SupportINg the DevelopmeNt of INStItutIoNS – formAl AND INformAl ruleS – utv WorkINg pAper 2005:3
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Supporting the Development of Institutions
– Formal and Informal Rules: An Evaluation Theme
Institutions are formal and informal behavioural rules. They structure human interaction in social, polit-
ical and economic life. Rules influence the way actors behave and societies perform and are a key to
sustainable development. Donors recognise this and support the development of economic, political and
social institutions. However, changing formal and informal rules is difficult. The process of change is
complex and embedded in a country’s history and culture. What role is there for donors? How can they
successfully support processes of institutional development in partner countries? These issues are at the
centre of the present evaluation theme.
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Points of Departure
It was for long assumed that poverty and underdevelopment was caused by lack of resources. Now there
is a broad consensus that institutions play a critical role for sustainable economic and social development.
The demise of the socialist system in Eastern Europe and the former Soviet Union has increased our
awareness of the role of institutions and institutional development for sustainable development and pov-
erty reduction. Institutional change in terms of political and economic reform has also been on the
agenda since the late 1980s in many developing and transition countries – not least Sida partner coun-
tries. Institutions – in terms of formal and informal behavioural rules and norms – provide a framework
for social interaction by defining the ‘rules of the game’. Thereby, they crucially impact on the way indi-
viduals and organisations behave and interact as well as on how societies perform and develop socially,
politically and economically. The character, causes and consequences of institutions is studied within an
expanding and broad field of research cutting across a number of social-science disciplines. This field is
often referred to as the New Institutional Economics, inspired for instance – but not only – by the Nobel-
prize winner and economic historian Douglass C. North.
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There is a rapidly growing body of knowledge
about the role of institutions for development.
The importance of supporting institutional development is recognised within the international donor
community, and increasingly so, as reflected for instance in the 2002 World Development Report, ‘Build-
ing Institutions for Markets’.
2
According to the Swedish Policy for Global Development, contributing to
increased knowledge and to building sustainable institutions is at the centre of development co-opera-
tion.
3
And in Sida’s Policy for Capacity Development, institutional development is defined as a key com-
ponent of capacity development.
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Supporting institutional development is becoming increasingly topical for donors in the light of current
trends. The tendency towards programme support (budget support and sector-wide approaches) and
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Some of the central works by North include North (1990) and his earlier work with Robert P. Thomas, North and Thomas (1973).
2
World Bank (2002)
3
Swedish Government (2003)
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Sida (2000)
SupportINg the DevelopmeNt of INStItutIoNS – formAl AND INformAl ruleS – utv WorkINg pAper 2005:3
capacity development at ‘system level’ highlights the role of well-functioning and development-conducive
institutional frameworks. A rights-based and multi-dimensional approach to poverty reduction requires a
thorough understanding of how existing institutional constraints and opportunities influence the power,
choices and resources of the poor as well as ideas about how to deal with those institutions. Support for
institutional development may thus be identified as a strategic issue of high policy relevance for donors
in general and Sida in particular.
Developing appropriate and effective institutions is a difficult task, however, as witnessed by the experi-
ence of transition economies and reform attempts in many developing countries. One reason is the cir-
cumstance that institutional change is embedded in a country’s specific historical and socio-cultural con-
text, where social, political and economic institutions – formal as well as informal – are linked into com-
plex systems. Institutions are thereby interrelated and institutional change is therefore contextual, com-
plex and often long term and unpredictable. This circumstance has a number of implications for how to
support institutional development, first of all, for what an external agency like Sida can do to promote
inherently ‘local’ institutional change in partner countries. It also means that it may be difficult to pro-
mote change in individual rules, unless accompanying change in complementary rules or entire institu-
tional systems are altered too. Moreover, it suggests that supporting institutional development is not only
a matter of identifying the appropriate rules to be established or changed, but also – and perhaps more
importantly – a question of tracing the very process of change, of ‘how to get there’.
In spite of these difficulties, the international donor community, including Sida, has long experience of
actually attempting to support processes of institutional change in both the East and the South. This
involves, for instance, support for various types of public administration and political reform in relation
to democratic governance, deregulation and privatisation as part of market-oriented reform, change in
laws and regulations in connection with sector programmes and in norms and practices within organisa-
tions in relation to capacity development. There is no doubt vast experience, but what do we actually
know about how to successfully support processes of institutional development? Very little, it would at
first appear. Or rather, the knowledge that exists appears to be largely tacit, whereas explicit knowledge
is missing. To date, no overall evaluation of Sida’s support for institutional development has been con-
ducted. Even an overview of the support itself is lacking, in spite of the fact that this support is likely to
have become significant over the years. Similarly, there appears to be a lack of systematically accumu-
lated and explicit knowledge within the donor community at large. Nonetheless, given the vast experi-
ence, we believe there is a lot of knowledge among Sida staff, consultants and counterparts – tacit knowl-
edge that could be made explicit and used.
Besides, it is sometimes unclear what support is actually referred to as support for institutional develop-
ment, institution building and related terms and what this implies in actual practice. In other instances,
activities are not identified as support for institutional development but actually are that. Preliminary
observations suggest that these concepts are vague and that there is conceptual confusion about them
within Sida
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– and perhaps within the donor community at large. In fact, Sida appears to lack clearly
developed concepts and other tools for analysing, understanding, supporting and evaluating institutional
development. Sida’s policy for capacity development highlights the role of institutions, but the related
methodological work has focused on the knowledge and organisational aspects of capacity development
– identified as the other two elements, besides institutions, of the concept capacity.
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Without clear con-
cepts and basic analytical tools it is indeed difficult get a clear picture of the support, to analyse and
5
Eriksson Skoog (2002)
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Certain efforts to develop concepts and tools has been made by Sida’s Capacity Development Project (see, in particular,
Gustafsson, 2004), but they are not sufficiently elaborated to be useful for the analysis of institutions. Another attempt is
reflected in a study commissioned by utv, Ostrom et al. (2002).