Transcript Institutional Dissonance and Bridging

Institutional Dissonance
and Bridging:
A New Perspective on the
Relationship between Religion
and Development
Min-Dong Paul Lee
Department of Management
University of South Florida
Contents
 Introduction: Does religion matter?
 Review of recent empirical studies
 Institutional dissonance
o
o
o
o
Property Rights
Contracts
Market Interactions
Organizational Management
 Institutional bridging
 Conclusion
Min-Dong Paul Lee
Does religion matter for development?
 Classical social scientists all devoted significant efforts to
understand religion and its effect on society and economy
Adam Smith
Emile Durkheim
Max Weber
Min-Dong Paul Lee
Does religion matter for development?
 Weber even went as far as saying that Protestant religion
had a causal influence on the rise of western capitalism
Macro
Protestant
religious doctrine
Capitalism
Calvinist
doctrine
encourages
certain values
Micro
Changes in
economic
behavior
bring about
Capitalism
Value
Appropriation of certain
kinds of orientations to
economic behavior
Economic
behavior
Min-Dong Paul Lee
Religion still matters!
 Until early 1980s, most social scientists assumed religion to be just a
“fading vestige of pre-scientific times” (Iannaccone 1998:1466)
 Revival of religion everywhere since early 1980s
o Return to traditional faith in Eastern Europe
o Rapid spread of conservative Islamism
o Explosion of Protestantism in Latin America
Min-Dong Paul Lee
Religion also matters for development!
 Development goals cannot be achieved without the
commitment and willing participation of local actors (Dar
and Cooke 2008; Thomas 1996)
o Mobilizing local actors requires better appreciation and
understanding of what is important to the local population.
 For people who adhere to a religion, it is often the most
important thing in their lives.
o In religious societies, religion dictates almost every aspect of a
person’s life from deciding what to eat and buy to how to interact
with others in society. Therefore, it would be difficult fully to
understand or facilitate the process of development without
considering religion.
Min-Dong Paul Lee
Studies on Religion and Development

1990s – Revival of academic interest in religion
1. Cross-country analysis of the relationship between religion and economic
development
o La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1999): Protestant
countries have more effective governments than Catholic or Muslim
countries (measured by interventionism, public sector efficiency,
quality of public goods provision, government size, and political
freedom )
o Barro and McCleary (2003): Religiosity is positively related to
economic performance
2. Religion’s effect on individual attitudes or values.
o Guiso, Sapienza and Zingales (2003): religion was positively
associated with the development of good economic attitudes
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Religiosity and Economic Growth
Source: Barro and McCleary (2003)
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A Constant Puzzle
 Barro and McCleary (2003): strong religious belief (e.g.,
belief in heaven and hell) was, in general, positively
associated with economic growth. However, Islamic
countries, with their strong religious belief, have strong
negative association.
 Guiso, Sapienza and Zingales (2003): religious
participation improved development performance by
increasing trust in government and social capital. However,
despite their high level of social capital in the form of trust
and economic reciprocity, Islamic societies often fared
poorly in economic development.
Min-Dong Paul Lee
Comparison of Economic Performance between Islamic States and a Selected Group of
Countries and Aggregates, 1975-2002
GDP 2002
Country
GDP per capita
US$ (billions)
PPPa
US$ (billions)
108.2
483.3
1652
6690
-0.4
35.4
37.8
15193
16240
-1.2
188.5
276.9
8612
12650
-2.5
Egypt
89.9
252.6
1354
3810
2.8
Morocco
36.1
112.9
1218
3810
1.3
Syria
20.8
61.5
1224
3620
0.9
21
66.2
2149
6760
2.1
64.2
153.1
4115
9820
4.1
476.7
807.3
10006
16950
6.1
87.0
100.1
20886
24020
5.0
Developing Countries
6189.3
19848.5
1264
4054
2.3
East Asia & Pacific
2562.6
9046.9
1351
4768
5.9
OECD
26298.9
28491.5
22987
24904
2.0
World
31927.2
48151.1
5174
8704
1.3
2002 US$
PPPa 2002
US$
GDP per capita
annual growth
rate %, 19752002b
Islamic States
Iran
Kuwait
Saudi Arabia
Tunisia
Comparison Group
Chile
South Korea
Singapore
Note: a. PPP is an abbreviated form for purchasing power parity; b. Growth rates were calculated by the World Bank using least squares method.
Source: Adapted from Askari, Hossein. 2006. Middle East oil exporters what happened to economic development? (Cheltenham, UK), p. 84.
Institutional Explanation
 Society as an inter-institutional system
 Institutions are material and symbolic systems that not
only regulate human activity, but also infuse it with
meaning (Friedland and Alford, 1991)
 Examples of institutions: Capitalism, state, democracy,
family and religion
 Each institution has its own logic that shape individual
preferences and organizational interests
 Institutional logics define the norms and values that
structure the cognition of economic actors and provide a
collective understanding of how strategic interests and
decisions are formulated (Thornton, 2002)
Min-Dong Paul Lee
Institutional Explanation
 Individuals’ perception and interpretation of economic
actions are conditioned by multiple (sometime, competing)
institutional logics
 Sen argued that “even though different commentators have
chosen to focus on particular institutions (such as the
market, or the democratic system, or the media, or the
public distribution system), we have to view them together,
to be able to see what they can or cannot do in
combination with other institutions.” - Development as
Freedom (1999:142)
Min-Dong Paul Lee
Institutional Explanation
 For a Muslim economic actor, two dominant institutional
logics he/she faces are Islam and Capitalism
 These two institutional forces exert significant influence on
how Muslim economic actors interpret their environment
and make choices.
Islamic
Institutions
Dissonance
Capitalistic
Institutions
Muslim
Economic Actor
Min-Dong Paul Lee
Macro
Islamic religious
Teachings
Capitalistic
Institutions
Macro economic
outcome
Islamic
teachings
encourages
certain
economic
values
Effect on market
interaction
Micro
Islamic
business
ethics
1.
2.
3.
4.
Appropriation of certain
kinds of orientations to
economic behavior
Economic
behavior
Islamic religious ideology encourages certain economic values
Muslim economic actors construct an Islamic business ethic based on their
religious ideology and develop a particular orientation to economic behavior
Muslim economic actors perceive and interpret the capitalistic market
institutions and various economic interactions through the lens of their Islamic
business ethic
The resulting economic behavior and disposition determine the extent of
Muslim economic actors’ participation in capitalistic markets and their
competitive efforts
Islamic Business Ethic
Capitalistic Institutions
Property
Rights
Inclusive rights
Communally-oriented
Stewardship (khalifah)
Exclusive rights
Individually-oriented
Ownership
Contracts
Informal enforcement
Conditional enforceability
Formal enforcement
Absolute enforceability
Market
Interactions
In-group focus
Closed network
Out-group focus
Open network
Organizational
Management
Full liability
Ambiguous authority
Non-distinction from
social life
Limited liability
Clear authority
Distinction from private
social life
Resolution of Dissonance?
 Persisting institutional dissonance prevents Muslim
economic actors from fully participating in capitalistic
economy without jeopardizing his/her social legitimacy
 Then, what can we do about the dissonance?
 Traditional remedies
o Institutional reform: replace inferior institutions with superior/
advanced institutions
o Problem: superior institutions (often, democratic and rational
institutions) also cause unintended dissonance with existing
religious institutions
o Institutional reform can result in even counter-cultural movement
Min-Dong Paul Lee
Institutional Bridging
 Alternative solution is creation of bridging institutions that
harmonize existing institutional dissonances
Islamic
Institutions
Bridging
Institution
Capitalistic
Institutions
Muslim
Economic Actor
Min-Dong Paul Lee
Example of Institutional Bridging
 Islamic Bank
 Source of Institutional Dissonance
o Islamic business ethic: Islamic law does not allows the charging
of interest (riba) in borrowing or lending
o Capitalism: banking system is a central feature of capitalist
economy. Banks facilitate secure and efficient capital flow between
savers and borrowers through interests
 Institutional bridging: Islamic banks
o Banking institution without the use of interest (riba)
o Use the methods of profit and risk sharing to facilitate financial
intermediation
o Result: Devout Muslims can save and borrow money (participate in
capitalistic economy) without compromising religious belief or
loosing social legitimacy
Min-Dong Paul Lee
Successful Resolution of Institutional Dissonance
 Rapid growth of Islamic banks: even faster asset growth in
conservative Islamic societies (e.g. Iran)
 Assets held by the world's 100 biggest Islamic banks grew
66 percent in 2008 from the previous year
o In the same period, Asia's 300 biggest banks saw their assets rise
by a much slower 13.4 percent, it said. (Asian Banker, 2009)
 The top 100 Islamic banks held assets totaling 580 billion
US dollars last year, up from 350 billion dollars in 2007
Min-Dong Paul Lee
Implication of Institutional Bridging
 Promise
o Can minimize potential cultural and social resistance to
development initiatives
o Creates a space where local stakeholder can voluntarily build their
own capacity and thrive
 Broad implications
o Institutional bridging in gender equality: Grameen bank in
Bangladesh -> empowerment of rural women by giving them
economic role and power through microfinance
o Institutional bridging in education: Educate! program in Uganda ->
mentoring of high-school students
Min-Dong Paul Lee