Accumulation of productive capital assets is only a proximate cause of prosperity; the real cause is progressive institutions. There is little to argue about grandiose projects (steel mills, petrochemical plants, land reform, public health programmes and free education) unless a country's institutions have the necessary checks and balances to limit corruption and wastage. An institution is a total package of policies, rules and regulations, technology and capital assets, good governance, market mechanisms, good relations with outsiders (environmental obligation), and interactions and engagements with the people.
Diverse institutions: There are various ways of institutionalising organisations. Some organisations collect arts while some have pools of rubbish in front of their front gates; some have the eight-hour policy while others make their employees work for twelve hours; some have sports and cultural activities for workers and employees while others do not have any. Many even do not give employment letters to their employees. Public sector organisations' authorities are usually levelled as good humanists, though such organisations are losing concerns while private sector organisations are blood-suckers but profitable. Many consider management of organisations as functional while many consider it as behavioural.
Organisational environment: Organisational structures, policies, positions, programmes and procedures are not internal only but also shaped by stakeholders and people external to an organisation. That means social legitimacy is a requirement. Regulatory environment such as governmental organisations, legislation and court decisions are all just primarily regulative agents that impact on the structure and activities of organisations. Today's organisations are more open to and affected by non-local events and ideas. There are multiple and varied facets of environmental changes in information technology-increasing mobility of capital, labour, ideology, beliefs, consumer preferences, mass media, consultants and the Internet.
Institutions-not mere technical activities: An institution is not a mechanical process of day-to-day production and distribution of goods and services. In the specialisation of mass production, workers are sometimes 'separated' from the means of production, which he does not own and suffers 'alienation'-a sense of powerlessness. Institutionalisation can be defined as the emergence of orderly, stable, socially-integrating patterns out of unstable, loosely-organised or narrowly-technical activities.
Self-interests: An organisation is more or less compatible with the self interests of members depending partly on where they are in the organisation's hierarchy. Managers in large public limited companies work for growth and expansion in their own interests and not always in shareholders' interests. A trade association may lobby for reduction in import duty on their products. Many professional organisations may campaign for ideologies which may not always be good for public interests, for example, regulations and subsidies.
A socio-psychological study: The study of institutions can be categorised as a socio-psychological study. It is an analysis of the social process and social structure. It explains why the society is moulded in a certain pattern. It is a theory of the way the patterns of economic activity and relations are organised. It examines the origin and basis of social gradation such as class, caste or communal group. Man's loyalty and allegiance are manifold. The theory of institutions shows the way towards an analysis of interaction and interdependence of the system of associated relations, norms and evaluations and their consequences. The history of institutions furnishes the logic of social evaluation.
Evolutionary: An institution follows evolutionary principles. Some entities prosper more than others because of circumstances and information available. Evolution is a function of environment and interactions between entities. Institutions have to adapt to complex systems. An institution has to interact with others and their environment in a dynamic process. It has to go through an emergent system where interaction is the key agent. Contingency is embedded in the emerging system-import and export flourish more near rivers and sea. Environment and history exert influence on how individuals and institutions adapt and change over time. The evolutionary theory offers a framework for understanding sources of endogenous and exogenous changes.
Good institutions are supplementary to judicial courts: Courts are not institutions of central and daily relevance for the common people. On the other hand, there are numerous other institutions which may be much more important to the ordinary people. There are major constitutional institutions like parliament, government and cabinet. The ordinary citizens may at least have a chance to vote for their local member of parliament. They read and hear more everyday about these institutions than about the courts. Importantly, there are neighbours and the local community where many conflicts are settled. The courts are the last resort for many people.
Insiders and outsiders: Grief (2004) has given a broader definition of an institution. Institutions do not emerge spontaneously. They are rather designed and implemented by decision makers (public authorities, managers, etc.) A good institution has not only insiders like professional engineers and experts, it has also outsiders who are advisers and celebrated people like lawyers, university professors and educationists. Policy makers and experts are continuously helping in shaping up new ideas and plans in all sectors at the private, public, national, regional and international levels.
Cognitive and aesthetic process: An important institutional process is generation of cognitive-ideas and adding new values to products and culture. This is a creative process which involves not only mechanical day-to-day skill but something more of a mental process involving evaluation, scrutiny, research and invention. Institutions are the result of the process of making any rational choice. Beliefs about what is feasible and what is appropriate play a major role in evolution of institutions. For institutions, the human purpose, intelligence and forward-looking planning are more important than any more or less random change. And last but not the least, an institution symbolises an aesthetic process which maintains beauty in its product, service, culture, getup, leadership, environment, design, behaviour and even day-to-day interactions among different stakeholders.
Extractive and inclusive institutions: Extractive institutions concentrate power in the hands of the elite by garnering resources from the excluded. But inclusive institutions share power with the people. Inclusive institutions enforce property rights and ensure law and order, a level-playing field and investments for the long-term against the short-termism. By contrast, extractive institutions are guided by absolute power, greed, fixed beliefs and create 'vicious circles'. Extractive institutions are characterised by monopolistic behaviour and dictatorship. Sub-Saharan Africa, Pakistan in Asia and Middle East countries still see dictators, feudal and crony capitalism still prevail there. But European governments set up long ago economic, political and social institutions providing incentives for property rights, democracy, constitution, human rights, law and order, decentralisation of administration. They also ended arbitrary taxation and abolished monopoly.
A philosophical category: Research organisations, museums, newspapers, and art galleries are emergent social institutions. Needs or interests are not the main reasons for organising institutions. Gambling and brothels, whether licensed or not, are not considered institutions, because these are not aimed at meeting any dignified needs or interests. An institution rather is considered to be in the philosophic category. Science or knowledge is a distinct social institution. Literature, art, music and sports are recreational institutions. In sociology, institutions involve both personal and non-personal or cultural elements-personal elements are human relations and their interaction, and cultural systems concern linguistics, aesthetics, art, literature and sports.
Dr. Dhiman Chowdhury is Professor of Accounting at Dhaka University.
dhiman_chowdhury@yahoo.com
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