Hellerian Institutional Interactions

I shall try -- simultaneously like a juggler with five balls in hand -- to consider the structural system pressures and the conscious action pressures driving institutional evolution. And I fully expect to observe that these two models (one abstract, the other concrete) exhibit revolutionary as well as incremental characteristics concurrently, in the same mind, in the same milieu, in the same institutional space.

When discussing the institutions of the modern social system we need refer only to the three state subsystems - law, administration, politics. The topic of primary interest here, after all, is only governance in economic history. I am simply simplifying with relative accuracy about spheres of the state in society in order to explain something grander -- how governance evolves through time.   

It is undoubtedly true that if the social system is a complex of interactive relationships, then the central or most powerful institutions of the modern social system are those comprising ‘the state’, since these institutions, notwithstanding the power of the market, potentially have most control over all of the interactions. The three visibly demarcated subsystems of state are, all things considered, not difficult to conceptualise. They are concrete rule-bound entities housed in edifices and populated by in-the-flesh humans with names, histories, consciousness, and meaningful goals and motives. No abstraction there. 

Other non-institutional or proto-institutional formal or informal subsystems with (rather less) relevance to maintenance of order in modern society and economy include instrumentally indispensable or gratifying subsystems of art, sex, science, health, ideology, media, education, et al., each of which has utility or regulatory functions in the social system. 

Here is the fine point: If the three highly evolved formal-institutional domains -- law, administration, politics -- were not reciprocally conditioned on a more or less equal basis modern society could not function as it does. Naturally there must be continuous and fluid communication between institutional subsystems. 

Because the institutional subsystems are not bound together by any common purpose, their integration largely depends on how they interact.

The story so far...

As I stressed in How Does Government Work At All?, there is no single coordination mechanism in the social system. Not even an executive head of state performs this role. Instead, we may find an invisible hand operating, which helps institutional subsystems to read or anticipate each other’s meanings and intentions, to speak the same language, to minimise misunderstandings, and to cooperate, compromise, and compete spontaneously.

The invisible hand at work in the modern institutional systems, I have argued, is the norm that regulates the central procedure of interaction between units (people, organisations, or subsystems in general). This norm is ensconced in legal frameworks. Its essential quality lies in the ancient principle of equality for everyone before the law. But it is not necessarily pervasive throughout institutions, nor visible like a catechism or a credo hanging over every interaction. Rather, it is a repeatedly tested, reasonable and unspoken expectation for non-subjective institutionalised interaction in every decision relating to public governance.  

In institutional activity this procedural norm is present as rule-determined expectations about nondiscriminatory behaviours that will be impersonally enforced. It is a constant anchor for institutional interactions, the reliably dull counterpart to the system’s acute sensitivity to indeterminacy and ‘not knowing’. Wherever cognition of goals and motives is impossible, impersonality is the peaceful root-source of institutionalised order. 

The institutional spheres are separate, and they need to understand each other in order to work together. They must, in other words, read each other’s minds. The activated impersonal procedural norm is the communication code that enables functional mindreading by stipulating that all governance relationships are between large impersonal function-categories of office, occupation, citizenship, and so on. All categories are to be treated equally. 

Expectations are grounded in universal criteria of impersonality. There is no emotion, no personal favour, minimal discretion. These rules apply to every person without exception. My description is in need of further thought and fine tuning, but I hope it indicates a convergence between the ordoliberal and neoliberal visions of institutional subsystem interaction, as I mentioned in Neoliberal Solutions to Uncertainty

Impersonality is the basis for spontaneous neoliberal interaction orders. Even so, impersonality is cultivated and enforced by the ordo-state. Therein lies the paradox of the convergence. 

A system of subsystems...

Each subsystem has a distinctive zone of prime responsibility, and a separate organisational structure. But their jurisdictions overlap in almost every area of state service activity. They are, in almost every respect, rivalrous spheres forced to cooperate while competing. Typically they are jealous and protective of their territories, and display a tendency to deliberately misunderstand and disparage each other in order to get their way. 

When adequately regulated by impersonal norms, the elements of institutional competition inside the state (competition over performances, resources, constituencies, responsibilities) are a source of dynamic innovation in the social system. In practical terms the result of this procedural change is the depersonalisation of state services. These services are law, fiscal and monetary policy, initially, then eventually welfare, infrastructure, education. It is a moveable feast, changing always according to the prevailing wisdom about parameters of state natural monopoly provision (privatisation shifted those parameters to a better position). 

Appearances suggest that the system is segmented and pluralistic. Yet, if one subsystem were unable to connect with the other subsystems, the general social system could no longer operate as well as it does now compared with the relatively poorly integrated social system of the 17th or 18th centuries. 

What is going on here? A great evolutionary achievement of the social system has been to create capacity for institutions to interpenetrate or couple with each other using common communication code in the form of a shared procedural norm. 

Recalling the concepts used in the two previous essays A Concise History of Not Knowing and Neoliberal Solutions to Uncertainty, we say this interpenetration or coupling is a partial solution to ‘not knowing’. It allows systems to interact when system participants actively define meaningful goals and motives. They can do this by radically simplifying their policy selection process (i.e. the selection is either impersonal or not impersonal, nothing more nothing less).

This holistic selection of impersonality is unique to modern society. It is a process through which formal institutions can interact systematically and together evolve spontaneously in the absence of a single coordinating mechanism or common purpose. 

Simply put, it’s easier to calculate action or outcomes in a social order in which institutional behaviour is oriented to universal rules for the interactions of general categories as opposed to the incalculable arbitrary commands or the preferences of particular persons and groups.

Spontaneous coordination...

This more or less invisible mechanism for spontaneous coordination among institutions takes its clearest form in the shared or overlapping formal rules of the rival institutional spheres. Therefore ‘rule of law’ has a vital role in reducing potential for conflict between these institutions to a manageable, more or less predictable level. The procedural norm is made transparent in the constitution, the common law precedent, or the civil law statute as the continual reference point to be debated now and into the future. Both the debate and the activation of the procedural norm define the nature of the communication code that will be required in-context when subsystems interact during the policy process. 

In other words, the legal order became the imperfect but nevertheless conveniently accessible, tangible, and manipulable device for achieving a degree of social order by improving calculability of process and outcome. It has been the only such device realistically available to peace loving and essentially equitable advanced human beings who -- from at least 1600 onwards -- endeavoured to solve problems of uncertainty and complexity on a national territorial-population scale many times larger than the previously predominant person-to-person and face-to-face modes of local governance. 

This is not to claim there are no ‘deeper’ structural determinations in play. Nor is it to deny that legal order is itself a wellspring of conflict and complexity. I do argue, however, that ‘rule of law’ is what people believed they thought they were doing when they did what they thought they did to solve uncertainty. Later, history and theory gave it other names.

Visible and invisible hands are joined together...

Here we begin to see the abstract and concrete dimensions operating in unison. For although discrete code was intentionally created on separate occasions for consciously chosen specific purposes (e.g. how to apply a particular norm that weakened one of the royal prerogatives), and although it was always a variant of the same genetic code (the general norm is either employed or not employed in regulating public governance), there never really has been much prior ideological vision of its general common purpose. There was no ‘ideology of impersonality’, only ideologies of republicanism, capitalism, etc.

The long revolution against arbitrary royal rule in 17th century England was waged battle-by-battle over reforms to law, public administration, and parliamentary representation, and battle-by-battle over policies relating to tax, monopolies, freedom of expression, separation of powers, etc. The constitutional references were at best only ever vague and imprecise definitions of the underlying impersonal norm that was evolving step by step. 

It was finally, as a historical outcome, that the best informed scholars were able to label and explain the consistency of the code, namely the impersonal procedural norm, which helped to minimise the fundamental source of uncertainty in the personal relationship. A most notable example here: 

“Today, the homo politicus, as well as the homo oeconomicus, performs his duty best when he acts without regard to the person in question, sine ira et studio, without hate and without love, without personal predilection and therefore without grace, but sheerly in accordance with the impersonal duty imposed by his calling, and not as a result of any concrete personal relationship.” 

That, by the way, was Max Weber, heroic unsung innovator in the study of institutional change and institutional impersonality, who scandalously is still not cited by the rotten plagiarising glitterati of the ironically-called No Way Weber camp in New Institutional Economics.

In my current work I expect to be able to show why some of the most important reform initiatives, which were not conceptualised as ‘depersonalising’, were nevertheless plainly driven by demands to remove people or people-dependent decisions -- especially the personal entitlement to arbitrary discretion -- from governance systems. In turn, the great revolutions of the 17th century were stepping stones in a longer series of radical disequilibrium transformations that further depersonalised institutions all the way down to the present day. 

Now let the hypotheses begin...

All will be explained in due course using historical examples. For now we remain at the stage of formulating relevant hypothesis. Here is a hypothesis to set heads rolling: 

Through coping repeatedly with complexity and uncertainty, the institutions that provide state services of law, administration and representation progressively reduce the human element of management and control by simplifying the interaction rules and subtracting discretional decisions. 

The process is a kind of automation of procedural mechanisms for the intended or unintended function of making selections among means and ends, selections among decision-makers and decision-takers, and, relatedly, selections among providers and beneficiaries. 

Procedural automation puts many people out of work in the public sector.

Actors in each institutional domain depend on the reciprocal conduct of actors in the other institutional domains in order to perform roles and pursue interests. Therefore, human motivations and the system pressures for efficient institutional action are the perceivable procedural values of more predictable and palpably easier interaction between subsystems.  

Procedural automation speeds up and smooths down public sector interactions. 

Everyday practicality of state activity depends on knowing that basic common behavioural norms and action rules will prevail. Actors share this reciprocal procedural interest and face similar organisational sanctions, even when they are pursuing opposing and conflicting organisational goals, social ethics, or political ideologies. 

Procedural automation reduces public sector frictions. 

So how does the automation begin? Again, the prerequisite for institutional integration is the activated impersonal procedural norm, which creates incentives for reciprocity between functionally distinct and competing subsystems. 

Repeatedly we encounter the contra-Hayekian paradox of having to construct artificial structures that thenceforth broaden the scope for spontaneous natural coordination. Only if procedures that shape intra-state behaviour are sufficiently predictable can the institutional system evolve blindly, guided by the magical invisible hand of impersonal procedures.

Recapitulate the caveats…

I mentioned earlier that subsystems need to experience interpenetration and coupling in order to function. Obviously this does not reach the stage of absorption into one another. There were evolutionary as well as humanly discernible logical and practical reasons for a 400-year history that separated functions of law, administration, and representation, and, similarly, for infinite further subdivisions of powers within subsystems. A disproportionate interpenetration between two subsystems, or excessive influence of one subsystem upon another, would have interfered with the evolution of the social system as a whole. 

I made the following observation in my book about institutional impersonality, Capitalism, Institutions, and Economic Development, and I think it is useful even now for illustrating today’s topic. [In fact, today's post is an extensive rewriting of a section in that book beginning on page 21 and titled 'Interactive Subsystems'.]

“It must be a part of every subsystem’s function to promote and monitor the procedural norms of each of the other subsystems. When an innovation (such as a new property right or a welfare reform) emerges in one domain, the manner in which the other domains react and adapt to it will be critical to its success. The institutional spheres are well matched in this regard. Many innovations can be tried and tested by all the subsystems. If a new property right is to be fully adopted it must prove itself to be economically efficient, enforceable in law, administratively feasible, and politically legitimate.”

The interpenetration between the institutions cannot go so far as to threaten to destroy the essential disunity which is the logic of the separation of powers. The insight is only that the subsystems are competitors, and they do monitor, supervise and balance one another. For that to happen, the shared if unstated objective in institutions and economies is to attain relative certainty about organisational and regulatory procedures, which facilitates action by permitting more or less accurate expectations about how the others will act and react

My refrain is that I am convinced these procedures must be impersonal in order to work at all. I believe history proves it is so. The rational response to ‘not knowing’ since the dawn of the institutional age has not been to improve or intensify personal communication. 

Concrete personal relations is too simple a layer of understanding for institutions. As we have seen, interpersonal communication is also an inherently unreliable, uncontrollable method. It is an inconvenient though self-evident truth that one person’s mind is invisible to others. His psychology of self-regulation is unknowable even to himself, let alone anyone else.

Instead the emphasis in institutional history has always been on seeking truth and generalising to higher abstract layers of social understanding by building systems that produce order to lessen uncertainty in communication. The formally impartial procedural hand that helps grease the wheels of social interaction within well regulated institutional and economic systems is invisible most of the time. And that’s a fortunate thing. 

Our conclusions, like the interactions, are uncertain… 

We end by revisiting the Hellerian ordoliberal-neoliberal distinction outlined in Neoliberal Solutions to UncertaintyOrdoliberal solutions take the subjective (personal) element out of institutional decisions, and put the objective (impersonal) element in. Concrete organisational means-end power edifices of law, administration, and representation are the locus of depersonalisation. Neoliberal solutions take the subject out, and put the system in. Abstract social interaction acquires a structural life of its own through mediums of communication that cumulatively establish precedents for lines of enquiry and interaction procedures, enabling functional interpenetration and coupling of subsystems. 

Ordoliberalism substitutes organisational clarity and predictability for face-to-face opaqueness and uncertainty, whereas neoliberalism tolerates uncertainty and the freedom of spontaneous indeterminacy, which sensitises the social system procedurally to chance and change. 

Of the two, ordo or neo, which is the more objective depersonalisation? Difficult to say. Every depersonalisation in governance is by definition more objective than previously because it curtails the subjective preferences. Perhaps neoliberal solutions are more objective because the units of communication (the code) in conditions of freedom will range across the system and will not be appropriable by any one person or subsystem. If the system prevails, no one is ‘in charge’. All is left to chance, and yet the uncertainty ignites or intensifies the communication, which should produce more rapid results. 

Without a goal-oriented meaning-laden state apparatus, the danger of overload evaporates. Subsystems of law, administration, and representation do self-regulate, and they do interpenetrate and couple, but the competition and the limits to communication keep them from absorbing or determining each other. That is the neoliberal vision. Interactions in the social system are continually unstable. Chance substitutes for regulation, and it is this fluidity that encourages quicker more flexible selections.

Monolithic goal-oriented ordo-edifices of law, administration, and politics can be made to be either objective (impersonal) or subjective (personal). They have blocking powers. But by the same token they remain potentially open to monopolisation and closure. The dysfunctional subjective appropriations of subsystems by people remain a possibility on the demand side. The danger of state overload can be objectively managed but not eliminated on the supply side.

Since the distinction between ordo and neo is still uncertain, just hang on to this paramount certainty :- because the institutional subsystems are not bound together by any common purpose, their integration largely depends on how they interact.

Michael G. Heller ©2014

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