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8/10/2019 MANAGING DIVERSITY AND COMPLEXITY IN INSTITUTIONAL SYSTEMS.ppt
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MANAGING DIVERSITY AND
COMPLEXITY ININSTITUTIONAL SYSTEMS:
THE PROBLEM OF
ORGANISATIONAL
COORDINATION
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OUTLINEI. Understanding Interdependence: OPECs Oil Embargo.
II. From Hierarchy to Market to Networks.III. Models of Coordination
IV. The Inter-organizational Social Order
V. Theoretical Approaches to Understanding Complexity,
Coordination and InterdependenceVI. Case Studies: How neo-corporatist policy frameworks
work in practice. Experiences from Switzerland andMexico.
VII. Final Reflections: Institutional Environment andDevelopment Policy
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Complexity is Unavoidable
Every place contains the seeds of complexity. Cannot think of
world as simple, linear place with no second-level connections.
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Complexity is Unavoidable
How to devise institutional mechanisms to manage complex anddiverse relations of interdependency at different levels and differentpoints in time?
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The Answer?
INTER-ORGANIZATIONAL COORDINATION
AND COOPERATION!!!
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Understanding Interdependence: The OPEC Oil Embargo
and Its Systemic Effects
Oil Embargo: Prices increase
in the advent of oil supply shock
Economic Control taken by
countries who had been traditionally
excluded from international order
Part of income is dispensed in
the form of
aid to other
underdeveloped nations
Shock produces chaos in the West.
Oil-importing nations in the
industrial world see sudden inflation
and economic recession
Crisis borne by the
unemployed and the marginalized
social groups
The energy crisis leads to greater
interest in renewable energy. Companies seize
advantage to implement new
products and technologies
Western Oil companies
see profits grow
Traditional flow of capital
reverses as the oil
exporting nations
accumulate vast wealth
Much of it falls into the hands
of elites who reinvest it in the
West or enhanced
their own well-being
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From Hierarchy to Market to
Systemic Networks.
Post-War Establishment: Welfare State and HighExpectations of Governmental Policy andPlanning.
Conventional Steering Perspective.
Vertical Integration as depicted by CommandStructures and high-levels of bureaucratization
Private Sector: Large and centralizedorganizational structures. Aim at controlling
consumer and small-scale suppliers Vertical Integration and monopolistic industrial
organization.
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From Hierarchy to Market to
Systemic Networks.
1960s-1970s: Emergence of more complex problemsaffecting different agents and agencies.
Departure from the Steering-Government Perspective.
Market did not deliver most-optimal outcomes either.Market failures and externalities were ubiquitous.
Decentralization, de-bureaucratization, de-regulation:unavoidable overhaul of the state.
Endorsement of a network perspective on governance,
public management and economic reform. Policy Networks: Need to take into account the
dependencies of government on social and economicenvironment and interdependencies with social actors.
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From Hierarchy to Market to
Systemic Networks. Firm Structure: Smaller, De-centralized, horizontally integrated
and vertically disintegrated.
Systemic Production Networks Established.
Obligational and incentive-based relationships as Sine Qua Non
for network to exist. The Rational-Actor notion that cooperative behaviour is not
possible when self-interest governs consumer and firmbehaviour, was replaced by trust in contractual relations, long-term alliances and mutual cooperation
Ultimate Outcome relates more to Tit-for-Tat scenarios ratherthan Nash-Equilibrium
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Models of Coordination
Coordination implies the bringing into a relationshipotherwise disparate activities or events. In more colloquialterms, Putting all organizations involved in a system andmaking that system work.
What about the best way in which coordination is
achieved? Market: Automatic coordination thanks to pursuit of self-
interest by individually motivated and welfare-maximizingindividuals.
Hierarchy: Control exercised to bring about economic
organization and social coherence. Networks: Formal and Informal mechanisms that enable
markets, states, and societies to interact closely in differentissue-arenas and reach concerted solutions for all actorsinvolved.
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Models of CoordinationNetwork/Community
HierarchyMarket
Many politicaland economic
systems fall
within this
region. Ample
scope for action
on all threefronts. There
may be great
degree of
overlap, yet on
the most part
models aremutually
exclusive
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Models of Coordination
Hybrid cases
Plurality of
Interdependent
forms ofCoordinative
exchange.
Enables for
Community-
based solutions
as well.
Network/
Associative-Corporative Order
Market
Hierarchy
Community
Yet, may encounter situation in which total coordination may be
undesirable when costs of advancing and implementing a particular policy
outweigh the positive benefits
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The Inter-organizational Social Order
Growing necessity relating to changing market structures and increasingly
discerning consumer demands.
Rapid rates of technological change have made the strategies of horizontal
and vertical integration a liability for many business firms because they
cannot respond fast enough to change.
Both markets and organisational hierarchies as mechanisms require relatively
high rates of stability for success.
Shift from efficiency related to quantity to one associated with quality.
Increased knowledge and the creation of new occupations as well as new
organisations.
Specialisation is key in this sector.
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Willingness to Cooperate
Need for Expertise
Need for Financial Resources and
Sharing of Risks
Need for Adaptive Efficiency
+
+
++
A Synthesis of Theories of Interorganisational
Collaboration
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Polycentric Organisations
Organises coordination among independent authorities in order to produce a
service within an area.
In this manner, citizens are involved in several differing areas of governments,
depending upon the spheres in which they move
Typical model we have been discussinginvolves a farmer and his associations
relating to:
National and Local Governments
Irrigation Districts
Possible Farming Cooperatives?
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Solidaristic Organisations
Includes:
Households, kinship or friendship networks, clans, churches,
clubs professional associations, political parties, community-
based organisations CBOs or NGOs.
Solidaristic institutions became prominent during colonialism, now
seen as relics.
Traditionally, progress is associated with with strong private firms
and states, where competition guaranteed efficiency and freedom.What these Institutions look like in:
Segmentary Societies
Communist, fascist, and/or authoritarian
Liberal Pluralistic Societies
Liberal theories assume that SOs will strengthen freedom by using
democratic processes for their internal decision-making processes
an free competition with other agencies.
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Culture of Trust in Interorganisational Networks
Markets are inherently based on distrust, with the supplier takingadvantage of all opportunities to maximise profits.
Culture of trust, either present within the society or developed through
collaboration.
Research and development is likely to lead to the sharing of information
and the building of trust
Joint marketing ventures are more likely to create distrust and cheating
behaviour.
Increasing cognitive complexity enables individuals to break out of an
egoistic orientation and enter into partnerships to achieve collective
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Rational Actor Model
A mono-actor model:
Central actor usually being thegovernment
Presupposes that the central steering
agent (the government) has all information
about existing problems, preferences, and
the available solutions.
Fails to listen to all voices present because
of the overriding authority of the central
agent.
Highly developed bureaucratic systems inorder to enforce policies, and lessening
efficiency farther down the chain of
command.
Central Actor:Government?
Policy
Decisions
Institutions
and Society
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Multi-Actor Model
Retreat of central government from public domain.
Local actors assess their interests and purposes.The introduction of local
actors is considered fundamental to the formation and implementation of
policy.
Still draws on resources from the government for resources.
No cohesion though?
Independent
Actors
Local Council
DairyCooperative
CBOs
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Network Model
Public policy making and governance take place in
networks consisting of various actors, including but not
limited to:
Individuals
Coalitions
Bureaucracies
Organisations
Actors exchange information about goals problems,
preferences and means, and trade off goals andresources.
Failures related to lack of incentives, vague or contentious
goals, and the relative commitment of agents within the
network.
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Individual Demand for Joint Goods
Dependency of MembersEstablishment of
Controls for Monitoring
and Sanctioning
Member Costs
Extensiveness of Group Obligation
Probability ofGroup Compliance
Level of Group Solidarity!
Model of Group Solidarity
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Private Interest Governments
Politics oscillated between state interventionism and market liberalism. Neither
extreme governmental control nor pure markets like Laissez Faire are able to
govern and induce market growth/ competition.
Instead we have Private Interest Governmentsbased on group self interest and
regulation.
Group interests emerge as a result of the interactions between collaborating social
and organisational structures.
Policy formation is based on the bargaining between private organisations and state
agents, with the majority of decisions being made within the private sphere. While
this can be construed as a lessening of state influence, with the group interests
being the key factor, transition into policy is conceptually relatively smooth (higher
implementation success) and accordingly there should be lower implementation
costs.
State is always involved within the private interest groups because of the possiblenecessity to intervene if the private groups fail to deliver or oversteps their role.
A strong state is a necessity for the formation of private interest governments to
provide this check!
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Case Study: The Swiss Dairy Industry
One of the most strictly regulated
sectors of the economyIndividuals organised into 6
associations that can be divided into 2
groups based on institution size and
goods production.
Both groups organise almost all potential members. The high number of
members (more than 1000 in the cheese group) has given rise to a
complex internal structure with many regional subgroups.
Legally, the regulations focus on rules of price fixing, quality control, milk
processing, and the marketing of milk and related products.
Of course there are some legitimate worries about price-fixing and
monopolies, but these issues come in to play with many network
arrangements and seem to be one of the main criticisms.
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Fachausschuss
Milch
Cheese
Union
BUTRYA Milch
kommission
Producers Orgs
Central Association of Milk Producers
Regional Associations of Co-ops
X
X
X X X
Processors Orgs
Association of Milk Buyers
Association of Soft Cheese Manufacturers
Milk Group of the Association of the Swiss
Processing Industry
Association of Box Cheese Manufactures
Association of Ice Cream Manufactures
X
X
X
X X
X
X
Retailers Orgs
MIGROS
COOP
X
X
X
X
X
X
Interest Organisations in the Swiss Dairy Market
Table of the relationships between cooperative bodies and their respective
association memberships. Note the only organisation present within each of the
four unions is the Central Association of Milk Producers.
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Case Study: The Mexican Coffee Sector
Before 1989: Extensive intervention in production and marketing of coffee by INMECAFEa state-owned enterprise. Yet coffee economy mostly governed by landed elites.
Neo-liberal Reform: Curb production supports, price controls and government
mechanisms of marketing. Coffee-growing states respond to INMECAFEs exit by launching their own regulation
projects.
Neo-corporatist strategy in Oaxaca and Guerrero: Opportunity to resurrect weakenedcorporatist institutions of political control in the coffee sector. Interest representation to official (i.e. supporters of PRI) coffee-growing organizations
Transfer of INMECAFEs resources to small producers.
Construction of new mechanisms for regulating distribution of credit.
Crony-Capitalist Strategy in Chiapas and Puebla: Designed to benefit the coffee oligarchy. Resurrection of monopoly control by local elites over coffee processing and marketing.
Mexicos federal regime institutions gave incentives to reregulate policy areas vacated byneo-liberal reforms.
Yet societal forces and policy repertoires explained why governments reregulated.
Participatory frameworks that gave organizations of small producers central roles in policy makingin Oaxaca and Guerrero
Exclusionary policy frameworks generating spoils for political and economic elites in Puebla andChiapas.
Neo-liberal policies paved way for the construction of new institutions for marketgovernance.
Interactions between state governments and producer organizations resulted in a diversearray of new institutions for market governance across Mexicos coffee-producing states.
Politics of ReRegulation led to participatory policy frameworks that gave smaller producerscentral roles in policy making.
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Economic Development and Reform
Devise systems in which a superior form of organization can be set up.
Ensure that proposed alternatives enjoy the requisite political support
to be implemented.
Modes of organization: May be remediably inefficient in economic
terms but still may qualify as efficient when politics is introduced.
Developed Developing
Above Threshold I II Guerrero, Oaxaca
Below Threshold III IV Puebla Chiapas
Economy
Polity
The polity does not possess the requisite de jure democratic features.
The requisite de jure and embededness features are present but theconditions of embededness to support de facto democracy are
lacking.
The requisite de jure and embedededness features are present but
have been defeated by corruption, rent-seeking and cony capitalism
(E.g Mexico).
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Final Reflections: Institutional Environment
and Development Policy
In instances in which there is a shift from a command socio-political order to a
more pluralist, integrative one, the idea of coordination and cooperationbecomes attractive for efficiency purposes. Nevertheless, the embedded
modus operandi of some societies may work contrary to this notion. Rather
than leading to efficient allocation of resources and allowing different societal
actors to participate actively in policy-making, this shift may instead yield
markets that generate monopoly and social exclusion.
Rather than explaining which institutional arrangement (e.g. hierarchy, market
or associative order) provides a better framework for the understanding
cooperation and participatory governance, we should first think whether
cooperation and participatory governance are at all a feasible alternative.
Is it possible to think of institutional equilibrium in cases where the state does
not enable agents the right to cooperative interdependence? How is autonomy
and competition achieved in such scenario?