Institutional theory in sociology

Emile Durkheim

In his early work Emile Durkheim, French sociologist, viewed that collective order is built on the presumption of rational action and can be successfully negotiated in an individualistic way. In his later work, however, he amended his explanations by changing from instrumental-ist and individualinstrumental-istic approach unto collective-, normative-framework approach: the non-contractual element. It is the presence of, what Durkheim termed, that ‘non-non-contractual ele-ment’ that makes a system of contractual relations is possible at all. It opens the possibility of contractual relation because, first, without it both contracting parties would have to settle all the implications of a contract ad hoc anew including those for curbing opportunism/fraud and preventing oppression/contract-signing under duress; and, second, more importantly the nor-mative rules of the institution of contract accounts for the principal element of order that cre-ates stability of the system. Furthermore, Durkheim’s view on institution differed profoundly with Veblen’s in the essential nature of institutions: instead of being complex habits they are normative rules ultimately dependent on common ethical values (Parsons 1935, pp. 647–650).

Durkheim’s mature formulation emphasises the significance of symbolic systems, namely systems of belief and ‘collective representations’, shared cognitive frames, schemas and vues. They are perceived by individuals as objective, external, and even coercive facts; al-though initially they are subjectively created through human interaction. For Durkheim these symbolic systems are social institutions (Scott 2008, pp. 11–12).

Max Weber

Despite the fact that Max Weber never used the term ‘institution’ in all of his works, his thoughts reflect unanimously an extended conception of economics, inter alia, from the insti-tutional perspective. Weber’s view on economics and its relation to other social sciences is insightful and groundbreaking. With his programmatic concept of ‘social economics’

(Sozioökonomik), he proposed that economic phenomena in general should be analysed through several, not one, of the social sciences. Each social science has its own strengths and weaknesses and therefore the analyst should choose the appropriate combination according to the purpose of analysis: ‘economic history’ for the in-depth analysis of a single economic phenomena in the past, ‘economic sociology’ for the study of a typical set of economic ac-tions in present time, ‘economic theory’ for explaining the pure logic of interest-driven action during some period.

Standing at the crossroads of three major debates at the turn of 19^th and 20^th centuries, Weber possessed a unique theoretical stance that attempted to reconcile the contending ideas at that time. Scott (2008, pp. 11–12) characterised it in general as follows:

i. Economics as a natural science vs. as a cultural/social science. Weber argued against an objectivistic approach – like in a value-free natural science – to economics and insisted instead on treating economics as social science since the object of study, i.e. individuals, subjectively attach meaning to events. Individuals do not mechanically respond to stimuli;

they first interpret them based on their ‘cognitive interest’ which is a product of specific cultural conditions, and then determine their response (Swedberg 2001, pp. 83–84). There-fore, understanding subjective meanings attached by individuals into their own actions are the key in understanding social actions.

ii. Idealist vs. materialist view. Instead of supporting one of these conflicting views, Weber employed interpretative (deutende) approach to combine material conditions and interests with idealist values as the motivation and guidance for action.

Figure 3-1 Weber’s basic analytical unit: ‘social economic action’

Source: modified from Swedberg (2001, pp. 84–85)

iii. Historical School vs. neoclassical economics. Weber tried to balance the abstract in-sights of theoretical economics (‘abstract theory’) with the inin-sights based on empirical material (‘realistic theory’ or ‘empirically oriented economics’). On the one hand, he

sup-ported the idea of Menger and the classists that theoretical models are valuable instru-ments in formulating and evaluating general arguinstru-ments abstracted from specific, complex, discrete, and historically embedded systems. On the other hand, he argued that economics should consider historical circumstances and employ comparative approach as it is sug-gested by the institutionalists. In synthesising these conflicting ideas, he proposed that ab-stract theory can improve the more empirically oriented forms of economics through its insistence on the analytical elements, especially the way in which it constructs categories or ‘ideal types’. Ideal types are not the reality; but rather aids in guiding analysis and in-forming comparative studies, thereby increasing understanding of the real world (Swed-berg 2001, pp. 82–84). More specifically, Weber treated the model of ‘rational economic man’ as an ideal type that evolves historically under specific cultural rules of Western civilisation⁴. Hence, for him rational economic man is a variable and not an assumption.

Summarising Weber’s works particularly those contributing to economic sociology; Swed-berg (2001, p. 90) delineated five basic principles of the Weberian approach to economic so-ciology:

i. The basic unit of analysis is social economic action. Weber built his analysis of econ-omy on his basic definition of ‘social economic action’, namely an action by an individ-ual, which is primarily driven by both material and ideal interests and to some extent by tradition/habit and sentiments/emotion, aimed at utility either in the form of a good or a service, and where other actors are always taken into account⁵ (see Figure 3-1). This ex-plicitly states that the analysis starts with the actions of a single individual (methodologi-cal individualism⁶) by also considering the behaviour of other individuals, and then pro-ceeds with more complex social interactions, namely ‘social economic relationship’ – when two actors direct their economic social actions at each other – and ‘economic or-ganisation’.

ii. Economic action is presumed to be rational, until otherwise proven. It is important to note that, first, the concept of rationality employed by Weber differs with the concept of

4 Cf. Weber (1905/2005)

5 Cf. Weber (1922/2005, pp. 3–18)

6 See Sub-chapter 3.6 for methodological individualism.

rationality posited by (neo-) classical economics: rationality means that the actor attempts to realize his or her interests, instead of that the actor has perfect information. Second, Weber embraced a modified version of interest theory that includes ideal interest. Hence, economic action is primarily driven by material interest (‘instrumental rationality’) or ideal interest (‘value rationality’). If, however, the empirical reality deviates from the ba-sic presumption, then another type of explanation is sought to account for the discrepancy, for example, by introducing tradition/habit and sentiments/emotion. Socio-economic sci-ence is anyway, as Weber insisted, a ‘scisci-ence of reality’ (‘Wirklichkeitswissenschaft’).

iii. Struggle and domination are endemic to economic life. Economic life is characterised by, on the one hand, individuals struggling to realise their interests in a situation of scar-city and, on the other hand, by domination in most economic organisations as well as po-litical system.

iv. Not only economic behaviour should be analysed, but also behaviour that is eco-nomically relevant and ecoeco-nomically conditioned. Weber argued that the subject area of analysis should not cover solely economic phenomena per se, but also non-economic phe-nomena influencing the economic phephe-nomena (‘economically relevant phephe-nomena’)⁷ and non-economic phenomena influenced by the economic phenomena (‘economically condi-tioned phenomena’). This stands in line with his argument that economic sphere – certain areas of society where economic actions predominate – does not exist independently re-gardless with what happens in other parts of society, such as the political sphere, the reli-gious sphere, and so on; they are indeed mutually influencing (see Figure 3-2).

Figure 3-2 Economic phenomena, economically relevant and conditioned phenomena Source: own compilation based on Swedberg (2001, p. 90)

7 One famous example for ‘economically relevant phenomena’ is Weber’s creative work The Protestant Ethics and The Spirit of Capitalism (Weber 1905/2005).

Economic sociology should cooperate with economic theory, economic history, and other approaches – within the framework of social economics. A combination of different ap-proaches in social sciences is needed to analyse economic phenomena comprehensively.

Talcott Parsons

Talcott Parsons attempted, like Weber, to reconcile an objective and a subjective approach to social action (Scott 2008, pp. 23–25). In his analysis of organisations he put a great emphasis on what he termed the ‘objective’ dimension of institution: a system of norms defining what the relations of individuals (or organisations) ought to be. Parsons viewed that normative frameworks existed independently of a given social actor. Analysts needed to take into ac-count the ‘orientation’ of actors to them. As actors in an ongoing social relation oriented their actions to a common set of normative standards and value patterns, such normative systems becomes internalised by the actors. This is the ‘subjective’ dimension of institution, where individual actors internalise shared norms so they become the basis for the individual’s action, and even to the degree that the “conformity with it becomes a need-disposition in the actor's own personality structure” (Parsons 1951, p. 37 in Scott 2008, p. 14). In this sense institution-alised action is motivated by ‘moral’ rather than ‘instrumental’ concern because the primary motive for obedience to an institutional norm lies in the moral authority it exercises over the individual. The actor conforms because of his or her belief in a value standard, not out of ex-pediency or self-interest.

Contemporary theorists, however, noted several kinds of limitations from Parson’s formula-tion (Scott 2008, p. 15). First, he over-stressed the significance of cultural patterns in his con-ception of institutionalisation and thereby overemphasizing the control exerted by values over conditions. Second, consequently his conception of institution underemphasised the signifi-cance of interests and instrumental action and rational choice. Hence, his general cultural-institutional argument was limited to value-orientation and thereby its cognitive dimension was neglected. Third, notwithstanding Parson’s attempt to employ objective approach to so-cial action, he did not succeed in expounding the existence of culture as an object of orienta-tion existing outside the individual (objectivity), since he viewed culture mainly as an inter-nalised element of the personality system (subjectivity).

3.3.2 Cognitive Theory

Following Scott (2008, pp. 36–37), during the 1940s and 1950s, the stimulus-response (S-R)

that mediated between the provocation and reaction. The idea of the human organism as an information processor became popular. The mind came to be viewed by many as a computer-like apparatus that registered the incoming information and then subjected it to a variety of transformations before ordering a response (Markus et al. 1985, p. 141). The question be-came, what types of “software” provide the programs and transformation rules for these proc-esses? Several debates attempt to answer this question.

While early social theorists, like Durkheim, insisted that ‘the framework of the intelligence’

or ‘mental model’ was determined by the social and cultural forms of the society into which an individual was born; a large and growing body of psychological theory and research sug-gests that, rather than providing a blank slate, humans come equipped with a number of fun-damental mental capabilities, such as conceptions of space, number, cause-and-effect rela-tions, and recognition of categories. Even the principles of language (syntax) are not learned but part of our bio-endowment (Bergesen 2004). Other debate concerns whether individuals’

thought processes follow abstract reasoning (‘computational’) or a ‘pattern-recognition’

(‘connectionist’) model. The latter appears better suited to explaining the ways in which so-cioeconomic actors cope with the kinds of uncertainties they encounter (North 2005, p. 27).

It is also being contested whether individuals are basically competent, rational beings or rather experience cognitive biases and limitations. Recent cognitive theory and research has been to emphasise the shortcomings of individuals as information processors and decision makers. However, despite these limitations, cognitive psychologists have recognised that in-dividuals actively participate in perceiving, interpreting, and making sense of their world. By contrast, sociologists tended to give primacy to the effects of contextual factors, viewing indi-viduals as more passive, prone to conform to the demands of their social systems and roles.

3.3.3 Phenomenology

Phenomenologists accentuate the role of shared knowledge and belief systems (cognitive frames and cultural frameworks), as opposed to shared norms and values (normative systems).

These meaning and belief systems are not only as internalised, subjective beliefs, but also as external, objective frameworks. Defining institution as symbolic systems that are experienced as possessing a reality of their own that confronts individuals as an external and coercive fact, Berger and Luckmann defined the construction of common meaning systems as three phases of institutionalisation (Berger et al. 1967, pp. 58, 60-61 in Scott 2008, pp. 40–41):

i. Externalisation. The production of symbolic structures whose meaning comes to be shared by the participants.

ii. Objectification. The process by which symbolic structures become a fact, reality, ‘some-thing out there’.

iii. Internalisation. The process by which the objectified world is retrojected into conscious-ness in the course of socialisation.

3.4 Concluding remarks

Different scholars also emphasised the importance of retrospective view in analysing tion. Through the historical study it is possible to understand why the current state of institu-tion has come about. The understanding of the emergence and change of instituinstitu-tion obviously provide more solid basis than static snapshot of the present institutional condition does.

Some institutionalists found out that certain aspect of institution may constitute the most sig-nificant conclusion in their researches. Others do found something else. Thus, the assumption embraced in this research is that it seeks to differentiate things found out in the research and to highlight its differing factor; yet it shall try to see the logical connections between things and their relation. Hence, it follows an ‘inseparable yet distinguishable’ approach. On the one hand, an integrative view should be employed in analysing the elements of institutions; inte-grative in the sense that it explicitly rejects the notion of privileging the supremacy of one element while completely disregarding another element of institution. Indeed, most empirical observations of institutions showed that not one, single element is at work, but rather combi-nations of elements with diverse constellation of dominance constructing a social framework.

How they are interdependent and reinforcing each others are in fact subject to explanation. On the other hand, the integrative view should be complemented by a distinguishing view so as to prevent the analysis from failing to identify important intrinsic differences among the institu-tional elements. By differentiating the components of each element, e.g. underlying assump-tions, mechanisms, and indicators, it is possible to “identify underlying theoretical fault lines that transect the domain” (Scott 2008, p. 51).

From various schools of thought diverse scholars have contributed their valuable ideas and efforts in the endeavour to build sound theory of institution. Together they vouch that institu-tions are indeed complex phenomena with multiple facets that need to be approached compre-hensively. These multiple facets of institution are summarised in the omnibus concept of insti-tution to be delineated in the next sub-chapter.