Let’s take institutional failure more seriously
By Aseem Prakash and Matthew Potoski
Around the world these days, important governance institutions are in turmoil. The Euro crisis remains unresolved. Britain is debating its exit from the EU. A flood of refugees is overwhelming entire regions of the world. The violence in Middle East goes on unabated and in unthinkably brutal ways. The US Congress is gridlocked in the face of mounting problems such as rising inequality, the grim opioid epidemic, and fourteen percent of Americans being food insecure. The 2005 Enron scandals foreshadowed a years of corporate scandals, culminating in preeminent banks being charged with manipulating the all-important LIBOR interest rate.
Civil society is not immune to institutional failure, as evidenced by the Catholic Church’s struggle with sexual abuse charges. Nonprofits and NGOs are losing credibility as more and more they seem to be part of the overall problem, serving as interest groups with narrow agendas. The list of failures and dysfunctionalities goes on and on.
Taken together, these examples suggest that declining confidence in social, political, and economic institutions is reaching a critical point. This is creating fertile ground for the rise of social movements and counter movements grounded in the frustrations of common citizens, some valid and others misguided, that instead of advocating solutions target minorities, immigrants, the Wall Street, Washington elites, EU bureaucrats, and so on.
Our symposium in the June 2016 issue of Regulation & Governance is intended to lay out a new agenda for studying the growing problem of institutional dysfunctionality. We begin by looking for explanations for the emergence of dysfunction among hitherto well-functioning institutions. Since World War II, there has been a period of “relative” calm and prosperity, albeit one that occurred under the specter of the Cold War. This is not say the world did not face critical problems — nuclear war and mass poverty, for examples. But the institutional infrastructure for facing these problems, be it local, national, regional and international — seemed better positioned to respond.
Yet, in the last two decades, institutional failures seem very glaring. For one, hitherto well-functioning states seem to have become less effective in aggregating and acting upon citizens’ preferences. Many policy initiatives of the 1990s — deregulation, privatization, new public management, private regulation, regional integration, civil society, and so on — were initially billed as major social advances but now have fallen short of expectations.
How to measure institutional performance? What is institutional failure and success? Given the asymmetrical impact institutions have on different populations, how we might aggregate their impact? These are the sorts of issues the contributors to this symposium have examined.
The quest for improving institutional performance should start with identifying “objective” measures of dysfunction and agree on how to benchmark it. In other cases, we may have to rely on perception-based measures. No matter what the imperfections, serious effort has to be expended to measure institutional performance. Once these measures are identified, the critical issue is benchmarking them. The symposium papers offer several ways to think about this crucial issue. One might assess an institution by comparing its performance in two contexts, one where the institution is present and the other where it is absent. This approach is often adopted in longitudinal and cross-sectional analyses. This approach is also evidenced in the growing literature that employs randomized controlled trials.
The symposium also examines four sources of institution failure:
- Design failures. Institutions represent the product of political bargaining and negotiation among actors; agreements can break down if parties opportunistically exploit ex-post advantages. Further, institutions may be imperfectly designed because their creators lack information about the preferences and resources of those to be governed. In some cases, the design may be so dysfunctional so as to create perverse incentives, thereby undermining the win-win scenarios that institutional sponsors might have sought.
- Institutional mismatch and obsolescence. Rationally designed institutions tailor their rules to specific contexts and actors. Institutions may fail if the actors have acquired new capabilities or new actors have emerged that can easily circumvent institutional rules.
- Adaptation failures. Because institutional designers cannot anticipate all contingencies, institutions must have the ability to adapt to changing circumstances. Yet adaption requires that the residual power is clearly assigned and there is an entrepreneur who is willing to undertake the task of institutional reform. When residual power is unclear or the entrepreneur is absent; institutions begin to decay.
- Capture: institutions begin to function poorly if they are captured by vested interests.
If we can use these insights to help identify why institutions are failing, what then becomes the game plan for improving research and practice on institutional design and management? Experiment with paternalism? Rethink democracy and pursue institutional reform? Absent exogenous shocks, how might institutions regenerate, or new ones emerge? These are the sorts of questions and debates we hope this symposium will generate.
Aseem Prakash is a professor of political science and directs the Center for Environmental Politics at at the University of Washington, Seattle.
Matthew Potoski is a professor in the Bren School of Environmental Science and Management at the University of California, Santa Barbara.
Their special issue in the journal Regulation & Governance is located here.