III. THEORETICAL FRAMEWORK
3.5. Synthesizing economic and socio-political dimensions of institutions
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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.
3.5. Synthesizing economic and socio-political dimensions of institutions
To create a dynamic theory of institutional systems, we need to synthesize different strands of new institutionalism – rational choice institutionalism, historical institutionalism and sociological institutionalism – and by so co-fit economic, political and social dimensions of institutional systems together. To simplify, institutional systems are created for solving collective problems and enhancing economic efficiency, providing political structures and relations, as well as bringing meanings, values and identities to the social reality (Streeck, 2010), and similarly change in institutions occurs to enhance efficiency, change political structures and to create new cultural scripts (Thelen, 2014, p.
218). But importantly the economic, social and political dimensions are not separate but deeply intertwined and tangled, where different dimensions cannot be separated and untangled from the other dimensions (Friedland, 2009; Friedland & Alford, 1991). Not only are the dimensions tightly intertwined, but they act as coherent systems, where economic, social and political dimensions are interdependent and mutually supportive (Scott, 2008; DiMaggio & Powell, 1983). Different dimensions of institutional systems need to operate as a system as incoherent mixes would contradict the systems making
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them unstable (Becker, 2007), and hence economic, political and social dimensions of institutional systems operate with mutually reinforcing feedback mechanisms (North, 1990, p. 112; Bourdieu & Wacquant, 1992; Friedland & Alford, 1991). Path dependence effectively synthesizes economic, political and social demands of societies as historical institutions shape similarly aligned economic assets, social positions and socialized cultural scripts, which influences how actors are willing to engage in institutional entrepreneurship (Mahoney, 2000; Pierson & Skocpol, 2002). Therefore, for institutional evolution this means that institutional entrepreneurs creating new institutional fields always simultaneously transform economic, political and social institutions.
Firstly, institutions as economic resources for the market economy empower organizations to cooperate with each other, where economic efficiency is central to reproduction and continuity of institutions (see Deeg & Jackson, 2007; 2006; Hall &
Gingerich, 2009). Material productivity is the fundamental logic of institutional evolution as differential productivity among fields determines selection among the multiplicity of fields (Hall & Taylor, 1996, p. 945; Williamson, 1993; North, 1990; Lewis & Steinmo, 2012; Blyth et al., 2011). Importance of material productivity in institutional systems is more pronounced in the interdependence with political and social institutions as the continuity of political and social institutions depends on material productivity as the strength of socio-political institutions depends on material resources – declining economic productivity destabilizes socio-political institutions while increasing productivity provides resources to create new socio-political institutions. Especially political institutions rely on continuity of favorable distributional flows (e.g. Beckert, 2010; Hall, 2009), which is why changes in economic institutions challenge the continuity of political institutions and even social hierarchy (Friedland & Alford, 1991;
Dunn & Jones, 2010), which means ability to produce economic growth provides leverage for designing political institutions (e.g. regulations). Material and symbolic institutions are thus intertwined as changes in material institutions foster changes in symbolic dimensions (Friedland & Alford, 1991; Waldorff et al., 2013; Campbell, 2004).
As the economic and political resources have exchange relations, therefore the ability to produce material resources is essential for institutional entrepreneurs as with material
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productivity actors can transform socio-political institutions (North, 1990, p. 112;
Bourdieu & Wacquant, 1992).
Secondly, the ability to transform economic resources for political resources also means, especially in the presence of unequally distributed resource endowments, firstly that institutional equilibriums are largely political compromises and secondly the historically inherited resources influence evolution of institutional systems (see Capoccia, 2016, p. 6;
Amable & Palombarini, 2009). Institutional equilibrium is essentially a political equilibrium where interest groups, rather than economic efficiency, determine stability and evolution (North, 1990, p. 86). Relevant interest groups often use their resources to ensure continuity of favorable institutional equilibriums or to direct change towards a favorable outcome rather than towards higher aggregate efficiency (Bourdieu &
Wacquant, 1992; Beckert, 2010). Social embeddedness of economic behavior moreover means that interest groups require perception of legitimacy from organizations, which implies compliance with socio-political institutions independent of material efficacy (Greenwood et al., 2011, p. 318; Meyer & Rowan, 1977; DiMaggio & Powell, 1983).
Power of political institutions, together with social embeddedness, even enables political structures to determine material productivity of behavioral alternatives (Phillips et al., 2004; DiMaggio & Powell, 1983) as studies of gender equality have shown endogenous enforcement can make meritocratic hiring less productive than gender biased strategies (Siegel, Pyun & Cheon, 2018; Hewlett & Rashid, 2011). Political dimension of institutional evolution means that interest groups, even less important ones, have ability to block institutional change by withdrawing their resources, which means that institutional entrepreneurs are required to act as political entrepreneurs to mobilize support, engage in coalition building, problematize existing institutions and propose new solutions (see Phillips et al., 2004; Maguire & Hardy, 2009; Battilana, 2006). Political dimension of institutional systems thus acts as a friction of distributional and relational pressures among interest groups, which firstly thus requires material resources to overcome the pressures and secondly, institutional entrepreneurs are likely to engage in coalition building by mobilizing targeted interest groups to support them by providing access to superior material productivity.
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Thirdly, institutional equilibrium is also a socio-cultural equilibrium, where social and cultural institutions tend to be reinforcing of political institutions, where socio-cultural templates, shared understandings and discourses are even necessary to facilitate coordination among actors (Greif & Laitin, 2004; Aoki, 2007; Hall & Soskice, 2001). As Waldorff and Greenwood (2011, p. 1180) argued, “institutions depend on institutional logics to make the invisible visible”, which means that economic dimension of institutional system cannot function without socio-cognitive dimension as informal logics
“provide a means of understanding the social world and thus for acting confidently within it” (Greenwood et al., 2011, p. 318). While socio-cognitive dimensions are to certain extent arbitrary as they are necessary to limit ideational possibilities among multiplicity of potential equilibriums (see Greif & Laitin, 2004; Aoki, 2007), but cognitive institutions are often deeply political institutions as they are influenced by powerful interest groups to institutionalize specific ways of perceiving, speaking and operating in social reality, where these often historically inherited cognitive institutions become to be perceived as objective, normal, taken-for-granted and even moral parts of the social reality effectively stabilizing social reality by limiting contestation (Berger &
Luckmann ,1966; Hall & Taylor, 1996; Friedland & Alford, 1991; Maguire & Hardy, 2009; Battilana, 2006; Barley & Tolbert, 1997, p. 99). Therefore, the cognitive institutions often act as supportive ideologies for both political and economic institutions, ensuring their stability by limiting the extent actors can challenge them, where internalization of ideologies even lead to organizations and actors preferring ideological goals over material and political goals (North, 1990).
Ideational institutions often operate as discourses as they synthesize material and symbolic dimensions of the social reality by shaping beliefs, speaking, operating and acting in social reality, where coherence of beliefs and behavior make ideational institutions appear objective and normal parts of the reality (Phillips et al., 2004; Aoki, 2007; Maguire & Hardy, 2009). Importance of cognitive institutions acting in support of political and economic institutions is to limit uncertainty of the social world by providing instructions of how to behave (DiMaggio & Powell, 1983; Aoki, 2007) as institutions
“provides them with a frame for action, without which they could not act, but it thereby constrains them to act within that frame” (Fairclough, 1995, p. 38). But cognitive
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institutions are not merely supportive as they are central „focal points‟ how to operate in uncertainty social reality, which importantly means that appearance of new ideas are powerful to provide new „focal points‟ to reorganize how behavior occurs (Culpepper, 2005; Aoki, 2007; Hoffman, 1999; Schelling, 1960). That means appearance of new promising ideas, efficient new alternatives, are quickly imitated and copied by organizations, which means that cognitive institutions facilitate transforming political structures and creating of more powerful economic institutions (Blyth, 2002; Campbell, 2004). Lastly, while cognitive institutions are deeply coupled with political institutions, aiming for institutionalizing specific political structures beyond scrutiny (DiMaggio, 1988), this also means the cognitive institutions are also deeply contested (Hall, 2009).
Political nature means the cultural institutions act as identity politics where new cultural institutions are continuously created as new ways to mobilize and organize interest groups, where success often depends on cultural distinctiveness. Thus, the startups are likely to create distinctive cultural identities to coordinate political coalition building to drive institutional evolution, as new culture acts as membership to a new political class.
Hypotheses:
- H9: Economic and sociopolitical resources are exchangeable: relative changes in material productivity leads to changes in sociopolitical institutions, and new sociopolitical institutions are created to support new economic institutions.
Figure 6. Interdependence of economic, political and social dimensions of institutions
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