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DV3165 Development Management Chapter 1.2

These are Notes for the module development management chapter 1. Help you revise for the exams. - University of London

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Aminah Ali
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209 views

DV3165 Development Management Chapter 1.2

These are Notes for the module development management chapter 1. Help you revise for the exams. - University of London

Uploaded by

Aminah Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Development Management

Chapter 1: Institutions, Organisations and Development Management


Handout 1.2

Complexity in understanding institutions and organisations

 What sort of organisations come into existence and how they evolve are fundamentally
influenced by the institutional framework.
- In return they influence how the institutional framework evolves.

 There is no clear, linear progression from nation to institutions to organisations.


- Institutions and organisations overlap to an extent that North’s football analogy somewhat
obscures.
> If institutions are the ‘rules of the game’, and organisations are the ‘teams’ that operate within
those rules, then it is important to note that most ‘teams’ that we can think of operate and are
significantly affected by different coherent sets of rules and hence different institutions.
> For example a family (a particular kind of organisational unit) will operate under the
institutions of marriage, the constitution, property rights, the market etc.
> The same is true of a firm or NGO.
- Furthermore, within any category, or sector, organisations engaged in substantively similar
activities may have very different structures and levels of efficiency and effectiveness.
> For example, the garment manufacturing sector is populated by a large number of firms.
> Some of these are huge, multinational firms, and others are small and highly local.
> Some invest heavily in research and product development and are capital intensive, while
others mainly copy external designs and are labour intensive.
- Hence institutional systems are characterised by complexity.

Why they matter: incentives

 Institutions and organisations are important because they generate incentives that govern
human behaviour.

 But what are ‘incentives’?


- Incentives are rewards and punishments that accrue to individuals (or groups of people) due
to certain actions or behaviours.
- A salary is an incentive, as is the possibility of promotion, or of gaining the favour of a
superior.
- These are all positive incentives.

- Negative incentives include fines, the possibility of losing one’s job, loss of reputation, and
physical punishment, amongst others.

 Different institutions create different incentives.


- This means that variations in institutions and organisations are not arbitrary, and their
significance goes well beyond ‘local colour’.
- The particular institutions and organisations that society is endowed with critically affect the
incentives that permeate that society, and hence what sorts of activity are promoted or
encouraged.
- The way organizations are structured, and the way they operate, directly affect how well they
achieve their organisational goals and with what levels of efficiency
> This will then determine what sort of incentives are created and hence the human behavior
that follows from it.

 Activity 1.5 from Subject guide (J.P Faguet, 2011)

- Consider two identical twins separated at birth. Both have grown up to become inventors.
- One lives in a country with a private market economy populated by firms and individual
agents.
- The other lives in a country with a collectivised, socialist economy composed entirely of
cooperatives.

Organisational and institutional change

 We live in a world where the rapidity of institutional change is very apparent.


- Institutions change incrementally rather than in a discontinuous fashion.
- This is a result of the imbeddedness of informal constraints in societies.
- Although formal rules may change overnight as a result of the political or judicial decisions,
informal constraints embodied in customs, traditions and codes of conduct are much more
impervious to deliberate policies.
> These cultural constraints not only connect the past with the present and future but provide
us with a key to explaining the path of historical change.

 The differences between institutions and organizations and the interaction between them shape
the direction of institutional change.
- Institutions, determine the opportunities in society.
- Organizations are created to take advantage of those opportunities and as organizations
evolve, they alter the institutions.

 Organisations change over time.


- They change because they learn to execute core functions more efficiently, or with greater
precision or quality, because they invent new technologies of production, they develop new
products or services, or they learn to organise themselves better.
- Hence automobile manufacturers may:
> Learn to build cars with fewer raw materials or fewer workers
> Learn to build cars with fewer defects
> Develop machines which save materials or labour in the production process
> Invent a new kind of engine that gives their cars a competitive advantage or
> Re-organise their supply chains or distribution networks in ways that save money etc.

- Looking at this from a broader angle, this is how countries develop over time.
(Alternatively, organisations and organisational performance can deteriorate in any or all of
these ways as well).

- Likewise, institutions become more (or less) efficient and effective as the rules that comprise
them are modified or replaced in ways that promote greater (or less) human productivity and
freedom.
> For example, increasing levels of public education in the West, were often portrayed at the
time as a question of human rights, or a moral imperative.
> But a more educated population also increased levels of human capital in the labour force,
boosting productivity, innovation, and facilitating the development of a more sophisticated,
higher value-added economy.

- Such institutional changes are often prodded by changes in the organisations that operate
under institutions, or broader social or cultural changes, whose proponents gain sufficient
political power to ‘institute’ changes beneficial to themselves.

> Hence the extension of civic and political rights down the social ladder in late medieval
Europe was at least partly prompted by outbreaks of plague, which decimated the population,
increasing the value of rural and urban labour.

> Amongst the peasant masses, those who survived found themselves in a much better
bargaining position, and so able to extract concessions from landowners, lords, princes and
priests.

Conclusion: the meaning of development management

 Development management is about actively fomenting institutional and organisational changes


that increase human freedom and wealth, and hence the level of development.

 It is the opposite of a laissez-faire approach, which waits for change to happen autonomously,
with no attempt at coordination or catalysis.
- In the laissez-faire approach it is assumed that an equilibrium will be reached on its own if
there is no interference from any external sources
- Thus an attempt at coordination would also be considered to be an external source.
- If political and economic markets were efficient, then the choices made would always be
efficient.
> That the actors would always possess true models or if they initially possessed incorrect
models the information feedback would correct them.
> But that version of the rational actor model has simply led us astray.
> The actors must frequently act on incomplete information and process the information that
they do receive through mental constructs that can result in persistently inefficient paths.

 It is, instead, the deliberate, conscious and informed attempt to move institutions and
organisations towards higher levels of efficiency and effectiveness in a way which is faster
than their autonomous rate of progressive change, and – to the extent that this is possible –
more coordinated.

 Institutions affect the performance of the economy by their effect on the costs of exchange and
production. They determine the transaction and transformation (production) costs that make up
the total costs
- The major role of institutions in a society is to reduce uncertainty by establishing a stable (but
not necessarily efficient) structure to human interaction.
- From conventions, codes of conduct, and norms of behavior to statute law and common law
and contracts between individuals, institutions are evolving and therefore are continually
altering the choices available to us.

 How does one know what sorts of institutions development managers should work towards?
Five criteria are commonly used to differentiate better from worse institutions:

1. Efficiency and growth


- Better institutions are more complex, larger scale, cost-minimizing, and tend to increase
growth.
- Efficiency stems from institutions that maximize rational planning and the role of science by
encouraging free experimentation and merit-based selection, and eliminating inherited
monopoly power.

2. Autonomy and freedom


- Better institutions allow people the ‘freedom to choose’ by basing control over resources on
competition and free discussion, rather than a monopoly on physical or moral coercion.
- This requires institutions that create formal equality of access (democratic states, free-market
economies, gender equality, religious and ethnic tolerance), rather than those based on
dictatorship, command planning, patriarchy, or ethnic or religious discrimination.
- Here, we come back to the definition of development given to us by Amartya Sen
- When people have the freedom to choose what to pursue in their lives they will automatically
work hard in order to achieve their goals unlike when someone would be forcing them to
choose a particular profession

3. Diversity and pluralism


- Better institutional systems use different kinds of agency to provide political, economic, or
social services, and to meet the needs of people with different cultural dispositions and different
levels of skill and social capital.
- This increases complexity and choice.
- In today’s world, diversity and pluralism are very important as people from many different
cultures have started working together
- Being able to tolerate their cultural differences is essential

4. Equity and justice


- Better institutions create equality of opportunity, ensure that rewards are directly tied to
performance, and minimize exclusion and insecurity.
- Development requires systems that create incentives that tie rewards to performance, and
use accountability mechanisms that enable recipients to exercise effective leverage over those
who provide them with their services.
- Thus everything should be allotted on the basis of merit and not favoritism.
- Incentives that will most appeal to the workforce should be created so that they are motivated
to attain them.

5. Connectedness and voluntary cooperation


- Better institutions increase the range of autonomous interdependence, and therefore our
capacity to cooperate freely with each other.
- This requires systems that are based on reciprocity and interdependence.
- No one should be able to use their personal power to exploit anyone else – to extract
resources from them without providing an adequate return.

 Progressive institutional transformation has been done in a number of countries.


- Where it has succeeded, good development management has transformed people’s lives, and
lifted entire nations out of poverty in as little as one lifetime.

- The difficulties development managers face are enormous, and the risk of failure is high.
- But the benefits to society of success are even greater and all the more worth the risk
because the alternatives are not good.

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