Institutional Dissonance Institutional Dissonance and Bridging: and Bridging: A New Perspective on the A New Perspective on the Relationship between Religion Relationship between Religion and Developmentand Development

Min-Dong Paul LeeMin-Dong Paul LeeDepartment of Management

University of South Florida

Min-Dong Paul Lee

ContentsContents

Introduction: Does religion matter? Review of recent empirical studies Institutional dissonance

o Property Rightso Contractso Market Interactionso Organizational Management

Institutional bridging Conclusion

Min-Dong Paul Lee

Does religion matter for development?Does religion matter for development?

Classical social scientists all devoted significant efforts to understand religion and its effect on society and economy

Adam Smith

Emile Durkheim

Max Weber

Min-Dong Paul Lee

Does religion matter for development?Does religion matter for development?

Calvinist doctrine encourages certain values

Changes in economic behavior bring about Capitalism

Macro

Micro

Protestant religious doctrine Capitalism

Value Economic behavior

Appropriation of certain kinds of orientations to

economic behavior

Weber even went as far as saying that Protestant religion had a causal influence on the rise of western capitalism

Min-Dong Paul Lee

Religion still matters!Religion still matters!

Until early 1980s, most social scientists assumed religion to be just a “fading vestige of pre-scientific times” (Iannaccone 1998:1466)

Revival of religion everywhere since early 1980so Return to traditional faith in Eastern Europe

o Rapid spread of conservative Islamism

o Explosion of Protestantism in Latin America

Min-Dong Paul Lee

Religion also matters for development!Religion also matters for development!

Development goals cannot be achieved without the commitment and willing participation of local actors (Dar and Cooke 2008; Thomas 1996)o Mobilizing local actors requires better appreciation and

understanding of what is important to the local population.

For people who adhere to a religion, it is often the most important thing in their lives. o In religious societies, religion dictates almost every aspect of a

person’s life from deciding what to eat and buy to how to interact with others in society. Therefore, it would be difficult fully to understand or facilitate the process of development without considering religion.

Min-Dong Paul Lee

Studies on Religion and DevelopmentStudies on Religion and Development

1990s – Revival of academic interest in religion

1. Cross-country analysis of the relationship between religion and economic development

o La Porta, Lopez-de-Silanes, Shleifer, and Vishny (1999): Protestant countries have more effective governments than Catholic or Muslim countries (measured by interventionism, public sector efficiency, quality of public goods provision, government size, and political freedom )

o Barro and McCleary (2003): Religiosity is positively related to economic performance

2. Religion’s effect on individual attitudes or values.

o Guiso, Sapienza and Zingales (2003): religion was positively associated with the development of good economic attitudes

Min-Dong Paul Lee

Religiosity and Economic GrowthReligiosity and Economic Growth

Source: Barro and McCleary (2003)

Min-Dong Paul Lee

A Constant PuzzleA Constant Puzzle

Barro and McCleary (2003): strong religious belief (e.g., belief in heaven and hell) was, in general, positively associated with economic growth. However, Islamic countries, with their strong religious belief, have strong negative association.

Guiso, Sapienza and Zingales (2003): religious participation improved development performance by increasing trust in government and social capital. However, despite their high level of social capital in the form of trust and economic reciprocity, Islamic societies often fared poorly in economic development.

Comparison of Economic Performance between Islamic States and a Selected Group of Countries and Aggregates, 1975-2002

CountryGDP 2002 GDP per capita GDP per capita

annual growth rate %, 1975-2002b

US$ (billions) PPPa US$ (billions)

2002 US$ PPPa 2002 US$

Islamic States

Iran 108.2 483.3 1652 6690 -0.4

Kuwait 35.4 37.8 15193 16240 -1.2

Saudi Arabia 188.5 276.9 8612 12650 -2.5

Egypt 89.9 252.6 1354 3810 2.8

Morocco 36.1 112.9 1218 3810 1.3

Syria 20.8 61.5 1224 3620 0.9

Tunisia 21 66.2 2149 6760 2.1

Comparison Group

Chile 64.2 153.1 4115 9820 4.1

South Korea 476.7 807.3 10006 16950 6.1

Singapore 87.0 100.1 20886 24020 5.0

Developing Countries 6189.3 19848.5 1264 4054 2.3

East Asia & Pacific 2562.6 9046.9 1351 4768 5.9

OECD 26298.9 28491.5 22987 24904 2.0

World 31927.2 48151.1 5174 8704 1.3

Note: a. PPP is an abbreviated form for purchasing power parity; b. Growth rates were calculated by the World Bank using least squares method.Source: Adapted from Askari, Hossein. 2006. Middle East oil exporters what happened to economic development? (Cheltenham, UK), p. 84.

Min-Dong Paul Lee

Institutional ExplanationInstitutional Explanation

Society as an inter-institutional system Institutions are materialmaterial and symbolic symbolic systems that not

only regulate human activity, but also infuse it with meaning (Friedland and Alford, 1991)

Examples of institutions: Capitalism, state, democracy, family and religion

Each institution has its own logic that shape individual preferences and organizational interests

Institutional logics define the norms and values that structure the cognition of economic actors and provide a collective understanding of how strategic interests and decisions are formulated (Thornton, 2002)

Min-Dong Paul Lee

Institutional ExplanationInstitutional Explanation

Individuals’ perception and interpretation of economic actions are conditioned by multiple (sometime, competing) conditioned by multiple (sometime, competing) institutional logicsinstitutional logics

Sen argued that “even though different commentators have chosen to focus on particular institutions (such as the market, or the democratic system, or the media, or the public distribution system), we have to view them together, to be able to see what they can or cannot do in combination with other institutions.” - Development as Freedom (1999:142)

Min-Dong Paul Lee

Institutional ExplanationInstitutional Explanation

For a Muslim economic actor, two dominant institutional logics he/she faces are Islam and Capitalism

These two institutional forces exert significant influence on how Muslim economic actors interpret their environment and make choices.

Muslim Economic Actor

Islamic Institutions

Capitalistic Institutions

Dissonance

Islamic teachings encourages certain economic values

Effect on market interaction

Macro

Micro

Islamic religious Teachings

Macro economic outcome

Islamic business

ethics

Economic behavior

Appropriation of certain kinds of orientations to

economic behavior

Capitalistic Institutions

1. Islamic religious ideology encourages certain economic values

2. Muslim economic actors construct an Islamic business ethic based on their religious ideology and develop a particular orientation to economic behavior

3. Muslim economic actors perceive and interpret the capitalistic market institutions and various economic interactions through the lens of their Islamic business ethic

4. The resulting economic behavior and disposition determine the extent of Muslim economic actors’ participation in capitalistic markets and their competitive efforts

Islamic Business Ethic Capitalistic Institutions

Property Rights

Inclusive rights

Communally-oriented

Stewardship (khalifah)

Exclusive rights

Individually-oriented

Ownership

Contracts Informal enforcement

Conditional enforceability

Formal enforcement

Absolute enforceability

Market Interactions

In-group focus

Closed network

Out-group focus

Open network

Organizational Management

Full liability

Ambiguous authority

Non-distinction from social life

Limited liability

Clear authority

Distinction from private social life

Min-Dong Paul Lee

Resolution of Dissonance?Resolution of Dissonance?

Persisting institutional dissonance prevents Muslim economic actors from fully participating in capitalistic economy without jeopardizing his/her social legitimacy

Then, what can we do about the dissonance? Traditional remedies

o Institutional reform: replace inferior institutions with superior/ advanced institutions

o Problem: superior institutions (often, democratic and rational institutions) also cause unintended dissonance with existing religious institutions

o Institutional reform can result in even counter-cultural movement

Min-Dong Paul Lee

Institutional BridgingInstitutional Bridging

Alternative solution is creation of bridging institutions that harmonize existing institutional dissonances

Muslim Economic Actor

Bridging Institution

Islamic Institutions

Capitalistic Institutions

Min-Dong Paul Lee

Example of Institutional BridgingExample of Institutional Bridging

Islamic Bank Source of Institutional Dissonance

o Islamic business ethic: Islamic law does not allows the charging of interest (riba) in borrowing or lending

o Capitalism: banking system is a central feature of capitalist economy. Banks facilitate secure and efficient capital flow between savers and borrowers through interests

Institutional bridging: Islamic bankso Banking institution without the use of interest (riba)o Use the methods of profit and risk sharing to facilitate financial

intermediationo Result: Devout Muslims can save and borrow money (participate in

capitalistic economy) without compromising religious belief or loosing social legitimacy

Min-Dong Paul Lee

Successful Resolution of Institutional DissonanceSuccessful Resolution of Institutional Dissonance

Rapid growth of Islamic banks: even faster asset growth in conservative Islamic societies (e.g. Iran)

Assets held by the world's 100 biggest Islamic banks grew 66 percent in 2008 from the previous yearo In the same period, Asia's 300 biggest banks saw their assets rise

by a much slower 13.4 percent, it said. (Asian Banker, 2009)

The top 100 Islamic banks held assets totaling 580 billion US dollars last year, up from 350 billion dollars in 2007

Min-Dong Paul Lee

Implication of Institutional BridgingImplication of Institutional Bridging

Promiseo Can minimize potential cultural and social resistance to

development initiatives o Creates a space where local stakeholder can voluntarily build their

own capacity and thrive

Broad implicationso Institutional bridging in gender equality: Grameen bank in

Bangladesh -> empowerment of rural women by giving them economic role and power through microfinance

o Institutional bridging in education: Educate! program in Uganda -> mentoring of high-school students