By Gideon Strauss

I had the privilege last week of joining the annual retreat that the Canadian think tank Cardus (publishers of Comment magazine, edited by Jamie Smith) hosts for its senior fellows (of which I am one). This year the retreat was hosted in beautiful Montreal, and planned to overlap with a conference on Christian faith and the university, with the historian Mark Noll as the opening keynote speaker.

We began the retreat with a discussion of the economist Douglas W. Allen‘s fascinating study of the institutions of early modern Britain, The Institutional Revolution. Allen asks why British institutions worked the way they did between the end of the feudal era and the beginning of the industrial revolution. He studies the British aristocracy, the army and the navy, the peculiar institution of dueling, and a number of other elements of Britain’s social structure during this time. The details with which he illustrates his argument are fascinating, and his theory is thought-provoking although perhaps too much of a simplification. Allen suggests that “Individuals come together to cooperatively exchange and produce. They do this because together they can generate much more wealth (broadly defined) than they can on their own. Unfortunately, when people come together they can also behave opportunistically … Many bad things happen in life, and to mitigate these bad behaviors successful societies create institutions that constrain bad private incentives.”

From left to right: Jonathan Chaplin, Brian Dijkema, Peter Stockland, Gideon Strauss, Paul Williams.

From left to right: Jonathan Chaplin, Brian Dijkema, Peter Stockland, Gideon Strauss, Paul Williams.

 

 

 

 

 

 

 

 

 

 

 

Allen defines institutions as “bundles of rules,” “the rules we live by and how life is organized” – “an institution is a complicated collection of expectations, norms, and constraints that work together to influence the way people interact with each other.” Claiming the authority of institutional economist Ronald Coase, Allen argues that “institutions are designed to maximize wealth, net of the costs of establishing and maintaining them. … Institutions are assumed to be wealth maximizing and chosen subject to the specific transaction costs that arose in their context.” “Transaction costs” Allen defines as “those costs necessary to establish and maintain any system of rules and rights.” Allen then continues to claim that “there is a simple key to understanding” the institutions of early modern Britain, such as the aristocracy and dueling: “All institutions depend on transaction costs. Understand these costs, and an understanding of institutional detail practically follows automatically.”

While I am sure that Allen’s “automatically” makes the process of understanding institutions sound quite a bit more simple than it really is, he does in the pages of this book make a serious effort to understand the transaction costs of early modern Britain, and to offer a thought-provoking interpretation of the institutions of that time and place in terms of his theoretical argument.

Cardus Senior Fellow Deani Van Pelt speaking.

Cardus Senior Fellow Deani Van Pelt speaking.

 

 

 

 

 

 

 

 

 

 

 

Fascinating as Allen’s argument and the details of his illustrations are, what has me thinking most in this book is his exhortation to interpretive humility. Allen writes: “Any time a country prospers under rules that last for hundreds of years, I believe it calls upon the scholar to pause, humble himself, and ask, ‘What problem was that rule solving?'” As I read this sentence, I was reminded of a few sentences I had read earlier last week in The Practice of Adaptive Leadership, by Ronald Heifetz, Alexander Grashow, and Marty Linsky. Heifetz and his colleagues claim that “any social system (including an organization or a country or a family) is the way it is because the people in that system (or at least those individuals and factions with the most leverage) want it that way.” They continue to quote Jeff Lawrence as saying that, “There is no such thing as a dysfunctional organization, because every organization is perfectly aligned to achieve the results it currently gets.”

We get the results we (or the most powerful among us) want … The claim rings true to me, and it suggests a significant responsibility on the part of every participant in every human institution, every human organization. We are complicit in the ills and can claim a share in the glory of the businesses or other organizations in which we work, in the shape of the markets and other inter-organizational institutions in which we make our common life, in the arrangement of the world as it presently is. But we must also recognize that changing systems is very hard work, among other reasons because systems do actually give us as their constituents the results we want, while the risks of change are scary and unknown, or clearly too high for many of the stakeholders to be willing to consider. How then do we pursue the slow, hard work of positive institutional or organizational change?

[Photographs by Naomi Biesheuvel, courtesy of Cardus.]

Gideon Strauss is the executive director at the Max De Pree Center for Leadership and also editor of Fieldnotes Magazine.

Fieldnotes Magazine is a publication of the Max De Pree Center for Leadership at Fuller Theological Seminary. We would love to hear from you about people, businesses, or other organizations we can interview or feature. Please email the editor at Fieldnotes Magazine.

 

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