Topics: INSTITUTIONAL INNOVATION

Francis Fukuyama in Foreign Affairs:”… Institutions are “stable, valued, recurring patterns of behaviour”, as Huntington put it, the most important function of which is to facilitate collective action. Without some set of clear and relatively stable rules, human beings would have to renegotiate their interactions at every turn. Such rules are often culturally determined and vary across different societies and eras, but the capacity to create and adhere to them is genetically hard-wired into the human brain. A natural tendency to conformism helps give institutions inertia and is what has allowed human societies to achieve levels of social cooperation unmatched by any other animal species.
The very stability of institutions, however, is also the source of political decay. Institutions are created to meet the demands of specific circumstances, but then circumstances change and institutions fail to adapt. One reason is cognitive: people develop mental models of how the world works and tend to stick to them, even in the face of contradictory evidence. Another reason is group interest: institutions create favored classes of insiders who develop a stake in the status quo and resist pressures to reform.
In theory, democracy, and particularly the Madisonian version of democracy that was enshrined in the US Constitution, should mitigate the problem of such insider capture by preventing the emergence of a dominant faction or elite that can use its political power to tyrannize over the country. It does so by spreading power among a series of competing branches of government and allowing for competition among different interests across a large and diverse country.
But Madisonian democracy frequently fails to perform as advertised. Elite insiders typically have superior access to power and information, which they use to protect their interests. Ordinary voters will not get angry at a corrupt politician if they don’t know that money is being stolen in the first place. Cognitive rigidities or beliefs may also prevent social groups from mobilizing in their own interests. For example, in the United States, many working-class voters support candidates promising to lower taxes on the wealthy, despite the fact that such tax cuts will arguably deprive them of important government services.
Furthermore, different groups have different abilities to organize to defend their interests. Sugar producers and corn growers are geographically concentrated and focused on the prices of their products, unlike ordinary consumers or taxpayers, who are dispersed and for whom the prices of these commodities are only a small part of their budgets. Given institutional rules that often favor special interests (such as the fact that Florida and Iowa, where sugar and corn are grown, are electoral swing states), those groups develop an outsized influence over agricultural and trade policy. Similarly, middle-class groups are usually much more willing and able to defend their interests, such as the preservation of the home mortgage tax deduction, than are the poor. This makes such universal entitlements as Social Security or health insurance much easier to defend politically than programs targeting the poor only.
Finally, liberal democracy is almost universally associated with market economies, which tend to produce winners and losers and amplify what James Madison termed the “different and unequal faculties of acquiring property.” This type of economic inequality is not in itself a bad thing, insofar as it stimulates innovation and growth and occurs under conditions of equal access to the economic system. It becomes highly problematic, however, when the economic winners seek to convert their wealth into unequal political influence. They can do so by bribing a legislator or a bureaucrat, that is, on a transactional basis, or, what is more damaging, by changing the institutional rules to favor themselves — for example, by closing off competition in markets they already dominate, tilting the playing field ever more steeply in their favor.
Political decay thus occurs when institutions fail to adapt to changing external circumstances, either out of intellectual rigidities or because of the power of incumbent elites to protect their positions and block change. Decay can afflict any type of political system, authoritarian or democratic. And while democratic political systems theoretically have self-correcting mechanisms that allow them to reform, they also open themselves up to decay by legitimating the activities of powerful interest groups that can block needed change.
This is precisely what has been happening in the United States in recent decades, as many of its political institutions have become increasingly dysfunctional. A combination of intellectual rigidity and the power of entrenched political actors is preventing those institutions from being reformed. And there is no guarantee that the situation will change much without a major shock to the political order….”