Explaining Institutional Innovation tries to understand how and why successful institutions arise—that is, institutions that bring about efficient results and stimulate economic growth. The collection emerged out of a workshop held at the University of Havana in 2006 and focuses on developing countries, containing case studies from South American, Caribbean, and East Asian contexts.
The case studies share common theoretical reasoning: crises or events that leave political leaders vulnerable precede and consequently stimulate institutional change. The “systematic vulnerability” argument posits that efficient institutions arise after two conditions are met. Political leaders must feel that they are confronted with a threat and must also have inadequate resources to deal with it. Second, under these circumstances, institutions evolve to assist in creating the resources necessary to tackle the perceived threat. The authors set out to demonstrate the validity of the theory through seven case studies of institutional innovation, examining economic institutions, business and business/government associations, and intergovernmental interactions.
Kellee Tsai's chapter on private-sector growth in China should be of most interest to the journal's readers. It examines the development of formal institutions regulating China's private sector and aims to explain how the Chinese Communist Party came to embrace capitalists. Even though the chapter does discuss the role of China's leadership in the process, it emphasizes crises and leader vulnerability less than other contributions. Tsai argues that “adaptive informal institutions” were central to this process, as it was their activities at the local level that led to significant changes in national institutions and official policy. As local economic needs and the desire to circumvent official restrictions increased, so did informal local interactions between private and state actors. Tsai describes a process of osmosis, where party members were drawn into capitalist projects and entrepreneurs to the party. This motivated national leaders to acknowledge and support the private sector through institutional changes.
Two case studies are comparative in scope, including Ben Ross Schneider's chapter on the state support of business associations in Colombia, Brazil, Chile, and Mexico, and Richard Doner and Ansil Ramsay's chapter on government policies of sugar production. Schneider finds that successful business associations in South America tend to have state support. Encouraged by crises (e.g., inflation in Mexico, shortages of skilled workers in Brazil) and fearing public dissatisfaction, leaders worked with businesses and facilitated communication between them to improve the circumstances. Eduardo Silva reaches similar conclusions regarding state support of commerce in the aftermath of the Chilean economic crisis of the early 1980s.
Doner and Ramsay's chapter is particularly appealing as it contrasts successful and unsuccessful institutional practices by examining the Brazilian and Philippine sugar industries. Brazil's efficiency in sugar production is explained within the context of threats to economic growth and legitimacy posed by the increases in oil prices of the 1970s to its military dictatorship. On the other hand, Philippine incompetence is attributed to the lack of a perceived threat to the regime. Regime support from the United States and corruption associated with Marcos's rule fueled a failing sugar industry.
Other chapters focus less on economic institutions. Pedro Monreal explores local urban development in Cuba, and Emilio Pantojas Garcia examines the growth of the University of Puerto Rico as the United States began to grant the island greater autonomy. Andrés Serbin discusses regional and intergovernmental cooperation in the creation of the Association of Caribbean States.
The collection is quite convincing in arguing for a theory of “systematic vulnerability.” All these case studies, from a wide range of institutional structures, demonstrate its applicability. However, with the exception of Doner and Ramsay's contribution on successful and unsuccessful institutional practices, no serious inquiry into inefficient systems or cases is presented. To assess a theory's potential in explaining variation in institutional success through comparative research, an explanation of institutional failure is also necessary to be more convincing. To what extent do different conditions lead to different outcomes? And are there cases where crises occurred and leaders promoted institutional changes that ultimately failed?
Nonetheless, the collection is enlightening and offers thoughtful, yet simple, analyses of institutional success stories from developing nations. It is suitable for those seeking straightforward and undemanding examples of comparative institutional research.
