Three Views on the Constitutive Role of Institutions and the Transformative Power of Christ

The Constitutive Role of Institutions

In institutional economics, there are, in general, three perspectives regarding the function of institutions in the society and the economy: constraining, enabling, and constituting^1. The first view posits that institutions serve primarily to constrain the destructive behaviour that would otherwise strangle efficiency and growth. The second view responds that institutions enable productive activities that otherwise be impossible. These first two views dominate mainstream thinking.

There is, however, a third view, which, although overshadowed in mainstream economics by the first two views, has firm roots in sociology. This assessment argues that institutions do not only enable and constrain agents: they also constitute them. Whereas the first two views essentially assume that the characteristics of individuals are given, and then evaluate the implications of those characteristics when institutions are taken into account, this third view also takes into account how individuals themselves change due to the presence of institutions, especially with regard to their worldviews (the way they see the world) and expectations (what they think others will do).

The constitutive role of institutions is buttressed by behavioural science, which demonstrates that people do not normally base their decisions on a rational calculus of costs and benefits. Indeed, such calculation would be impossible or prohibitively costly given the overwhelming amount of information that would have to be sifted and analysed, as well as the presence of uncertainty. Instead, people often make decisions through habits, customs, and ‘frames of reference’, which ac t as informational ‘shortcuts’ or ‘lenses’, allowing individuals to adopt a belief or take an action without knowing all the relevant information. The constitutive role of institutions lies in its ability to alter these subjective frames, in turn altering behaviour even if objective situations (along with their structures of information and incentives) are unchanged. In this sense, institutions ‘constitute’ individuals. Thus, destructive behaviour can be avoided and productive opportunities created simply by changing the way that people think.

The Transformative Power of Christ

Nerdy rant over. The other day I was pondering this distinction when it occurred to me that these three views of institutions correlate quite neatly with the prevailing views of Christianity^2. The first view – that institutions constrain destructive behaviour – is analogous to the ‘legalistic’ doctrine, which focusses on the rules and regulations that prohibit certain immoral acts. The incentive to do so is usually fear of condemnation. This perspective is obviously flawed, because we can never earn our own salvation – that is the problem to begin with. With regards to institutions, efficiency can never be fully achieved if agents are still self-seeking ‘at heart’. Furthermore, as is true with institutions, fixating on prohibitive rules can even be counter-productive, because it increases the salience of the (usually material) desires that are intended to be constrained. So the constitutive role is negative – people become more selfish and more concerned about satisfying their own wants.

An equivalent of the second view – that institutions enable productive activities – is also prevalent in Christian circles. Such groups, reacting against the legalistic tradition, sometimes claim that ‘the Law’ is no longer relevant, because Christ has died for ours sins. This liberal, permissive school of thought tends to propogate slogans such as ‘God is Love’ and 'Jesus came to give life abundantly' in isolation, asserting that the church should be inclusive rather than exclusive, and should avoid condemning any particular lifestyle. Proponents claim that the message of Christianity is that we can live a fuller, richer life through Christ, not that our menu of activities is constrained. Although its mantras are true in themselves, this view commits the same mistake as the first view - it fails to address the core problem, namely human nature. In fact, I would go so far as to say that these ‘new possibilities’ are not really accessible unless we are transformed; or, rather, that the new possibility lies precisely in our transformation. Thus, while Paul admitted that "all things are permissible", he insisted that "not all things are profitable".

The third view – that institutions alter behaviour by ‘constituting’ the very fabric of individuals – represents, I think, what the Christian message is really about. The idea is that Christ can transform us: He can take our fallen nature, our sinful desires, our selfish tendencies, and make us more like Him, sinless and selfless. As this occurs, we tend to obey laws out of Love. Note that this process differs from the first two views, but also unites them. The first view is wrong, because the Law is not the ultimate objective – indeed, it utterly elusive unless our hearts are transformed. The second view is wrong, because, as Jesus stated, He came not to abolish the Law, but to fulfil it. In reality, if we are truly full of His love (as emphasised in the second view), we will follow the Law (as emphasised in the first view), but only as a result of Him working in us. So whereas the first view suggests that we should obey rules out of fear, and whereas the second view suggests that we should ignore rules due to Love, this third view suggests that we will obey rules out of Love, as Christ tranfsorms our very being.

Implications
This transformative process, however, cannot be taken for granted. Just as individuals will only be transformed by their surrounding institutions if those institutions make up a significant amount of their lives and livelihoods, so Christ will, in general, only transform us if we let Him. This requires that we "die to self" or "deny our self" or "carry our cross" on a daily basis, constantly surrendering our will to His, as exemplified by Jesus Himself. This requirement of death consequently brings new life, as Christ begins to work through us. Thus, neither of the first two views fully grasp the transformative process: the first focuses exclusively on the 'death to self', neglecting the rebirth and new life that occurs as a result; the second view focuses exclusively on the new life, without comprehending that a type of death is first required.

Furthermore, the transformation does not occur overnight – it a continual process. This implies that, in the meantime, we still need to constantly check our behaviour by the standard of the Law (as emphasised in the first view), and to be constantly reminded of the new life that is available through Christ (as emphasised in the second view). The ultimate objective, however – and, I would propose, the very reason we were created – is to conform ever more to the image in which we were created.  Indeed, although the process is no immediate, it is cumulative and entails a sort of 'snowball effect'. For example, as we spend time with Him – whether it be in His Word, with fellow believers, in prayer, or through acts of worship - the more we will want to do His will, a significant part of which is spending time with Him^3.

Notes
1.  For an overview of these three views, see Chang, H-J. and Evans, P. (2005) 'The Role of Institutions in Economic Change' in De Paula, S. and Dymski, G. A. Reimagining Growth: Towards a Renewal of Development Theory (London: Zed Books), Chapter 5.

2. Note that much of this discussion can be applied to a faith versus works dichotomy
3. I have not discussed the issue of temptation: even if you took somebody with a perfect heart (like Jesus), their flesh could still be tempted. So they may ‘want’ to do something sinful in the fleshly level, but ‘not want’ to do it on the spiritual level.