony that cannot be designat-
ed “European”.
I would claim that only meanings 1 and 2 can be defended as
promising. The findings in this literature can be summarised as
follows: The impact of E U on the legal order of me mber states
meaning 1is extensive, whereas there is little of any impact
upon the structure of political institutions—meaning 2, with
perhaps the exception of a few Eastern European countries that
may have introduced their constitutional changes in the hope of
thus qualifying for EU membership.
One may analyse the interactions between the EU on the one
hand and its so-called partners around the Mediterranean Sea as
examples of Europeanisation in action, the EU promising sup-
port on the condition of these governments accepting rule of
law and human rights. In relation to Turkey’s membership ap-
plication, the EU employs the enforcement of human rights as
one of its basic conditions for entrance. Yet, this type of inte-
raction for whatever it is worth does not make these institutions
“European”. In addition, one may remain sceptical about these
reasons for endorsing universal or cosmopolitan institutions, as
they may merely constitute bargaining chips for the promotion
of other more mundane interests.
In the philosophy of the social sciences, there has been much
interest in the ontological status of institutions. Thus, it has
been claimed that institutionality is closely linked with norma-
tivity, constituting a rule or norm dimension that is entirely
lacking in the subject matter of the natural sciences (Winch,
1984), calling for a method ox explanation that is different from
the covering laws approach with scholars underlining the prin-
ciple of causality. When examining in depth what “institution”
stands for in the emerging literature called “new institutional-
ism” in economics and political science, one encounters con-
ceptual ambiguity, “institution” denoting:
1) Rules or social practice;
2) Organisations or political structures of governance.
This conceptual ambiguity is well reflected in the two major
schools of neo-institutionalism: atomistic versus holistic ap-
proaches. Thus, one may theorize whether a rule like private
property rights or the capacity to create house mortgages pro-
pels economic development. Or one may analyse the political
institutions of a country, whether they are democratic or autho-
ritarian, etc. Both senses of “institution” are often occurring in
the literature and quite legitimate. One should not confuse these
different concepts.
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