Institutional Economic Theory Economics 451 University of Missouri-Kansas City

1. Institutional Economic Theory Economics 451 University of Missouri-Kansas City

2. Theory of Institutional Adjustment Principles of Institutional Adjustment Technological Determinism– Instrumental Primacy Instrumental Primacy is the principle that all change is predicated on the actual ability to do so. Actually being able to change requires instrumental capability and is therefore primary; Adjustments to or enhancements of the warranted stock of knowledge. Institutional adjustment depends upon a psychology of perception of the objective circumstances of possible achievement. The principle of Instrumental Primacy (technological determination) is the impetus to adjustment and may be read to mean that there must be an accurate perception of what can be done as opposed to what is now being done. Knowing/Doing Recognized Interdependence This principle asserts that adjustment is specified by the pattern of interconnectedness and interdependency of the members affected by the change. Social change requires more than the ability to "run the machines." Social technology, the arts of associated living, are required and must be "invented" and tried out. Understanding the relationships of Institutions to each other Understanding relationships of people to institutions Understand relationships of people to people Knowing/Doing/Valuing

3. Principles of Institutional Adjustment -- Continued • Minimal Dislocation • All adjustments must actually be capable of being integrated into the remainder of the existing social fabric. This principle discloses the limits, in term of rate and degree, of any adjustment.The social fabric of any organization is finitely elastic at any point of change implementation. The adjustment is more likely to be achieved we follow a path with small increments of continuous change. • If adjustments are deferred and build to a situation where change involves significant dislocation there will be more resistance as vested interests accumulate around the prevailing institutional structure. This situation is more likely to create the condition of ceremonial encapsulation making adjustments less likely and less susceptible to deliberative processes. • Must be capable of re-correlation with other institutions

4. Notice the principles are instrumental in character. This is because adjustment is a change in the relationship or synchronization of ceremonial behaviors to instrumental ones. While adjustment is an interaction of ceremonial and instrumental behavior, the causative agent is instrumental while ceremonial behavior is the passive and sometimes resistive. There is an enduring tension in these and successful adjustment of institutions works to reduce this tension. A lack of adjustment increases this tension. To recognize and to experiment with different ways of bringing about change requires consideration of the means-ends-consequences continuum. How close that perception is to the instrumental reality is a critical feature in the adjustment process. This relates to the other processes.

5. Means-End-Continuum In addition to the three principles above there are two process involved in institutional adjustment. The first is the relationship of Means-Ends-Consequences. This process relates to the problem of selecting actions that will bring about the desired change; including the axiom that choosing means is choosing ends. It is a hypothesis about what to do, but without the knowledge to do it. The means-ends continuum is deceptively simple, but may sometimes have complex implications. Means are inseparable from ends because arrival at an end has consequences for where we can go once we have “arrived.” Selection of means involves choices. Selection processes are based not only on the "immediate" consequences of a choice, but future ones too.

6. Instrumental Primacy--Technological Change • How it develops • Genius theory • Climate theory • Cumulative evolution theory • Two big jumps as advances in technology and tools. • 100 – 50K years ago, probably due to genetic changes allowing increased brain function and speech, or both. • 13K years ago due to sedentary life style, i.e., move from nomadic to sedentary life style. • Third may be going on now – from Quantum Electro Dynamics (QED) to Nanotechnology • What inhibits – traditional habits and ways of doing • What encourages – experimental /scientific habits • Scientific revolution of 1500-1700 proceeded the industrial revolution • Astronomy, mathematics, physics • Steam engine, iron, pottery, glass, concrete, etc. • Advances in chemistry and physics proceed industrial expansion in later 19th century • Steel, electricity, petroleum, radio waves • Advances in biology and physics have proceeded genetic and electronic advances • The Singularity – the integration of biology, chemistry, and physics

7. Illustrations of impact of “traditional” or conservative vs experimental behavior • New Guinea tribes Chimbu’s and Daribi • Chimbu’s are experimental and receptive. • Daribi are “conservative” and unreceptive • Japanese Samari vs peasant gun totters

8. Agriculture– Back to the Future • Third Agricultural Revolution – 20th century • Fourth Agricultural Revolution – 21st century • Based on Scientific and technological developments • Example --The singularity – merger of biology, chemistry & physics • Nano technology • Nano Robots • Artificial Intelligence combined with Nano Robots • Creation Machines • Therapeutic cloning

9. Economic and Social Implications and Consequences of these developments • Food production • Meat in “factories” • Machines make products with little traditional human labor– build a car • Health and Life expectancy • Incurable diseases – curable • Life expectancy expands as dramatically as during 20th century • For women in industrialized countries • US • 1900 = 48 • 2000 = 79 • 2100 = ?? • For men in industrialized countries • US • 1900 = 46 • 2000 = 75 • 2100 = ??

10. If we can adjust institutions to correlate with dramatically changed situation. Consider the issue of employment/unemployment- in this changed situation -what happens to definition of employment - what adjustments to the labor market will be necessary mandatory community service recognized interdependence - how will this affect those coming into labor force