Institutions and Economic Performance: The Use and Abuse of Culture in New Institutional Economics

Abstract

Important research programs within New Institutional Economics advance culturalist arguments to explain failures of economic development. Focusing on the work of Douglass C. North and Avner Greif, this article argues that such arguments rely on an essentialist conception of culture that is both historically inaccurate and analytically misleading. Greif’s work in particular rests on a selective use of empirical data that ultimately distorts the deductive models that are at the core of his work. As a result, both scholars use culture to account for outcomes that are more adequately explained as the product of social conflict and political struggles—struggles in which culture plays a far more contingent and destabilizing role than the one they attribute to it. What is needed, I argue, is to link arguments about the persistence of inefficient institutions with a sociologically informed conception of culture as an ensemble of resources that enhance rather than constrain the scope of individual agency. To come to terms with the effects of culture on institutional formation and change it is necessary to replace the essentialism articulated by North and Greif with a strategic-instrumentalist view in which culture is compatible with a wide spectrum of economic behaviors, individual actions, and thus institutional trajectories.