Saturday, June 22, 2013

Institutional designs for progressive reform

One place where Jon Elster's philosophical thinking intersects with empirical social science is in the field of institutional design. This involves an important question: What features of institutional design can be identified as having beneficent features of operation when exercised by normal groups of individuals?

This topic has cropped up several times in Elster's career. One important instance is the work he highlighted about alternatives to market society in Alternatives to Capitalism (Jon Elster and Karl Ove Moene, eds., 1989).  Here is how Elster and Moene put the point in their introduction:
Capitalism -- actually existing capitalism -- appears in many respects to be an ugly, irrational, wasteful way of organising the production and distribution of goods and services.... Five of the essays in the present volume discuss whether there could be alternatives to presently existing capitalism other than central planning. Could, for instance, central planning be tempered by the market, or capitalism tempered by planning? (1-2) 
So the core questions that arise here are these: Are there workable alternatives concerning the coordination of work and the management of property that work better than laissez-faire capitalism and wage labor? And what does "better" mean in this context? A partial answer to the "better" question might go along these lines: we want workable institutions that better embody equality and self-control than an unregulated market. "Workable" means "reasonably efficient and productive", and self-control means something like "shop floor self-determination."

It is important to be specific about the normative aspects of institutional design. In order to assess the goodness or badness of an institution, we need to have specific virtues that we hope it will fulfill. Here is the list of virtues that Elster and Moene identify for basic economic institutions:
We discuss some of the main normative criteria that are relevant to a comparison of different economic systems. These include static efficiency (including full employment), dynamic efficiency, self-realisation, participation, community, quality of preferences, stability, economic freedom, and income distribution. (3)
These desiderata need to be spelled out more fully. Static and dynamic efficiency as well as stability have to do with the economic performance of a set of institutional arrangements when populated by normal human beings. Are resources allocated across productive activities in an efficient way? Is labor productivity high? Do the institutions encourage high-quality production? Self-realization, participation,  economic freedom, and community are all normative goals we may have for basic social institutions. Do the institutions provide ordinary human beings the opportunities they need to fulfill their human talents and aspirations? Do the institutions provide opportunities for all participants to take part in the decision-making processes of the institution? Do these institutions afford individuals a broad range of choice in terms of how they conduct their lives?  Do the specific arrangements of the institutions promote trust, solidarity, and mutual respect among the persons involved in them? Quality of preferences has to do with the effects these institutions have on the formation of the goals and desires of the individuals involved. Do the institutions help to cultivate an appetite for what J. S. Mill described as the higher pleasures -- a preference for Pushkin over push-pin? And income distribution is a feature that has both normative and empirical characteristics; highly unequal distributions may undermine stability, and they may also undermine self-realization and participation.

One alternative economic institution that is considered in detail in the volume is workers' cooperatives -- systems where the cooperative owns the capital of the enterprise and democratic rules of decision-making permit cooperative members to define work rules and income distributions. Karl Ove Moene explores this institutional variant in his contribution. Here is how Elster and Moene introduce the idea of a cooperative in the introduction:
What is a cooperative? The answer to the question might seem obvious: A cooperative is a firm in which the workers own the means of production and have full control over all economic decisions. Yet the answer, as it stands, is ambiguous and incomplete. It fails to capture the variety and complexity of existing cooperatives. (22)
A more complete and differentiated taxonomy of cooperatives is needed, since variations in institutional design can have very large consequences for the behavior of the overall institution. Here are some of the ways that cooperatives vary in the historical record:

  • Full ownership by workers or just workers' control over decisions? (22)
  • Equal ownership rights or stratified ownership rights? (24)
  • Shop-floor democracy for all workers, or professional management team selected by the workers? (24)
  • Static business environment or rapidly changing business environment? (27)
  • Large firms or small firms? (27)
  • Production process that permits high/low level of monitoring by other workers (27)

Elster and Moene suggest that these variations of internal design and external business and technical environment make a large difference to the effectiveness of cooperative firms.

Elster and Moene argue that the workers' cooperative alternative needs to be carefully evaluated with respect to the desiderata mentioned here.  They argue that this evaluation needs to be comparative, and it needs to proceed along two tracks -- observation of the actual experience of such institutions, and application of economic theory to the fundamentals of the institutional arrangement. The economic theory of cooperatives is weak, in their assessment, but there is a fair amount of empirical data about how they work. And the empirical data is favorable to cooperatives. "The empirical literature suggests, but far from unambiguously, that cooperation and participation increase productivity" (29). They cite studies documenting lower turnover of the labor force, lower rates of absenteeism, and no strikes (29).

Also worth highlighting is Elster's own contribution to the volume, "Self-realisation in work and politics: the Marxist conception of the good life" (127 ff.). Here Elster takes issue with several foundational premises of the pro-capitalist argument as a normative position: "(a) The best life for the individual is one of consumption ... (b) Consumption is to be valued because it promotes happiness or welfare, which is the ultimate good" (127). Against these comsumerist ideals, Elster argues for the importance of self-realization -- the full and free development of one's talents and aspirations, to a reasonable extent. He contrasts self-realizing activities (mastering the piano) with activities of pure consumption (eating a tuna sandwich at your desk) and drudgery (sweeping the streets for forty years). This is plainly a normative position: a life involving self-realization is better than a life of consumption and drudgery. And it has a long pedigree, from J. S. Mill and J. J. Rousseau to Kant to Sen and Nussbaum. What Elster adds to the tradition is important, though: the idea that our ideal of personal fulfillment and a good human life is in fact a key element of the matrix by which we should evaluate alternative institutions.

This is a very interesting volume, for several reasons. The individual essays are very good, by experts like G. A. Cohen, Alec Nove, and John Roemer as well as Elster and Moene. But even more interesting is the shock value of its topic in the neo-liberal environment in which we have found ourselves for the past twenty years or so. To have serious scholars making careful, rigorous efforts to explore and evaluate "alternatives to capitalism" is very surprising in today's environment; and yet the essays were written as recently as the late 1980s. Plainly there was practical and political interest in the topic of alternatives to capitalism in those years that has largely disappeared in today's discourse. This suggests that somehow serious progressive thought has been muffled for the past twenty years. It is time to resurrect it.


Michael E. Smith said...

It is interesting that Elster and Moene seem to assume (from your summary) that the only alternatives for modern institutions are the market and the state (central planning tempered by the market, or the reverse). But many scholars have identified two major domains independent of these two realms that are often superior: communities, and civil society.

Eleanor Ostrom and colleagues have shown that common-pool resources are typically best managed by local communities far more successful than by the state or the market. Samuel Bowles and Herbert Gintis have discussed a similar but more generalized concept of community as a problem-solver more effective in many domains to the state or the market. They distinguish institutions by the degree of longevity and anonymity of the dominant social relations. Markets are anonymous and ephemeral; the state is anonymous and enduring. Communities are enduring and personal (and they leave the fourth cell, ephemeral and personal, blank).

As for civil society, Michael Burawoy defines it as: “a product of late 19th century Western capitalism that produced associations, movements and publics that were outside both state and economy—political parties, trade unions, schooling, communities of faith, print media and a variety of voluntary organizations” (2005, p.24).

When I think about institutional design (another domain of Ostrom’s research), many of us find more satisfying institutions (in the normative framework you describe) in communities and civil society than in the state or the market.

Bowles, Samuel and Herbert Gintis (1998) The Moral Economy of Communities: Structured Populations and the Evolution of Pro-Social Norms. Evolution and Human Behavior 19:3-25.

Bowles, Samuel and Herbert Gintis (2002) Social Capital and Community Governance. The Economic Journal 112(483):F419-F436.

Burawoy, Michael (2005) For Public Sociology. American Sociological Review 70(1):4-28.

Ostrom, Elinor (1990) Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press, New York.

Ostrom, Elinor (2005) Understanding Institutional Diversity. Princeton University Press, Princeton.

Poteete, Amy R., Marco A. Janssen and Elinor Ostrom (2010) Working Together: Collective Action, the Commons, and Multiple Methods in Practice. Princeton University Press, Princeton, NJ.

Daniel Little said...

Good points, Michael. I'm a big admirer of Ostrom.