Historical institutionalism

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despite the increasing demand for the commodity in the international markets during the 1950s.

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institutions and how institutions create paths influencing subsequent development – so-called path dependency (Steinmo, 2008). Nobel Prize winner Douglass North, one of the doyens of New Institutional Economics (1991; 1999), applied an historical perspective to the study of the social realm and interpreted economic change as being determined by the interplay between demography, the stock of knowledge, and institutional structure.

However, his perspective was criticized for being asocial and ahistorical, and thus too close to rational institutionalism in its view of the relationship between individuals and institutions (Ankarloo, 2002; Milonakis & Fine, 2007). Indeed, the rational approach follows neoclassical economics in seeing individuals as rational beings, always acting strategically in the attempt to maximize their pay-off within the frame or constraints posed by institutions. Meanwhile, the social approach derives from sociology and interprets institutions as governing everyday life and social interaction, while individuals are performing socially constructed roles within the institutional framework, primarily led by habits and routines. In different ways, both approaches tend to underplay the role of actors’

behavior in determining the structure around them.

In contrast, the third approach (preferred in this thesis), namely HI, stands in between the rational and social perspectives. It recognizes individuals as the primary drivers of institutional change and as influenced both by culture and strategic calculus in their actions within and towards the surrounding institutional structure. HI emerged primarily in the domain of Political Science to specifically focus on power distribution within society. It is significant for my research in that it sees the State as being constituted by multiple institutions and institutions themselves as “complex embeddings of schemas into resources and networks” (Clemens & Cook, 1999). Besides its role in the Political Science literature, HI was also embraced in the realm of Organizational Studies as a social constructivist alternative to the positivistic-oriented New Institutionalism (here “rational institutionalism”). While Political Science mostly used HI as a device to conceptualize power dynamics, Organizational Studies particularly stressed the “historical” content of the

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approach, that is to say the use of history as a method of conceptualizing institutions.

Suddaby and al. (2013) in particular view HI as being based on the threefold assumption that (i) institutions are to be conceived as historical processes, namely outcomes of past events and interpretations of those events; (ii) these historical processes are rooted in the interaction of individuals; and (iii) the interpretation of those interactions (and hence of institutions themselves) changes over time.

First, by considering individuals as active in their determination of institutions rather than products of the institutional framework, HI is very close to Granovetter’s (1985) mixed social embeddedness: individuals are embedded in social structures; their actions are to be understood as outcomes of their social relationships and in relation to their position in the society; and hence institutions are socially constructed. In light of this, my thesis applies Hodgson’s definition of institutions envisaged in his critique of – or complement to – North’s work (2006 13): “institutions are durable systems of established and embedded social rules that structure social interaction.”

Second, institutions are durable and established but not monolithic. They are embedded and thus influence social interaction but do not determine it completely. Studying institutions in historical perspective helps close the gap between individuals and structure. In the process of understanding institutional change the unitary causality typical of natural science is replaced with a system of complex causality. Indeed, by studying the development of institutions over long periods of time we can conceive variables as interdependent or mutually determined and “actors and structure, although distinct, as connected through a circle of interaction and interdependence” (Hodgson, 2006 8). On this specific issue, however, the eclecticism of HI proved to be a disadvantage, in that the scholarship was criticized for being unable to “aggregate their findings into systematic theories about the general processes involved in institutional change” (Hall & Taylor, 1996 955). Initially, HI explained change through the concept of “punctuated equilibrium,” that is, the idea that

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institutions are durable and stable until they are hit by an external shock (Steinmo, Thelen,

& Longstreth, 1992). By failing to incorporate agency, this explanation inherently contradicted the foundation of the HI approach as a device for explaining political actions.

How can actors identify possibilities of institutional change if they are embedded in the institutions that they help to reproduce? To what extent is their action subject to and constrained by the unspoken influence of institutions? This tension and reciprocity between agency and structure has been exemplified by the “embedded agency paradox”, a recognized theoretical puzzle in Organizational Studies (Dacin, Goodstein, & Scott, 2002;

Garud, Hardy, & Maguire, 2007). In light of this, Bathlet and Glücker’s (2014) theorization of institutional change for Economic Geography offers interesting insights to complement more recent solutions proposed by the HI approach (discussed below). The institutional contributions of Economic Geography take an intermediary position between agency and structure, drawing explicitly on Giddens’ structuration theory (1985). As opposed to the broad concept of “complex causality” theorized by HI, this perspective proposes the combination of downward and upward causality to explain institutional change. Thus, although applying a relational approach – economic action is socially embedded and highly contextual in nature –, institutions are conceived as “mediators between micro and macro level” and “stabilizations of mutual expectations and correlated interaction,” distinguishing them from organizations, regularities, or rules, that is to say from the vocabulary of New Institutionalism (Bathelt & Glückler, 2014 2-3). Overall, when compared with HI, Economic Geography gives context a slightly more prominent role than actors in institutional change. Bathlet and Glückler acknowledge that: “Economic action as social action is not unconditional. It is guided by, enabled through and constrained by ‘institutions’

in the sense of accepted, existing patterns of interaction – be they related to some sort of rules and regulations or to conventions of social and economic life (…). This does not mean that structure determines agency and vice versa, creating a vicious cycle without any explanatory significance. Rather, interdependence between institutions and agency results in

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progressive development where institutions mediate between individuals and wider societal structures” (2014 1, 14).

However, this brings us back to square one: in order to solve the tension between individuals and structure, Economic Geography broadens again the scope of the discussion from endogenous to exogenous institutional change. Yet, instead of being conceptualized as

“shocks,” exogenous factors are interpreted as the collective understanding of institutions, shaped by both individuals and the broader contextual environment. More recent HI contributions provide a similar justification for institutional change. Steimno (2008 169) reflects upon the role of ideas in influencing the individual and collective actions in political struggles. Over time, a collective conscience forms about the nature and the role of institutions within society. This conscience helps to define institutions as much as embedded dynamics do endogenously. In this way, institutions are also defined by their interaction with external elements. As a consequence of this, institutional change can be informed by the shift in ideas and collective understanding of institutions over time.

In technical terms, both approaches have recourse to individual “reflexivity,” or awareness of the impact and role of institutions to overcome embedded agency (Bathelt & Glückler, 2014 13; Suddaby et al., 2013 117). As such, the combined application of reflexivity in HI and Economic Geography offers insights in institutional change in both space and time.

While the shared understanding that the nature of reality changes over time is a core assumption of HI, in Economic Geography the temporal dimension is only implicitly included when defining institutions as “stabilizers of mutual expectations.” On the other hand, while HI is not explicit in specifying the participation of actors “external” to the institutions in constructing this collective understanding, the geographical perspective incorporates exogenous elements by indicating that these expectations are mutual and hence involve an interaction, which can reach beyond the boundary of the institution itself, hinting at the role of institutions in a broader societal context.

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In light of this discussion, my work is indebted to HI as it focuses on explaining the processes and rationales by which institutions such as clusters are produced. Further, it conceives institutionalization as a process and institutions as historically constructed.

Although institutions remain over time, however, they are not static: they can be modified through time. In line with the Economic Geography approach, I interpret institutions as collective bodies that cannot be easily and fully reduced to the individuals operating within them but can be changed by the interplay of individuals and groups as a result of their modified understanding of the roles of institutions and their own roles within them. On this point, I am indebted to both HI and Economic Geography for incorporating reflexivity into the conceptualization of institutional change.

In sum, this thesis interprets clusters as intermediary institutional forms and open systems, placed on a middle level between local and global geographies and between individuals and structures, hence mediating the pressures coming from both dimensions. In my case, the palm oil cluster is a durable institution, comprising different entities with various institutional forms, from companies to government bodies and industry associations, and embedded in different societal networks, both in London and in Southeast Asia. As explained in my second paper, institutions may constrain or influence the scope and the form of individual choices by imposing patterns and procedures. However, individuals are never considered direct products of institutions. They operate within the institutional structure but are also able to shape it, producing institutional change endogenously, but incorporating exogenous influences via changes in their cognition.

It is also important to note that the individuals and groups that compose society find themselves in different positions regarding the contextual environment and institutions.

Some of them have the power to modify the social space in which they operate and to shape the institutions according to their goals. Others – often the majority – do not have this possibility and hence are more subjected to the external context. In the attempt to interpret

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historical facts and the behaviors of individuals, the hierarchy between them and the dynamics it generates should not be overlooked. Within this hierarchy, the paradox of embedded agency is solved through reflexivity: the surrounding environment tacitly impacts on the development of collective ideas, motives, and actions. Individuals in turn internalize these exogenous influences reflexively, in different and unexpected ways, and use them according to their ability to change. The modification of the collective perception of institutions and individuals’ own roles within them is what eventually brings about institutional change.