III. THEORETICAL FRAMEWORK
3.4. Multiplicity of institutional fields – Ecosystems of institutional entrepreneurship
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3.4. Multiplicity of institutional fields – Ecosystems of institutional entrepreneurship
Multiplicity of institutional fields, openness of market economies and institutional heterogeneity are the essential pre-conditions for dynamic endogenously evolving institutional systems of market economies (Becker, 2007; Streeck & Thelen, 2005;
Clemens & Cook, 1999). Without institutional diversity – and especially openness to experiment and theorize of new institutional fields – market economies could not endogenously evolve (Becker, 2007; Streeck & Thelen, 2005). Multiplicity of institutional fields, coupled with opaqueness of organizations and legitimacy being a perceptual condition, facilitates that market economies have „niches‟ and „ecosystems‟
for institutional entrepreneurs to develop new ideas how to re-organize societal behavior (Rao & Dutta, 2012; Suchman, 1995; Meyer & Rowan, 1977). Pluralist societies are characterized by constant churn of new ideas. Multiplicity of fields is a necessary pre-condition for institutional change as evolution by competitive selection requires multiplicity of fields to function and without multiplicity of institutional fields each market economy would be forced to either develop gradually by path dependent trajectories or by more drastic critical junctures (Hall & Taylor, 1996, p. 945). All institutional systems have diversity as even most perfect institutional systems are embedded in global economy and its diverse institutions (Lange, 2009). Importantly, competition among fields is necessary to establish economic logic as the fundamental logic of institutional evolution and therefore Varieties of Capitalism requires to be re-built on a theory of multiplicity of institutions to explain how institutional systems emphasize efficiency (e.g. Lange, 2009; Crouch et al., 2009; Deeg & Jackson, 2007).
Moreover, the evolution of market economies is more nuanced dynamics than path dependency and critical junctures as Thelen (2014) exemplified by case of Sweden how differential growth of manufacturing and service industries led to institutional change, where change was dramatic and drastic but appeared as a slow incremental differential growth of two simultaneous institutional trajectories. Multiplicity of institutional fields allows societies to simultaneously maintain various institutional logics and path trajectories which facilitate moving to drastically different path trajectories, ensuring vitality and evolution of market economies, while avoiding rigid path dependency.
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Multiplicity of fields ensures that institutional evolution operates continuously as field dynamics with ability to move towards drastically novel trajectories without notable disruption and friction.
Firstly, the multiplicity of institutional fields influences how competition between and within multiplicity of fields operates. Competition between fields enhances the role of material productivity as the fundamental logic of institutional evolution. Closed institutional systems, e.g. non-democratic regimes, do not facilitate or allow competition of potential alternatives for organizing social reality, but openness of market economies ensures organizations compete with organizational efficacy to organize economic, political and social behavior as the efficacy as a governance structure determines the success of organizations and institutions (Williamson, 1993; North, 1990). Competition between fields moreover reduces competition within fields, which means competition between fields reduces political competition and provides incentives within fields to align incentives among the actors to effectively engage in collective action (see Olson, 1965).
Competition between fields and within fields is effectively a trade-off between economic and political aspects, where inherently political competition between fields enhances economic nature of new institutional fields (North, 1990, p. 86). Multiplicity of institutional fields also provides a benchmark of potential behavior models, which reduces conflictive pressures and uncertainty among actors to negotiate establishing new collective improvements. To reiterate, institutional change is limited by uncertainty, but presence of other fields reduces uncertainty by providing relatively certain alternatives to experimental behavior, i.e. allows calculation of alternative strategies (Beckert, 1999).
Secondly, institutional evolution needs to be approached in game theoretic terms as the social embeddedness necessitates that each actor‟s behavior is influenced by expectations of how other actors behave, where cooperation among actors is empowered by institutional templates providing certainty of how to behave (Hall & Gingerich, 2009), but to be empirically accurate, we need to re-conceptualize the institutional environments being constituted by multiplicity of institutional fields with openness for creating new institutional fields (Becker, 2007; Crouch et al., 2009). Game theoretic approaches (e.g.
Hall & Soskice, 2001; Greif & Laitin, 2004; Aoki, 2013) implicitly conceptualize
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institutional systems as monosystems – i.e. market economy being constituted by a singular institutional field6 – which implies „one economy, one organizational model‟
which then leads to entirely inert systems as in monosystems each actor‟s best response is to comply with institutions as there are no other available alternative behavioral models (e.g. see Hall & Thelen, 2009). Theories of path dependence of institutional systems similarly perceive market economies being monosystems, „Iron Cages‟, where institutional change is slow and incremental as it is costly to change institutions (Pierson, 2000; Pierson & Skocpol, 2002), but in the presence of institutional diversity, the costliness of change means institutions are not changed, but instead replaced by new institutions, because it is more effective to replace than change institutions (Haveman &
Rao, 1997; Williamson, 1993). Pluralist society thus enables institutional evolution.
To create properly dynamic theory of institutional systems, game theoretic approach to institutional systems is required to embrace the diversity of institutional fields and equilibriums suggesting that market economies are nested games, a multiplicity of linked, repeated and interdependent simultaneously played games. This is important as monosystems present binary strategies (comply or deviate) for actors, with compliance being the dominant strategy (Greif & Laitin, 2004), but more empirically accurate assumption of multiplicity of games and equilibriums creates more dynamic outcomes where actors not only compare alternatives, but also project and theorize alternative behavioral models (Emirbayer & Mische, 1998). Institutions as equilibrium perceive the equilibrium is stable due to lack of alternatives (Greif & Laitin, 2004; Hall & Thelen, 2009), but multiplicity of equilibriums and constant emergence of startups creates constant stream of new „focal points‟ to propose new strategies for behavior, which effectively reduce gravitational forces of institutional equilibriums towards stability (Schelling, 1960; Aoki, 2007; Culpepper, 2005). Moreover, pluralist market economies always have institutional diversity, which facilitates heterogeneous and innovative behavior, where even the most perfect market economies empower experimental behavior by access to international institutions (Lange, 2009). Institutional diversity as
6 New institutionalism often focuses on formal macro institutions (e.g. rule of law) where market economies are governed by singular institutions. However, as Streeck and Thelen (2005) have excellently argued, the institutions rely on ideational templates of how institutions are utilized leading to diversity of interpretations and behavioral models.
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nested games also imply that stability of institutional fields is influenced by other fields by changes in relative prices, where emergence of new institutional fields disrupt older fields, even leading to dislocation and fading away of older institutional fields (North, 1990; 1992; Haveman & Rao, 1997). For example, the financial industry is relatively stable organizational field, where equilibrium is habitually self-reinforced but as market economies are open social systems, new actors may create novel fields such as „fintech‟
which changes relative prices and disrupts equilibrium of the traditional field.
Multiplicity of institutional fields with a game theoretic approach suggests that as the multitude of interrelated games are recursively played, each game will achieve an equilibrium and the system of games will achieve an equilibrium, which means each field is stable and the system of fields is stable, where each actor has no incentives to change their behavior from one institutional field to another (see Greif & Laitin, 2004; Weingast, 1996). This means that endogenously institutional systems do not change and change occurs only when new institutional fields are created, which with a game theoretic approach suggests that system of games changes only when new games are introduced as they change relative prices, political structures and socio-cognitive logics to introduce dynamism to the institutional systems (e.g. see North, 1990; Hall & Thelen, 2009;
Haveman & Rao, 1997).
Institutional heterogeneity also empower agency of actors as the institutional diversity allows actors to perceive institutional fields as arbitrary and problematic, which supports critical and creative approach to institutions (see Clemens & Cook, 1999; Seo & Creed, 2002). As Friedland and Alford (1991, p. 254) argued “without multiple institutional logics available to provide alternative meanings, subjects are unlikely to find a basis for resistance”. Without multiplicity of institutions, the actors would be more likely to internalize institutional imperatives and perceive them as unproblematic, needed, and moral (Maguire & Hardy, 2009) but the exposure to institutional heterogeneity boosts agency of actors as the diversity of institutions make institutional fields appear problematic and arbitrary while also facilitating creative agency to come up with novel solutions (Seo & Creed, 2002; Battilana, 2006; Friedland & Alford, 1991; Clemens &
Cook, 1999).
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Thirdly, multiplicity of institutional fields is central to theory of institutional evolution and institutional entrepreneurs as the field characteristics empower institutional entrepreneurship by internalization of benefits and insulation from institutional isomorphism pressures. Each institutional field can be understood as Scott (1994, p. 207-208) defined an institutional field as “a community of organizations that partakes of a common meaning system and whose participants interact more frequently and fatefully with one another than with actors outside of the field”, where each institutional or organizational field tends to be relatively isolated from other fields (DiMaggio & Powell, 1983). Heterogeneity of social orders allow individual orders to isolate themselves from the pressures of other social orders, which means creation of new social order allows achieving autonomy (Friedland & Alford, 1991; DiMaggio & Powell, 1983; Clemens &
Cook, 1999; Zucker, 1988; Fligstein & McAdam, 2011). This effectively means the market economies with more homogenous institutional systems have denser stakeholder relationships and more intense social embeddedness, which leads to lesser ability to create isolated institutional field niches (Greenwood et al., 2011; Clemens & Cook, 1999;
Zucker, 1988). But as all market economies are heterogeneous, therefore all institutional systems by institutional diversity allow creating experimental ecosystems for institutional entrepreneurship. Multiplicity of institutional fields provides autonomy from institutional isomorphism pressures as organizations can be selective with their embeddedness in certain institutional fields to enhance utility of their selected behavior (Suchman, 1995;
Oliver, 1991; Greenwood et al., 2011; Dunn & Jones, 2010).
Institutional diversity also facilitates institutional entrepreneurship by each field internalizing economic benefits as institutional fields act as „club goods‟ where membership grants legitimacy and access to the stakeholders‟ resources and efficiency of the field (e.g. Scott, 2008; Meyer & Rowan, 1977; Greenwood et al., 2011; Pouthier, Steele & Ocasio, 2013; Hills, Voronov & Hinings, 2013). Therefore, institutional fields not only align incentives to cooperate, but acting as club goods alleviate collective action dilemma by limiting benefits of institutional entrepreneurship to the member entities (Olson, 1965), which is important as institutional entrepreneurship is a costly activity requiring resources and each institutional field with boundaries limiting benefits to the members enhances utility of pursuing institutional entrepreneurship (Greenwood et al.,
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2011). To summarize, the heterogeneity of institutional fields facilitates heterogeneity of organizational behavior, including institutional entrepreneurship (Clemens & Cook, 1999; Schneiberg & Clemens, 2006; Schneiberg, 2007), where fields like Silicon Valley provide nurturing ecosystems for experimental institutional entrepreneurs (see Casper, 2007; Becker, 2007; Lange, 2009; Crouch, 2005). Moreover, most governments across nations understand importance of startups and foster creation of ecosystems by providing funding and resources to experimental startups, hence effectively reducing the costliness of engaging in experimental entrepreneurship. Ecosystems nurture institutional entrepreneurship by reducing costs of experimental behavior to create new institutions.
Hypotheses:
- H8: Multiplicity of institutional equilibriums reduces institutional isomorphism pressures limiting institutional entrepreneurship.