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Institutions and Behaviour: New Rules of the Game

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Institutional economics places great emphasis on establishing better institutions or ‘rules of the game’ as the necessary basis for economic growth and policy-making. While agreeing with some aspects of this proposition, the chapter and the book overall argue that sustainable development depends on elites playing an active role in establishing rules that promote good governance. In contrast, much economic and development theory asserts that international professional elites can directly influence economic and development outcomes. Many of the proposed institutional explanations of successful development of nations, such as pluralism, ensuring property rights and unbiased observance of the ‘rule of law’, are highly general. Changing these rules where they are deemed inadequate is a challenge that requires clearer understanding of both the nature of the rules and the role of the main actors in changing and implementing them. The institution of democracy itself requires a deeper understanding and strengthening; several critics recognize that democracy is not a finished product. Recent research, however, should help identify weaknesses and set directions for reform. Equally, we should not avoid looking at rules applied by directed capitalist countries, such as China and Russia and others influenced by state planning regimes. In this context, we look at the possibility and indeed the necessity of establishing a common core of rules for government across the globe. Most challenging of all, the chapter considers whether the current rules determined by hegemonic competition can be reformed to build stronger, more cooperative ways to ensure global security.


  • Institutions
  • Rules of the game
  • Rule of law
  • Democracy
  • Monitory
  • Autocracy
  • Fast and slow-thinking
  • Elites
  • Global security

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  1. 1.

    Antonin Scalia (1989) registered the case for a conservative approach to the interpretation of the US Constitution and its body of laws, arguing that “the Rule of Law and the law of rules…be extended as far as the nature of the question allows; and that…where [appellate judges]…have finally reached the point when we can do no more than consult the totality of the circumstances, we are acting more as fact-finders than as expositors of the law” (p. 1187). Many would argue for the law to be more open to change as society changes. President Trump, however, by his actions challenges this conservative interpretation of the Constitution as well as the right of litigants and lawmakers to verify the facts justifying his executive actions.

  2. 2.

    These comprise nine factors: Constraints on Government Powers; Absence of Corruption; Open Government; Fundamental Rights, Order and Security; Regulatory Enforcement; Civil Justice; Criminal Justice; and Informal Justice. Each factor has a series of dimensions that can be assessed to compile a composite index.

  3. 3.

    See for instance the discussion of the role of elites in WDR 2017, pp. 18–26, where interesting data on the role of elites is used to illustrate a discussion of how the thinking of elites can be formed to affect development policy change. This perspective also informs much of the philosophy underlying the MDG/SDG programs of the UN. There is little doubt that professional expertise is needed, but I argue that it should work by supporting country governance structures, not by supplanting them.

  4. 4.

    A substantial literature has grown on the topic of path dependency with an emphasis on including key variables of existing institutional states as variables helping to determine future states (see Kallberg and Lakomaa (2016) about a link between administrative inertia and implementation of an EU directive by Sweden; such studies are useful but say little about changing the rules of the game).

  5. 5.

    He also briefly discusses the importance of the concept of parrhesia as a key element of democracy (p. 36).

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  7. 7.

    Michael Lewis (2017) gives an excellent, and, as usual, highly readable overview of the relationship between Kahneman and Tversky and their work with a variety of behavioural and mathematical psychologists. His analysis gives a near-Kuhnian deconstruction of the process of paradigm change as well as an excellent biography of the intense intellectual relationship between Tversky and Kahneman.

  8. 8.

    To be fair, economists did not conceive of homo economicus as representing actual human decision-makers, but rather that the observed choice (revealed preference) represented considered choices and thus gave an authentic measure of utility value.

  9. 9.

    See Kahneman (Kindle Locations 371–375). Penguin UK. Kindle Edition.

  10. 10.

    Kindle Locations 297–298. Penguin UK. Kindle Edition. By ‘inconsequential’ he means information that doesn’t materially affect the factual information but gives it from a different perspective. The point is illustrated by Kahneman as follows: “Different ways of presenting the same information often evoke different emotions. The statement that ‘the odds of survival one month after surgery are 90%’ is more reassuring than the equivalent statement that ‘mortality within one month of surgery is 10%’. Similarly, cold cuts described as ‘90% fat-free’ are more attractive than when they are described as ‘10% fat’. The equivalence of the alternative formulations is transparent, but an individual normally sees only one formulation, and what she sees is all there is.” Kahneman, Kindle Locations 1592–1596. Penguin UK. Kindle Edition.

  11. 11.

    Kahneman (Kindle Locations 6792–6805). Penguin UK. Kindle Edition.

  12. 12.


  13. 13.

    The structure and history of the US Constitution is covered well in Wikipedia (see )

  14. 14.

    A term introduced by Samuel Huntington, as cited by Fukuyama, “to explain political instability in many newly independent countries after World War II” (p. 8).

  15. 15.

    In this context Mann and Ornstein (2012), writing just prior to the Obama second term election, concur with much of Fukuyama’s diagnosis of institutional decay, but attribute much of the deterioration to the limited success of the Obama administration in achieving bipartisan support and consistent blocking of all initiatives in the Senate. They expressed the hope that Republicans would be more cooperative in Obama’s second term. In the event, the loss of both House and Senate to the Republican Party hardened their resolve. The politics of the Obama era through to the ascension of Donald Trump is well presented in the PBS documentary The Divided States of America (January 2017).

  16. 16.

    Few major economists think that Trump’s economic agenda will benefit the members of his electoral base. Nouriel Roubini (Project Syndicate, February 2, 2017) argues that his “undesirable mix of excessively loose fiscal policy and tight monetary policy will tighten financial conditions, hurting blue-collar workers’ incomes and employment prospects”.

  17. 17.

    Since Russia’s annexation of Crimea in 2014, the G8 grouping excluded Russia.

  18. 18.

    Both Spence (2011) and Berggruen and Gardels (2013) argue strongly for development of the G20 as a necessary forum to broaden the debate and as more likely than the G7/8 grouping to achieve cooperative agreements in the increasingly complex global economy. Spence makes many important points about the interdependence of developing country growth with that of the global economy (the ‘great convergence’) and argues that it is essential for OECD countries to have a basic knowledge of the evolution of these economies, which are becoming increasingly important systemically (pp. 6–7). Berggruen and Gardels emphasize the dysfunction that afflicts much of Western democracy and argue that failure to respond to the challenges of convergence “will result in a crisis of legitimacy for any governing system” (p. 13). Jeffrey Sachs (2008) also sees the need for shaping new forms of government and improving intergovernmental processes and argues for the necessity of revitalizing the UN.

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  20. 20.

    The first official encounter of Finance Ministers and Central Bank Governors at Baden Baden, on 17–18 March 2017, failed to clarify the US position, and the meeting resolved to avoid strong language on trade until the US position could be clarified. See For a discussion of the Presidents G7 and G20 meetings, see Epilogue.

  21. 21.

    As Jeffrey Sachs notes, “funding an anti-government rebellion in another country…is completely prohibited under international law”.

  22. 22.

    With respect to national security and foreign policy, supportive comments on Trump’s early foreign policy moves have also been made by Matthew Kroenig (2017), a strong critic of Obama’s policies with respect to Iran and Syria. He argues that the US must take a strong stand against both Russia and Iran, and that Trump, with some missteps has assembled a strong ‘A-team’ to put these policies in place.

    From quite a different perspective, Rhoula Kalaf, in the Financial Times of April 26, 2017, has suggested that “there are important mitigating factors to the bluster from the White House. The first is that the president has little expertise but is willing to learn; the second is that he’s a delegator-in-chief, taking the lead on the rhetorical front but leaving it to his lieutenants to devise and implement policy; and the third is that despite the influence of mavericks like Steve Bannon at the White House, foreign policy is being firmly led by two responsible and more mainstream-thinking grown-ups: James Mattis, the defence secretary, and Rex Tillerson, the secretary of state. The pair meet regularly and co-ordinate policy, the latter has good access to the president, and they are both buttressed by another sensible character—HR McMaster, the new national security adviser”.

    It’s too early to say, but it’s possible Trump may not turn out to be the ‘destructive bozo’ that Robert Mercer wished to place in the White House (see earlier reference to Jane Mayer [2017]). So far, however, Trump policies on climate change appear to be fulfilling all negative expectations.


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Allan, W. (2017). Institutions and Behaviour: New Rules of the Game. In: The Last Empires. Palgrave Macmillan, Cham.

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