capacity development and institutional change jaap voeten and saeed parto seminar ‘scrutinizing...

Capacity Development

and Institutional Change

Jaap Voeten and Saeed Parto

Seminar ‘Scrutinizing Success and Failure in Development’

Wageningen International, 3 Dec. 2007

Objective

To promote understanding of institutions and institutional change in capacity development …

By introducing several concepts from new economic theory.

Contents

1. Problem exploration ‘capacity development and institutional change’ (JV)

2. Review institutional theories economics (JV, SP)

3. Analytical framework institutional assessment (SP)

4. Case illustrations (SP, JV)

Seminar problem statement

‘A significant cause of failure of many well intended capacity development interventions is a

limited understanding of institutions and falseassumptions about processes of social change’.

More often then not, CD interventions do not meet expectations. There is something missingin the existing CD approaches, methods, plans

Why would understanding institutions be critical in CD?

Capacity Development

What is it? Many definitions…

Two essential elements: various approaches, strategies and methodologies seek to improve performance at different levels

Still quite vague, what is meant by the term ‘capacity’?

Capacity

Abilities, skills, understandings (explicitly addressed in CD)

Attitudes, values, relationships, behaviors, motivations (implicitly, indirectly addressed)

(Resources and conditions)

What is missing/implicit?

Issues of attitudes, mentalities,values, motivations, culture, norms all concern:

Human interaction

There is something missing in our understanding of human interaction in CD

Emerging questions

How could we better understand the human interaction in capacity development?

What theories on human interaction exist

and could be of help?

What about institutional theories?

Theoretical concepts

New economic theories address human interaction in their analysis:

Transaction Cost Theory

New Institutional Economics

Evolutionary Economic Theory

Transaction costs theory

What makes some markets

more imperfect than others?

Transforming Transacting

Costs of measuring, enforcement, (dis)trust

Transaction costs

Costs implied in economic transacting due tohuman interaction issues. Transaction costs need to be taken intoaccount in the analysis.

Assuming that measurement, enforcementand trust are costly and context related, explains why some economies/marketsdevelop better than others.

New Institutional Economics

What determines the transaction costs?

In economic transaction, rules of the game areframed (contract, enforcement, trust). If the framework is clear -> low transaction costs

Rules of the game = ‘Institutions’

Institutions are the rules of the game in asociety, they are the humanly devisedconstraints that shape human interaction.

Examples of institutions

Formal rules: constitution, law, policy, regulations, tax, contracts on paper

Informal rules: conventions, norms ofbehavior, values, attitude, (self imposed)codes of conduct, routines, personalstandards of honesty

Institutions (rules) <-> Organizations (players)

Functions of institutions

provide stability and predictability facilitate behavior in recurrent interaction codify accumulated knowledge in routines

and traditions communicate values by containing social

prescriptions for behavior Institutions are regulated

power relations

Evolutionary Economic Theory

Sees the economy as always in the process of change

The economic context is not completely understood by the actors; they can not make optimal choices.

Institutions help cope with incomplete information and uncertainty providing guidance and stability

An always changing economy implies changing institutions.

Implications Institutional change

The more complex a society, more formal rules Institutions serve the ones in power, not

necessary (socially) efficient Formal rules can change overnight, informal

rules usually do not Path dependency perpetuates the existing

institutions Institutional changes imply internalization Institutions will never reach a steady state

SP: Reconstruction of Afghanistan

Started in earnest in late 2001 A number of international conferences held on

how to reconstruct Numerous infrastructure and service provision

programmes were introduced including: Microfinance (2003) Community Development Councils (2004) Water User Associations (2005)

Physical / Material Conditions

Attributes of Community

Policy Decisions

InstitutionalContext

Patterns of Interactions Outcomes

Policy Process Dynamics



Policy Decisions



Problem(s)




Policy Decisions



Problem(s)

Decision making analysis(March and Olsen)




Policy Decisions



Problem(s)Network AnalysisColeman; Burt





Policy Decisions



Problem(s)

Implementation AnalysisMazmanian and Sabatier

Network AnalysisColeman; Burt





Policy Decisions



Problem(s)

Implementation AnalysisMazmanian and Sabatier

Network AnalysisColeman; Burt



? ?

• A way of thought or action of some prevalence or permanence, embedded in the habits of a group or the customs of a people (Hamilton 1932)

• Conventions, rules of action, embedded in social structure, locally specific (Krätke 1999)• Settled habits of thought common to the generality of men (Veblen 1919)• Collective action exercised by different types of organization (family, corporation, trade

union, state in control of individual action (Commons 1924)• Convenient term for the more important among the widely prevalent, highly standardized

social habits (Mitchell 1950)• Sets of rules of the game or codes of conduct defining social practices (Young 1994)• Formal organizations, patterns of behaviour, negative norms and constraints (Coriat and

Dosi 1998)• Mental constructs (Neale 1987)• Rules of the game (North 1990) / How the game is played (Nelson and Sampat 2001)• A set of socially prescribed patterns of correlated behaviour (Bush 1986)• Prescribed or proscribed patterns of correlated behaviour (Tool 1993)• Constitutional rule systems for society, collective choice rules governing different kinds of

organization, operational rules of organizations• Norms that regulate relations among individuals (Parsons 1990)

What are “Institutions”?

Typology of Institutions

Constitutive Regulative Associative Cognitive Behavioural

Formal / Societal

Informal / Social

Introducing Microcredit Organizations in Afghanistan

Rationale for Microcredit: High “unmet demand” for credit in

rural areas Lack of access to credit in rural areas Microcredit as a means to improve

economic and social wellbeing in rural areas


Research Objectives: Investigate role of Microcredit in rural

communities Assess impact of Microcredit on rural

livelihoods Take stock of changes in rural socio-

economic conditions due to introduction of Microcredit


Methodology: 32 households in 4 provinces “chit chats” Focus Group Meetings Key Informant interviews

(shopkeepers, farmers, teachers, mullahs, eldermen, widows, MFI staff)

A lot of time and sweat


Findings (1): Significant amount used for consumption smoothing,

but also some for increased economic activity Used for weddings, funerals, medical expenses,

repaying loans from traditional sources and vice versa Borrowed for others (wives for their husbands, kin,

friends) Overly strict repayment schedules Amounts too small, lent over too short a period, to

make a difference in livelihood of borrowers


Findings (2): Selling assets (land, livestock) to make payments Contravention of Islamic notion of credit MC is a new “product” on the highly structured and

evolved rural credit market Statistics on high uptake of MC in rural areas is

misleading because the novelty factor is not taken into account

Statistics on the high percentage (68%) of women taking MC loans is misleading because they mostly borrow for their husbands – there are some exceptions

How can institutional analysis help in finding solutions?

Source: Parto and Regmi (2007)

Behavioural Institutions


Cognitive InstitutionsBehavioural Institutions


Associative InstitutionsCognitive Institutions



Regulative InstitutionsAssociative InstitutionsCognitive Institutions



Constitutive InstitutionsRegulative InstitutionsAssociative InstitutionsCognitive Institutions



Source: Parto and

Regmi (2007)

Some institutions are slow to catch up with and adjust to new knowledge (learning)

The question is seldom whether to intervene, but how to do so effectively and with the least negative impact

Work through, or with, current institutions Catalyze complementary institutionalization

processes

To Summarize….

The core responsibility of those who deal in public policy – elected officials, administrators, policy analysts, [and academics] – is not simply to discover as objectively as possible what people want for themselves and then to determine and implement the best means of satisfying these wants. It is also to provide the public with alternative visions of what is desirable and possible, to stimulate deliberation about them, provoke a reexamination of premises and values, and thus to broaden the range of potential responses and deepen society's understanding of itself.

Robert Reich, The Power of Public Ideas (1988)

“Good” Development Policymaking?



Policy Decisions

Institutions:

BehaviouralCognitive

AssociativeRegulativeConstitutive


Problem(s)


Practical application (JV)

Institutional mapping of 3 Nuffic NPT CD Cases (Vietnam, Yemen, Uganda) to identifyconstructive and ‘undesirable’ institutions

Institutions: within the Southern organization between Dutch and Southern organization

Behavioral institutions

Human interaction is structured by standardized (recognizable), habits social norms, routines, ways of doing things. Examples in NPT projects: Routines and norms in education and research Attitude towards authority Ways of doing things in management Initiative taking, proactive/reactive Habit to work from a structured approach written

down in plans, logframes, schedules, reports

Cognitive institutions

Mental models and scripts how the world aroundperceived understood and interpreted by constructs,definitions and also wishful thinking. Examples in NPTprojects: A CD project is a bag of money Everything from abroad is ‘best’ or ‘no-good’ Everything new and innovative is ‘best’ or ‘no-good’ Emerging problems are to be solved by directors Interpretation and ambition of education and research

position Values: education = good and invest a lot in education

Associative institutions

Group identification rules: culture, attitude, mentalitywithin organizations networks, classes, associations).Examples in NPT projects: Culture and attitudes within education research

teams, project team Resistance-to-change mentality by groups opposed to

change New formal/informal teams emerge setting new

organizational culture Formally or informally organized external networks

Regulative institutions

Formal policies, regulations of government and organizations). Examples in NPT projects: National policies and regulations Nuffic rules and regulations NPT project also help to develop new national

policies

Constitutive institutions

Constitutions, contracts, agreements and property rights structures. Examples in NPT projects: The project contract and its negotiation Internal contracts and arrangements Agreements with third parties (auditor, co-funding,

consultancy).

Concluding remarks

So what’s new? ….. sounds like old wine in new bottles

It is about the new bottles; Institutions should be addressed explicitly, better explain process

Mapping institutional context helps to plan and anticipate change

No tool boxes or cooking book; only analytical framework.

Institutions matter!

capacity development and institutional change jaap voeten and saeed parto seminar ‘scrutinizing...

Documents

cd slide

jv slide

institutions institutions

distrust slide

transaction costs costs

transaction costs theory

economic transaction

human interaction issues