The nature of
organisms and property of their associated phenotypes, within biology, are
determined by complex matrix of genes. Those genes are expressed in their
competitive environment through their phenotypes (Dawkins, 1982, 1986, 2006;
Smith, 1982, 1988; Hamilton and Axelrod 1981). The nature and behavior of an
organism, in particular, and nature and behavior of its phenotype, in general,
is determined by nature of its genes. In simple words monkey behave the way monkey
behave because monkey has genes of monkey, which are expressed in the
environment it found itself. This is why in order to understand behavior of an
organism or its associated phenotype, knowledge of genes and knowledge of how
those genes are expressed in terms of their phenotype is critical.
The nature of
social organizations is also determined by their genes. Institutions are genes
of social, political, economic and psychological organizations. The phenotype
of an institution could be one organization or large number of overlapping
organizations[1].
Fortunately, as long as organizations are defined in flexible manner to include
Micro, Meso and Macro organizations (see Gabre-Madhin, 2009; Klein and Leffler,
1981; Bernstein, 1992; Baker et al., 2002; Fafchamps, 2004), with their
overlapping nature, an organization can be taken as phenotype of institutions.
As our knowledge of genes does give us better capacity to understand and modify
biology, our understanding of institutions will also give us better capacity
for social management and governance.
In addition,
there is increasing demand for development of integrated social science, based
on biological foundation, to make social sciences more practical and useful
(Pinker, 1997). Unless all known knowledge is integrated into unified truth and
unless all social ideas are built on foundation of biological truth, social
science will not be in position to have acceptable quality of scientific
investigation. Anthropologists do try to integrate all natural and social
knowledge (Haviland et al., 2008). The problem is anthropologists do lack
rigorous and detail knowledge of the scientific frontier of knowledge found
within each and every social science discipline, especially economics. Ignoring
the advancements in evolutionary and institutional side of social sciences
within the last century, if you see Pinker (1997) from natural science and
Haviland et al. (2008) from anthropology, it is sad to notice old theories of
Veblen and Marx are taken as foundation of their institutional and
organizational theory. So it is beyond reasonable doubt to accept the fact that
we do need to have clear and update institutional knowledge, in order to
develop well integrated social science.
What are
institutions? Institutions are formal
laws, social norms, common senses, mind senses[2],
traditions, religious beliefs, moral
values and soon (Kirsten, et al., 2009; Hayami and Godo, 2005; Hodgson, 1998,
2007; North, 1989, 1991, 1992, 1994; Biggart and Beamish 2003; Williamson,
2000; Nabli and Nugent, 1989; Bowles, 1998; Dopfer et al., 2004; Matthews,
1986), which determine the relationship between decision making agents[3]
(Nabli and Nugent, 1989; Groenewegen et al., 1995; Hodgson and Knudsen, 2004).
Organizations are built from decision making agents to achieve some implicit or
explicit goal of its members (Kirsten, et al., 2009; North, 1989, 1992, 1994;
Nabli and Nugent, 1989; Matthews, 1986). In this process institutions do define
the nature of relationship that exists between decision making agents within
the organization (Nabli and Nugent, 1989; Groenewegen et al., 1995; Hodgson and
Knudsen, 2004). Those institutions also define the relationship between
decision making agents and their organization (Kirsten, et al., 2009; North,
1992, 1994; Biggart and Beamish 2003; Nabli and Nugent, 1989; Groenewegen et
al., 1995; Hodgson and Knudsen, 2004). Moreover the relationship of that
organization with wider national and international organizational system is
also specified by those institutions. By doing so, institutions will define the
ownership right of resource and the distribution of wealth among decision
making agents (Mwangi and Meinzen-Dick, 2009; Grossman et al., 1986; Demsetz,
1967).
Mekelle
University is built of different decision making agents, which include
students, teachers, administrative bodies and supporting staffs. Those agents
do have personal goals of their own, which is not necessary compatible with
goals of the University. This is where institutions become handy. If the institutions
of the University are optimally defined and efficiently enforced, they will
provide optimal signals to coordinate the enlightened and strategic selfish
action of decision making agents toward promotion of organizational objective.
The right question
to ask at this point is: how do institutions achieve this? The nature of the
relationship between different agents of the University and the nature of the
relationship between those agents and the University itself are defined by
University’s formal and informal laws, rules, regulations, norms, traditions,
customs and values. Moreover the relationship between Mekelle University and
the overall national and global system is defined by wider national and
international institutions. It is important to notice informal institutions,
which cannot change by stroke of a pen, are very critical institutions in
teaching learning process as they are critical in other parts of human life. If
the rules and regulations, incentive structure and informal associations between
economic agents in a given organization are the right kind, the organization
will be efficient on achieving its objectives (North, 1991, 1992, 1994).
This is done
first by guiding agents’ enlightened and strategic selfish behavior in the
right direction (North, 1991, 1992, 1994). If the formal and informal
institutions of Mekelle University and national institutions are organized to
promote excellence among students, teachers, supporting staffs and
administration, they will definitely attain high level functionality in terms
of attaining organizational objectives. Second, institutions will introduce
certainty on future outcome of current action (Kirsten, et al., 2009; North,
1991, 1992, 1994; Nabli and Nugent, 1989; Groenewegen et al., 1995). Right institutions
will grantee good grade, better paying job and social respect for hard working
and intelligent students. Right institutions will generate better quality of
life, intellectual recognition and social respect for hard working and
effective teachers and researchers. Those in turn will make enlightened and
strategic selfish action of agents to be consistent with organizational
objective of the university.
No matter how
efficient or inefficient institutions are, however, stable life is simply impossible
without common framing of mind that can be created by institutions.
Institutions do make thinking and social functionality possible by creating
common expectation within society (Biggart and Beamish, 2003; Hodgson, 1997;
Hodgson and, 2004; Heiner, 1983; Camerer and Loewenstein, 2004; Dequech, 2002).
We should
notice (super) rational thinking[4],
which can analyze all potential possibilities in order to make optimal decision
under risk and uncertainty, is simply impossible to human kind. At biological level
this is solved by common design of human mind, which uses common mind senses
which are pragmatically selected by evolution for their functionality (Cosmides
and Tooby, 1994a, 1994b, 1996, 1987; Pinker, 1997). The fact that our mind is
similar at hardware level and basic operating system level will make the social
world more predictable. People don’t think with free spirit in all possible
ways, their way of thinking is constrained by their biology which defines
nature of their brain. Even when our culture is very different from each other,
still our thinking is not very different from each other. This will make our
understanding of peoples’ reaction toward our action easy to contemplate and it
will also make the social world easy to understand.
However human
mind is also made flexible by being function of culture and experience.
Cultural elasticity is developed with evaluation of Mammals and perfected with
human beings. Cultural capacity of Mammals in general and human beings in
particular is what allowed them to dominate the evolutionary world as we know
it (Haviland et al., 2008). The problem is since our mind uses mind schemes as
rule of thumb to make the best of its bounded capacity, without using abstract
and objective logic, still there could be confusion on how we understand the
world. How does one know how others will react to his action and behavior in
this reality? In theory all possible reactions of all decision making agents
are infinitive in number. This will make the social world chaotic and hard to
understand and act on. This is where culture by creating common framing of mind
and by creating common expectation will make the social environment very stable
and highly predictable to our mind (Biggart and Beamish, 2003; Hodgson, 1997;
Hodgson and, 2004; Heiner, 1983; Camerer and Loewenstein, 2004; Dequech, 2002).
This is why norms, customs, traditions and cultures not only reduce uncertainty
of exchange and cooperation, but also the uncertainty of life and thinking
itself.
In simple words,
institutions are needed to organize diverse decision making agents into
functional body, called organization (Kirsten, et al., 2009; North, 1989, 1992,
1994; Nabli and Nugent, 1989; Matthews, 1986). The organization can be friends,
family, firm, ministry, clan, community, market, state and soon (Chang, 2001;
North, 1989, 1994; Dorward, et al., 2005; Coase, 1937). Organization as result
is a functional body or group organized to act for specific purpose (North,
1992, 1994; North, 1989).
As is stated
above, institutions will provide the right signal and they will generate
predictable expectation to coordinate the activity of decision making agents
toward achievement of organizational objectives. This is why right incentives
and signals provided by the right institutions will lead to higher
organizational efficiency. But, if institutions are of a wrong kind, strategic
and enlightened selfish act of individuals can possibly result on disastrous
out come to everyone (North, 1992, 1994; Groenewegen et al., 1995; Berg, 2001).
Just think about property right in competitive system. If it is appropriately
enforced, it will grant fruit of own labor to the owner, which can provide
positive signal for hard working ‘rational’ individuals. Unfortunately, if it
was not properly enforced, some people will prefer to share output of others
than producing their own output. As the result national output will decline by
amount which can be produced by those who prefer to be free riders. Far worst
even those who prefer to work, after observing that their output is shared by
others, will increase their tendency to be free riders. This will have a
devastating impact on collective efficiency (Berg, 2001).
A good example
for the above conclusion is 1990’s starvation of Somalia, which is caused by
enforcement failure of private property on agricultural products. Lacking
stable state and facing the chaotic social conflict, farmers were not able to
exclude others from their farm output and often their farm output was harvested
by warring lords. This reduced farmers’ effort in next production year and end
up generating national starvation, despite favorable natural climate they were
experiencing at the same year (Berg, 2001). Assumed “rationality” of people, if they live under wrong institutional
structure, will not generate efficient outcome either. Everyone can “rationally” end up in loss-loss
situation, if operating under wrong institutional structure, despite making “rational” choice is easy to see in the
stated history of Somalia above.
Human “rationality” is not a substitute for
the right kind of institutions; actually the common irrationality of human mind
is efficiently corrected by the right institutions. Human beings behave in more
rational manner not because they are rational but because institutions guide
them to be rational. This fact is well proven in many experimental market
studies of experimental economics (see Plott, 1986; Smith, 1964, 1967, 1982,
1990; Roberson and Smith, 1982; Easley and Ledyard, 1983; Gode and Sunder,
1993). This is why, human rationality is desirable, if it is possible; but what
is most important is right institutional structure to organize humanity in
right direction. Science is working to generate great outcome, not because
scientists are rational being in all of their thinking, but because the
scientific culture is very effective in refining facts from fiction. This in
turn by reframing our mind will improve our rationality.
The next
question we have to ask is: who sanction those institutions? Institutions are
sanctioned by community, by family, by culture, by state or/and by other
decision making agents to coordinate the effort of each and every agent to ward
specific goal (Dorward and Omamo, 2009; North, 1989, 1992, 1994; Biggart and
Beamish 2003; Bowles, 1998). In achieving the goal of the organization,
however, the flexibility allowed to framers of institution is limited by basic
operating system created by biological nature of common human mind (Cosmides
and Tooby, 1994a, 1994b, 1996, 1987; Pinker, 1997). Society may be able to
change the uploaded software of mind, which is cultural and environmental
expression of biology, but the level of flexibility possible is limited by
hardware and operating system provided by nature.
Institutions
can be formal, as sanctioned by law, or informal, as sanctioned by social norms
and decisions (Rodrik, 2007; North, 1992, 1994). It is always important to
remember that informal institutions are as important as formal institutions
(Gabre-Madhin, 2009; North, 1992, 1994; Hodgson, 1997; Hayami and Godo, 2005).
This is so, given the fact that “the rules that contradict the morals of people
would not be sanctioned socially and, if stipulated formally, would not
function effectively.” (Hayami and Godo, 2005, page 11). In simple words socially
rejected institutions will demand huge enforcement cost to be practical
(Kirsten, et al., 2009; North, 1992; Field, 1984; Hayami and Godo, 2005).
If society
supports an institution, there will be internalized morality which leads to
least cost enforcement without a need for huge and costly external pressure
(Cox and Fafchamps, 2006; Groenewegen et al., 1995; Mezgebo, 2014). You don’t
rape and murder a beautiful hopeless girl in middle of an isolated jungle. This
is because your mind cannot accept rape and murder as way of sane human being
and you cannot live with that. It is not due to fear of police, judge or social
sanction that most people restrain from crime. It is because they cannot live
with themselves then after, if they have done immoral crime.
If a rotten
apple happens, then community does have better access to micro information from
eye and mind of every member, which makes least cost supervision possible
(Masuku, 2009; Bradach, 1989; Powel, 1990; Fafchamps, 2004). Then social
sanction will be used to restrain such bad behavior in least cost possible
(Mwangi and Meinzen-Dick, 2009; North, 1971, 1992, 1994; Williamson, 2000;
Hodgson, 1998; Bardhan, 1989; Hodgson, 1997; Field, 1984; Bardhan, 1987; Cox
and Fafchamps, 2006; Akerlof, 1998).
Even if
community ties are weak for collective sanction to be practical, as is observed
by Fafchamps (2004) in some African markets, the community still can improve
efficiency of formal organizations by supplying local knowledge, micro
information and whatever social pressure, which can exists, in to service of
formal enforcers of the law to make the formal laws very effective. However if
the new law or new institution is rejected by the society, the iron hand of
society which can help formal enforcers will destabilize the formal laws from
inside out. This will make enforcement very hard business and will generate
high enforcement cost to out weight the benefit of the new institution.
However we
should not underestimate our capacity for institutional design and the dramatic
change in society that can be generated by such design. Institutions will not
only determine how we think and how we behave; but they can also determine the
kind of goal we have in life by defining our identity. Identities which can be manipulated
like national feeling, civic duty and professional identity can introduce
restrain on moral hazard and can promote efficient work ethics (Chang, 2001;
North, 1992, 1994; Granovetter, 1985; Dequech, 2002; Pagano, 1999). But they
have to be used in the right manner, as human beings are not clean slit that
can be filled anything (Pinker, 1997; Mezgebo, 2014). This is so because social
science is built on biological foundation, as biology is built on chemical
foundation of nature. We have to accept society and its powers, but society can
be changed too, if done with care.
[1] There is a claim which states that
institutions and organizations did not always exist as indivisible parallel
view points of one social reality (Kirsten, et al., 2009; Chang, 2007). However
institutions and organizations are actually two sides of one coin; and one
cannot exist without the other.
[2] Mind
does not use abstract logic to think, but it uses mind senses. Those mind
senses are foundation of observed common senses (Pinker, 1997). Common senses
and mind senses are intentionally included here under institutions. The
inclusion of mind senses and common senses under institutions will allow us to
define internalized morality as institutions. This is in contradiction with Groenewegen
et al. (1995) who insist on separating internalized morality from the
institutional structure which organizes them. However such division is
artificial and unpractical.
[3] Decision
making agents include individuals, households, firms, countries, communities,
families, clans, friends and soon.
[4] Most
economists, explicitly or implicitly, do assume either rationality or super
rationality as true nature of human intelligence. For example Stigler and
Becker (1977) do insist on assumption that an objectively defined stable
preference, with capacity to make rational cost benefit analysis in imperfect
information world, can explain human behavior. Farther more, Becker (1991) did
conclude habit are informal rational contracts with life of past generations, given they are dominant
way of life now. Even there is micro model, which try to explain the genesis of
rational habit, which is developed by Becker and Murphy (1988) and Becker et
al., (1991) to justify rationality
of habit. However the level of rationality demand under such analysis is
irrational itself, because it demands super rationality, which is only possible
to almighty God (Pettit, 2002; Conlisk, 1996; Selten, 1999). From another angle
the work of Hodgson (1997), Heiner (1983) and Hodgson and Knudsen (2004) did
clearly show, when working with bounded intelligence that we have, use of habit
and norms is more optimal than using rational analysis. Even the conclusion
which states well adapted instincts, which lack foresight of humanity and which
are common to all animals, are superior to reason is proven by prominent
evolutionary psychologists Cosmides and Tooby (1994b) in their famous paper
entitled “Better than Rational: Evolutionary Psychology and the Invisible Hand”.
Even though work of Becker (1962), Becker and Murphy (1988), Pollak (1970) and Becker
et al., (1991) in developing market behavior under irrationality and habit is
path breaking; in case of habit and norms the authors tend to go around the
wrong assumption they hold dear than admitting the self evident truth.
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