Institutional Dissonance Institutional Dissonance and Bridging: and Bridging: A New Perspective on the A New Perspective on the Relationship between Religion Relationship between Religion and Developmentand Development
Min-Dong Paul LeeMin-Dong Paul LeeDepartment of Management
University of South Florida
Min-Dong Paul Lee
ContentsContents
Introduction: Does religion matter? Review of recent empirical studies Institutional dissonance
o Property Rightso Contractso Market Interactionso Organizational Management
Institutional bridging Conclusion
Min-Dong Paul Lee
Does religion matter for development?Does religion matter for development?
Classical social scientists all devoted significant efforts to understand religion and its effect on society and economy
Adam Smith
Emile Durkheim
Max Weber
Min-Dong Paul Lee
Does religion matter for development?Does religion matter for development?
Calvinist doctrine encourages certain values
Changes in economic behavior bring about Capitalism
Macro
Micro
Protestant religious doctrine Capitalism
Value Economic behavior
Appropriation of certain kinds of orientations to
economic behavior
Weber even went as far as saying that Protestant religion had a causal influence on the rise of western capitalism
Min-Dong Paul Lee
Religion still matters!Religion still matters!
Until early 1980s, most social scientists assumed religion to be just a “fading vestige of pre-scientific times” (Iannaccone 1998:1466)
Revival of religion everywhere since early 1980so Return to traditional faith in Eastern Europe
o Rapid spread of conservative Islamism
o Explosion of Protestantism in Latin America
Min-Dong Paul Lee
Religion also matters for development!Religion also matters for development!
Development goals cannot be achieved without the commitment and willing participation of local actors (Dar and Cooke 2008; Thomas 1996)o Mobilizing local actors requires better appreciation and
understanding of what is important to the local population.
For people who adhere to a religion, it is often the most important thing in their lives. o In religious societies, religion dictates almost every aspect of a
person’s life from deciding what to eat and buy to how to interact with others in society. Therefore, it would be difficult fully to understand or facilitate the process of development without considering religion.
Min-Dong Paul Lee
Studies on Religion and DevelopmentStudies on Religion and Development
1990s – Revival of academic interest in religion
1. Cross-country analysis of the relationship between religion and economic development
o La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1999): Protestant countries have more effective governments than Catholic or Muslim countries (measured by interventionism, public sector efficiency, quality of public goods provision, government size, and political freedom )
o Barro and McCleary (2003): Religiosity is positively related to economic performance
2. Religion’s effect on individual attitudes or values.
o Guiso, Sapienza and Zingales (2003): religion was positively associated with the development of good economic attitudes
Min-Dong Paul Lee
Religiosity and Economic GrowthReligiosity and Economic Growth
Source: Barro and McCleary (2003)
Min-Dong Paul Lee
A Constant PuzzleA Constant Puzzle
Barro and McCleary (2003): strong religious belief (e.g., belief in heaven and hell) was, in general, positively associated with economic growth. However, Islamic countries, with their strong religious belief, have strong negative association.
Guiso, Sapienza and Zingales (2003): religious participation improved development performance by increasing trust in government and social capital. However, despite their high level of social capital in the form of trust and economic reciprocity, Islamic societies often fared poorly in economic development.
Comparison of Economic Performance between Islamic States and a Selected Group of Countries and Aggregates, 1975-2002
CountryGDP 2002 GDP per capita GDP per capita
annual growth rate %, 1975-2002b
US$ (billions) PPPa US$ (billions)
2002 US$ PPPa 2002 US$
Islamic States
Iran 108.2 483.3 1652 6690 -0.4
Kuwait 35.4 37.8 15193 16240 -1.2
Saudi Arabia 188.5 276.9 8612 12650 -2.5
Egypt 89.9 252.6 1354 3810 2.8
Morocco 36.1 112.9 1218 3810 1.3
Syria 20.8 61.5 1224 3620 0.9
Tunisia 21 66.2 2149 6760 2.1
Comparison Group
Chile 64.2 153.1 4115 9820 4.1
South Korea 476.7 807.3 10006 16950 6.1
Singapore 87.0 100.1 20886 24020 5.0
Developing Countries 6189.3 19848.5 1264 4054 2.3
East Asia & Pacific 2562.6 9046.9 1351 4768 5.9
OECD 26298.9 28491.5 22987 24904 2.0
World 31927.2 48151.1 5174 8704 1.3
Note: a. PPP is an abbreviated form for purchasing power parity; b. Growth rates were calculated by the World Bank using least squares method.Source: Adapted from Askari, Hossein. 2006. Middle East oil exporters what happened to economic development? (Cheltenham, UK), p. 84.
Min-Dong Paul Lee
Institutional ExplanationInstitutional Explanation
Society as an inter-institutional system Institutions are materialmaterial and symbolic symbolic systems that not
only regulate human activity, but also infuse it with meaning (Friedland and Alford, 1991)
Examples of institutions: Capitalism, state, democracy, family and religion
Each institution has its own logic that shape individual preferences and organizational interests
Institutional logics define the norms and values that structure the cognition of economic actors and provide a collective understanding of how strategic interests and decisions are formulated (Thornton, 2002)
Min-Dong Paul Lee
Institutional ExplanationInstitutional Explanation
Individuals’ perception and interpretation of economic actions are conditioned by multiple (sometime, competing) conditioned by multiple (sometime, competing) institutional logicsinstitutional logics
Sen argued that “even though different commentators have chosen to focus on particular institutions (such as the market, or the democratic system, or the media, or the public distribution system), we have to view them together, to be able to see what they can or cannot do in combination with other institutions.” - Development as Freedom (1999:142)
Min-Dong Paul Lee
Institutional ExplanationInstitutional Explanation
For a Muslim economic actor, two dominant institutional logics he/she faces are Islam and Capitalism
These two institutional forces exert significant influence on how Muslim economic actors interpret their environment and make choices.
Muslim Economic Actor
Islamic Institutions
Capitalistic Institutions
Dissonance
Islamic teachings encourages certain economic values
Effect on market interaction
Macro
Micro
Islamic religious Teachings
Macro economic outcome
Islamic business
ethics
Economic behavior
Appropriation of certain kinds of orientations to
economic behavior
Capitalistic Institutions
1. Islamic religious ideology encourages certain economic values
2. Muslim economic actors construct an Islamic business ethic based on their religious ideology and develop a particular orientation to economic behavior
3. Muslim economic actors perceive and interpret the capitalistic market institutions and various economic interactions through the lens of their Islamic business ethic
4. The resulting economic behavior and disposition determine the extent of Muslim economic actors’ participation in capitalistic markets and their competitive efforts
Islamic Business Ethic Capitalistic Institutions
Property Rights
Inclusive rights
Communally-oriented
Stewardship (khalifah)
Exclusive rights
Individually-oriented
Ownership
Contracts Informal enforcement
Conditional enforceability
Formal enforcement
Absolute enforceability
Market Interactions
In-group focus
Closed network
Out-group focus
Open network
Organizational Management
Full liability
Ambiguous authority
Non-distinction from social life
Limited liability
Clear authority
Distinction from private social life
Min-Dong Paul Lee
Resolution of Dissonance?Resolution of Dissonance?
Persisting institutional dissonance prevents Muslim economic actors from fully participating in capitalistic economy without jeopardizing his/her social legitimacy
Then, what can we do about the dissonance? Traditional remedies
o Institutional reform: replace inferior institutions with superior/ advanced institutions
o Problem: superior institutions (often, democratic and rational institutions) also cause unintended dissonance with existing religious institutions
o Institutional reform can result in even counter-cultural movement
Min-Dong Paul Lee
Institutional BridgingInstitutional Bridging
Alternative solution is creation of bridging institutions that harmonize existing institutional dissonances
Muslim Economic Actor
Bridging Institution
Islamic Institutions
Capitalistic Institutions
Min-Dong Paul Lee
Example of Institutional BridgingExample of Institutional Bridging
Islamic Bank Source of Institutional Dissonance
o Islamic business ethic: Islamic law does not allows the charging of interest (riba) in borrowing or lending
o Capitalism: banking system is a central feature of capitalist economy. Banks facilitate secure and efficient capital flow between savers and borrowers through interests
Institutional bridging: Islamic bankso Banking institution without the use of interest (riba)o Use the methods of profit and risk sharing to facilitate financial
intermediationo Result: Devout Muslims can save and borrow money (participate in
capitalistic economy) without compromising religious belief or loosing social legitimacy
Min-Dong Paul Lee
Successful Resolution of Institutional DissonanceSuccessful Resolution of Institutional Dissonance
Rapid growth of Islamic banks: even faster asset growth in conservative Islamic societies (e.g. Iran)
Assets held by the world's 100 biggest Islamic banks grew 66 percent in 2008 from the previous yearo In the same period, Asia's 300 biggest banks saw their assets rise
by a much slower 13.4 percent, it said. (Asian Banker, 2009)
The top 100 Islamic banks held assets totaling 580 billion US dollars last year, up from 350 billion dollars in 2007
Min-Dong Paul Lee
Implication of Institutional BridgingImplication of Institutional Bridging
Promiseo Can minimize potential cultural and social resistance to
development initiatives o Creates a space where local stakeholder can voluntarily build their
own capacity and thrive
Broad implicationso Institutional bridging in gender equality: Grameen bank in
Bangladesh -> empowerment of rural women by giving them economic role and power through microfinance
o Institutional bridging in education: Educate! program in Uganda -> mentoring of high-school students