Capacity Development and Institutional Change

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Capacity Development and Institutional Change

• Jaap Voeten and Saeed Parto
• Seminar Scrutinizing Success and Failure in
  Development
• Wageningen International, 3 Dec. 2007

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Objective

• To promote understanding of institutions and
  institutional change in capacity development
• By introducing several concepts from new economic
  theory.

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Contents

• Problem exploration capacity development and
  institutional change (JV)
• Review institutional theories economics (JV, SP)
• Analytical framework institutional assessment
  (SP)
• Case illustrations (SP, JV)

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Seminar problem statement

• A significant cause of failure of many well
• intended capacity development interventions is a
• limited understanding of institutions and false
• assumptions about processes of social change.
• More often then not, CD interventions do not
• meet expectations. There is something missing
• in the existing CD approaches, methods, plans
• Why would understanding institutions be
• critical in CD?

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Capacity Development

• What is it? Many definitions
• Two essential elements
• various approaches, strategies and methodologies
• seek to improve performance at different levels
• Still quite vague, what is meant by the term
• capacity?

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Capacity

• Abilities, skills, understandings (explicitly
  addressed in CD)
• Attitudes, values, relationships, behaviors,
  motivations (implicitly, indirectly addressed)
• (Resources and conditions)

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What is missing/implicit?

• Issues of attitudes, mentalities,
• values, motivations, culture,
• norms all concern
• Human interaction
• There is something missing in our
• understanding of human interaction in CD

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Emerging questions

• How could we better understand the human
  interaction in capacity development?
• What theories on human interaction exist and
  could be of help?
• What about institutional theories?

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Theoretical concepts

• New economic theories address
• human interaction in their analysis
• Transaction Cost Theory
• New Institutional Economics
• Evolutionary Economic Theory

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Transaction costs theory

• What makes some markets
• more imperfect than others?
• Transforming
  Transacting
• Costs of measuring, enforcement, (dis)trust

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Transaction costs

• Costs implied in economic transacting due to
• human interaction issues.
• Transaction costs need to be taken into
• account in the analysis.
• Assuming that measurement, enforcement
• and trust are costly and context related,
• explains why some economies/markets
• develop better than others.

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New Institutional Economics

• What determines the transaction costs?
• In economic transaction, rules of the game are
• framed (contract, enforcement, trust). If the
• framework is clear -gt low transaction costs
• Rules of the game Institutions
• Institutions are the rules of the game in a
• society, they are the humanly devised
• constraints that shape human interaction.

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Examples of institutions

• Formal rules constitution, law, policy,
• regulations, tax, contracts on paper
• Informal rules conventions, norms of
• behavior, values, attitude, (self imposed)
• codes of conduct, routines, personal
• standards of honesty
• Institutions (rules) lt-gt Organizations (players)

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Functions of institutions

• provide stability and predictability
• facilitate behavior in recurrent interaction
• codify accumulated knowledge in routines and
  traditions
• communicate values by containing social
  prescriptions for behavior
• Institutions are regulated
• power relations

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Evolutionary Economic Theory

• Sees the economy as always
• in the process of change
• The economic context is not completely understood
  by the actors they can not make optimal choices.
  
• Institutions help cope with incomplete
  information and uncertainty providing guidance
  and stability
• An always changing economy implies changing
  institutions.

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Implications Institutional change

• The more complex a society, more formal rules
• Institutions serve the ones in power, not
  necessary (socially) efficient
• Formal rules can change overnight, informal rules
  usually do not
• Path dependency perpetuates the existing
  institutions
• Institutional changes imply internalization
• Institutions will never reach a steady state

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SP Reconstruction of Afghanistan

• Started in earnest in late 2001
• A number of international conferences held on how
  to reconstruct
• Numerous infrastructure and service provision
  programmes were introduced including
• Microfinance (2003)
• Community Development Councils (2004)
• Water User Associations (2005)

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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
Problem(s)
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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
Problem(s)
Decision making analysis (March and Olsen)
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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
Problem(s)
Network Analysis Coleman Burt
Decision making analysis (March and Olsen)
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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
Problem(s)
Network Analysis Coleman Burt
Implementation Analysis Mazmanian and Sabatier
Decision making analysis (March and Olsen)
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Policy Process Dynamics
Physical / Material Conditions
Institutional Context
Patterns of Interactions
Attributes of Community
Outcomes
? ?
Policy Decisions
Problem(s)
Network Analysis Coleman Burt
Implementation Analysis Mazmanian and Sabatier
Decision making analysis (March and Olsen)
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What are Institutions?

• A way of thought or action of some prevalence or
  permanence, embedded in the habits of a group or
  the customs of a people (Hamilton 1932)
• Conventions, rules of action, embedded in social
  structure, locally specific (Krätke 1999)
• Settled habits of thought common to the
  generality of men (Veblen 1919)
• Collective action exercised by different types of
  organization (family, corporation, trade union,
  state in control of individual action (Commons
  1924)
• Convenient term for the more important among the
  widely prevalent, highly standardized social
  habits (Mitchell 1950)
• Sets of rules of the game or codes of conduct
  defining social practices (Young 1994)
• Formal organizations, patterns of behaviour,
  negative norms and constraints (Coriat and Dosi
  1998)
• Mental constructs (Neale 1987)
• Rules of the game (North 1990) / How the game is
  played (Nelson and Sampat 2001)
• A set of socially prescribed patterns of
  correlated behaviour (Bush 1986)
• Prescribed or proscribed patterns of correlated
  behaviour (Tool 1993)
• Constitutional rule systems for society,
  collective choice rules governing different kinds
  of organization, operational rules of
  organizations
• Norms that regulate relations among individuals
  (Parsons 1990)

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Typology of Institutions
Formal / Societal



Informal / Social

• Constitutive
• Regulative
• Associative
• Cognitive
• Behavioural

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Introducing Microcredit Organizations in
Afghanistan

• Rationale for Microcredit
• High unmet demand for credit in rural areas
• Lack of access to credit in rural areas
• Microcredit as a means to improve economic and
  social wellbeing in rural areas

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Introducing Microcredit Organizations in
Afghanistan

• Research Objectives
• Investigate role of Microcredit in rural
  communities
• Assess impact of Microcredit on rural livelihoods
• Take stock of changes in rural socio-economic
  conditions due to introduction of Microcredit

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Introducing Microcredit Organizations in
Afghanistan

• Methodology
• 32 households in 4 provinces
• chit chats
• Focus Group Meetings
• Key Informant interviews (shopkeepers, farmers,
  teachers, mullahs, eldermen, widows, MFI staff)
• A lot of time and sweat

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Introducing Microcredit Organizations in
Afghanistan

• Findings (1)
• Significant amount used for consumption
  smoothing, but also some for increased economic
  activity
• Used for weddings, funerals, medical expenses,
  repaying loans from traditional sources and vice
  versa
• Borrowed for others (wives for their husbands,
  kin, friends)
• Overly strict repayment schedules
• Amounts too small, lent over too short a period,
  to make a difference in livelihood of borrowers

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Introducing Microcredit Organizations in
Afghanistan

• Findings (2)
• Selling assets (land, livestock) to make payments
• Contravention of Islamic notion of credit
• MC is a new product on the highly structured
  and evolved rural credit market
• Statistics on high uptake of MC in rural areas is
  misleading because the novelty factor is not
  taken into account
• Statistics on the high percentage (68) of women
  taking MC loans is misleading because they mostly
  borrow for their husbands there are some
  exceptions

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• How can institutional analysis help in finding
  solutions?

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Source Parto and Regmi (2007)
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Behavioural Institutions
Source Parto and Regmi (2007)
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Cognitive Institutions Behavioural Institutions
Source Parto and Regmi (2007)
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Associative Institutions Cognitive
Institutions Behavioural Institutions
Source Parto and Regmi (2007)
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Regulative Institutions Associative
Institutions Cognitive Institutions Behavioural
Institutions
Source Parto and Regmi (2007)
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Constitutive Institutions Regulative
Institutions Associative Institutions Cognitive
Institutions Behavioural Institutions
Source Parto and Regmi (2007)
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Source Parto and Regmi (2007)
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(No Transcript)
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To Summarize.

• Some institutions are slow to catch up with and
  adjust to new knowledge (learning)
• The question is seldom whether to intervene, but
  how to do so effectively and with the least
  negative impact
• Work through, or with, current institutions
• Catalyze complementary institutionalization
  processes

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Good Development Policymaking?

• The core responsibility of those who deal in
  public policy elected officials,
  administrators, policy analysts, and academics
  is not simply to discover as objectively as
  possible what people want for themselves and then
  to determine and implement the best means of
  satisfying these wants. It is also to provide the
  public with alternative visions of what is
  desirable and possible, to stimulate deliberation
  about them, provoke a reexamination of premises
  and values, and thus to broaden the range of
  potential responses and deepen society's
  understanding of itself.
• Robert Reich, The Power of Public Ideas (1988)

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Policy Process Dynamics
Physical / Material Conditions
Institutions Behavioural Cognitive Associative R
egulative Constitutive
Patterns of Interactions
Attributes of Community
Outcomes
Policy Decisions
Problem(s)
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Practical application (JV)

• Institutional mapping of 3 Nuffic NPT CD
• Cases (Vietnam, Yemen, Uganda) to identify
• constructive and undesirable institutions
• Institutions
• within the Southern organization
• between Dutch and Southern organization

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Behavioral institutions

• Human interaction is structured by standardized
• (recognizable), habits social norms, routines,
  ways of
• doing things. Examples in NPT projects
• Routines and norms in education
• and research
• Attitude towards authority
• Ways of doing things in management
• Initiative taking, proactive/reactive
• Habit to work from a structured approach written
  down in plans, logframes, schedules, reports

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Cognitive institutions

• Mental models and scripts how the world around
• perceived understood and interpreted by
  constructs,
• definitions and also wishful thinking. Examples
  in NPT
• projects
• A CD project is a bag of money
• Everything from abroad is best or no-good
• Everything new and innovative is best or
  no-good
• Emerging problems are to be solved by directors
• Interpretation and ambition of education and
  research position
• Values education good and invest a lot in
  education

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Associative institutions

• Group identification rules culture, attitude,
  mentality
• within organizations networks, classes,
  associations).
• Examples in NPT projects
• Culture and attitudes within education research
  teams, project team
• Resistance-to-change mentality by groups opposed
  to change
• New formal/informal teams emerge setting new
  organizational culture
• Formally or informally organized external networks

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Regulative institutions

• Formal policies, regulations of government
• and organizations). Examples in NPT projects
• National policies and regulations
• Nuffic rules and regulations
• NPT project also help to develop new national
  policies

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Constitutive institutions

• Constitutions, contracts, agreements and
• property rights structures. Examples in NPT
• projects
• The project contract and its negotiation
• Internal contracts and arrangements
• Agreements with third parties (auditor,
  co-funding, consultancy).

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Concluding remarks

• So whats new? .. sounds like old wine in new
  bottles
• It is about the new bottles Institutions should
  be addressed explicitly, better explain process
• Mapping institutional context helps to plan and
  anticipate change
• No tool boxes or cooking book only analytical
  framework.
• Institutions matter!