I. INTRODUCTION
1.1. Introduction to the research
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立 政 治 大 學
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N a tio na
l C h engchi U ni ve rs it y
I. INTRODUCTION
1.1. Introduction to the research
Contemporary market economies are characterized by constant churn of new startups creating new institutions, new culture, new technology and new ideas. The constantly unfolding endogenous reinvention of social order via startups characterizes market economies as open societies and political systems, and the reinvention of social order is rapidly occurring; each year 20-30% of firms are replaced with new ones in advanced market economies (OECD, 2016a). Fintech industry is an exemplary case as a new industry created entirely by new startups and the fintech industry is not merely new technology but the startups have theorized entirely new way of organizing economic behavior of societies. Innovation of fintech startups has in mere two years created entirely new financial infrastructure to channel funding to new startups as ICO (initial coin offering) infrastructure in Q1-Q2 of 2018 provided capital to new ventures equivalent to 45% of capital in IPO and 31% in venture capital markets (Long, 2018). For new institutionalism and Varieties of Capitalism (VoC) (Hall & Soskice, 2001) this proposes a central theoretical and empirical puzzle as new institutionalism has entirely ignored the empirical data of dynamism, and thus theories of new institutionalism cannot be reconciled with this data, and importantly, moreover the prior theories even contradict the empirical data by arguing endogenous change is theoretically impossible (Greif & Laitin, 2004). Thus, fintech is a unique and special case for new institutionalism as it exemplifies how societies can quickly pursue open-ended endogenous institutional evolution, and by so the fintech case is central study to advance theories of new institutionalism.
New institutionalism, especially VoC framework, has theorized institutions as „Iron Cages‟, institutional equilibriums structuring incentives in such manner that optimal strategy is to reproduce the institutions, and hence no innovative behavior or constant churn of new firms (20-30%) should be observed. Thus, the empirical observations of startups and especially of fintech sector propose a crucial theoretical and empirical puzzle that demands new theoretical and conceptual foundations to escape „Iron Cages‟ of new institutionalism and create properly dynamic theory of institutions, with empirical data of
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國立 政 治 大 學
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N a tio na
l C h engchi U ni ve rs it y
dynamic behavior and endogenous institutional evolution incorporated as a central element for the theoretical framework of new institutionalism. This theoretical puzzle provides the motivation and central research problem for the dissertation research.
This research focuses on researching and theorizing how the constant churn of new startups creates new institutions – how new startups propose new scalable models to organize coordination and cooperation among stakeholders – and how institutional structures enable the constant institutional evolution without compromising the exogenous nature of institutional systems. The research builds on VoC theory‟s notion of institutions as largely ideational „shared understandings‟ rooted in formal and material institutions – supply side coordination assets empowering cooperation among stakeholders (Hall & Soskice, 2001; Jackson & Deeg, 2008; Hall & Gingerich, 2009) – and aims to contribute how the startups create new functional and complementary ideational templates as institutions for cooperation and how government leverages these templates for formal regulations. Term „institutional entrepreneurship‟ refers to intentional activities of startups creating new ideational coordination models to reorganize cooperation of stakeholders, and „institutional evolution‟ refers to process of societies adopting new initially ideational models for organizing cooperation and interaction within the society. Thus, the central aim of the study is to contribute significant new theoretical and conceptual advancements to new institutionalism and Varieties of Capitalism. Research is significant as the theoretical puzzle is crucial for creating properly dynamic theories of institutions and practically the understanding of institutions is essential for developing favorable government regulations and policies to support economic and political development of market economies. Moreover, empirical data of fintech startups and startups in general suggests that institutional evolution is selection: new fields and trajectories are created endogenously – which contributes new important advancement to understand how dynamic open-ended evolution occurs in market economies without relying on heroic institutional entrepreneurs.
Thus, the core research problem structuring the research is: How does endogenous institutional evolution of market economies operate and what is the role of startups in this process? and important supportive question is: How institutional structures enable
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國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
endogenous institutional evolution via startups? Aim of the study is to theorize how new firms create new institutions without compromising the central tenets of new institutionalism. Research problem provides structure and direction for the literature review, theoretical work and empirical research, which all aim to provide consistent and coherent theoretical answers with empirical data to understand operation of the contemporary societies. The research is organized via variables – independent, dependent and intermediating variables – as a question of how the independent variable of institutional entrepreneurship of startups is influencing the dependent variable of institutional evolution, while being influenced by the intermediating variable of the existing characteristics of the institutional framework.
The empirical research is implemented as a comparative case study of fintech startups of Taiwan and Korea. Qualitative case study by data triangulations analyzes extensive new empirical data from stakeholder interviews (representatives from startups, venture capital firms, incubators, governmental entities), government documents and industry statistics with purpose to document holistic in-depth causal patterns of institutional evolution via stimulus from fintech startups. Fintech startups are selected for the case study as firstly the financial industry is dominated by large conglomerates and is heavily regulated, yet the empirical data shows that new startups with limited resources have quickly succeeded pushing for institutional and regulatory evolution (e.g. ICOs becoming important channel of new venture funding), and secondly financial sphere is a crucial institutional sphere of VoC theory, with crucial role in creating national varieties of capitalism. Thus fintech is a crucial case for understanding institutional change in new institutionalism and VoC.
Taiwan and Korea are selected as the case study countries as due to historical, political, economic and cultural affinities as developmental states they provide most suitable comparative pairing of countries. Taiwan and Korea share similar historical development paths, as even recently both countries in 2013-2018 have simultaneously transitioned away from state-led growth models to new startup-led growth models, but for fintech development they have taken alternative paths. Moreover, interestingly Taiwan with history in SME-driven growth has favored large conglomerates in fintech development, while Korea with history in chaebols-driven growth model has favored startups proposes
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國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
additional empirical puzzle of how both countries have escaped path dependent paths and pursued entirely new trajectories.
The empirical case study is important advancement for new institutionalism by contributing one of the first studies of new institutionalism researching how new startups, innovation and the firm churn influence institutional evolution, and by so the research provides entirely new data to new institutionalism. The endogenous approach and especially the data of constant firm churn has been previously entirely ignored by new institutionalism and hence demands extensive re-theorizing of the theoretical and conceptual foundations of new institutionalism. The endogenous approach is moreover important to understanding the trajectories of institutional change – how new institutions can be created – and how the functionality and coherence of institutional systems is created and sustained endogenously. To emphasize, the research approach aims to create truly actor-driven theoretical model where new institutions are created and sustained by new startups, which creates a properly dynamic understanding of social systems. Thus, the dissertation aims to contribute to theoretical puzzles how the Northian and Coasian evolution of social cooperation towards more efficient templates is constantly operating and why some countries outperform others in the endogenous evolution of institutions.
Finally, the research aims to place constant dynamism at the center of new institutionalism – institutions are constantly evolving – but the constant evolution is essential for continued and sustained vitality and stability of institutional systems.
Constant evolution of institutions is paradoxically necessary for institutions to stabilize and structure societies.