THE RISE AND TRANSFORMATION OF INSTITUTIONAL ANALYSIS

John L. CampbellDepartment of SociologyDartmouth College, USA

andInternational Center for Business and Politics

Copenhagen Business School, Denmark

October 2007

Word count: 10,212

Correspondence to: John Campbell, 123 Silsby Hall, Department of Sociology, DartmouthCollege, Hanover, New Hampshire 03755 USA. John.L.Campbell@Dartmouth.Edu.

The arguments in this paper are developed at much greater length in Campbell (2004, 2007,1

forthcoming) and Campbell and Pedersen (2001a, 2001b).

THE RISE AND TRANSFORMATION OF INSTITUTIONAL ANALYSIS

Institutional analysis has experienced a resurgence in the social sciences to the pointwhere in the United States it is now the dominant theoretical paradigm in organizational,political, and economic sociology as well as in much political science, especially comparativepolitical economy. It is also becoming more influential in economics. Why?

Part of the reason is that the world is changing. Since the early 1970s, when stagflationgripped the advanced capitalist democracies, academics began to recognize that differentcountries fared better or worse in coping with this problem as a result of their institutionalarrangements–particularly those that affected policy making and the ability of economic actors tocontrol prices and wages and coordinate their activities more generally (e.g., Lindberg and Maier1985). And in the early 1980s, as national economies became more integrated through economicglobalization, by which I mean rising international trade, capital flows, and migration, and ascalls for tax cuts, welfare state retrenchment, economic deregulation, and other neoliberal policyreforms became widespread, national political and economic institutions began to change. All ofthis led social scientists to explore what institutions are, what they do, and, most recently, howthey change.

This paper assesses the results of some of these explorations. I begin by briefly1

reviewing the most important approaches to institutional analysis as they emerged in the 1970sand 1980s. Much of that work took the form of a pitched battle whereby each approach sought todiscredit the others. The result was a failure to see the possibilities for intellectual fertilizationacross approaches–a situation that eventually led to calls for a truce and reconciliation amongapproaches. Next, I show that one way to achieve a partial reconciliation is through thedevelopment of a particular actor-centered theory of constrained institutional change. Finally, Idiscuss the ontological nature of institutions and institutional change. In doing so I urge cautionabout adopting a functionalist view of change.

THREE APPROACHES TO INSTITUTIONAL ANALYSIS

Three versions of institutional analysis have developed since the early 1980s and nowdominate the discussion. Rational choice institutionalism is most closely associated witheconomics and some strands of political science. Organizational institutionalism is fromsociology. And historical institutionalism was developed by political scientists working in thecomparative political economy tradition. These have been reviewed at length elsewhere, so I willbe brief (e.g., Campbell 2004; Campbell and Pedersen 2000b). But understanding some of theimportant similarities and differences among these approaches helps set the stage for thepresentation later of my theory of institutional change.

Rational Choice Institutionalism

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Rational choice institutionalism in economics emerged beginning in the 1970s in reactionto persistent problems for which neoclassical economics seemed to have either little interest orfew solutions. In particular, Oliver Williamson (1975, 1985), Douglass North (1981, 1990), andothers recognized that competitive markets did not always produce the most efficient economicbehavior. In fact, they argued that under certain conditions, such as small numbers bargaining orlimited information about suppliers and customers, markets were typically inefficient becausemonitoring and enforcing transactions could be done at lower cost through different institutionslike corporate hierarchies or long-term subcontracts. By institutions they meant systems offormal and informal rules and compliance procedures (e.g., North 1990, p. 3; Rutherford 1994, p.182). Hence, whereas the neoclassicists had pushed institutions aside and argued that unfetteredmarkets were generally the most efficient arena for economic activity, the institutionalistsdisagreed and wanted to bring the analysis of institutions back into economics.

The new institutional economics also held that although transactions could be organizedthrough a variety of institutions, no institution was necessarily going to be optimally efficient. Why? First, because political elites are self-interested and want to maximize tax revenues andother benefits of office, they frequently create property rights and other institutions that constrainthe behavior of market actors in ways that undermine long-term economic growth. Second, for acouple of reasons, once institutions are established they evolve slowly in a path-dependentmanner. On the one hand, institutions are expensive to create and change. On the other hand,once established, institutions tend to generate positive feedback and support from constituents aswell as institutional elites who derive increasing financial returns and other benefits from them. Hence, influential people are often reluctant to modify institutions in fundamental ways—even ifinstitutions are discovered to be inefficient relative to the possible alternatives. Instead, peopletend to make only marginal adjustments to their institutions that result in path-dependent change.

The causal concept of path dependence suggests that once people are on a particularinstitutional path they tend to stick to it rather than jump to another one. Thus, evolutionarychange becomes the norm (Arthur 1994; North 1990). According to North (1990, p. 90), evenwhen major disruptions occur to the institutional status quo, such as a severe price shock orpolitical crisis, the changes that result are often less discontinuous and more evolutionary thanthey appear on the surface as a result of path-dependent effects.

Institutional analysis in economics did not constitute a complete rejection of theneoclassical tradition. In particular, North, Williamson, and their followers embracedmethodological individualism—the idea that micro-level individual actions give rise toinstitutions. They also accepted in modified form the neoclassical assumption that individualaction is motivated by an instrumental rationality, that is, a decision-making logic based on aninterest in maximizing benefits relative to costs. The modification was that rational decisionmaking was limited by the availability of relevant information and the cognitive ability of actorsto process it (Langlois 1986; Rutherford 1994, chap. 3). Institutions, they argued, are built toadvance actors’ self-interests. Once institutions are built, actors continue to pursue their interestsas best they can within the constraints imposed on them by these institutions. As a result, this

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view represented a rational choice approach to the study of economic institutions.

In sociology and political science the development of rational choice institutionalism washeavily influenced by these ideas. Rational choice institutionalists in sociology and politicalscience also paid much attention to how individuals build and modify institutions in order toachieve their interests. Some accepted that major systemic shocks occasionally cause fairlyrevolutionary and abrupt institutional changes–a pattern often referred to as punctuatedequilibrium. However, most others maintained that path-dependent evolutionary change is thenorm. But regardless of whether they focus on evolutionary or revolutionary change, for rationalchoice institutionalists both norms and more formal institutions emerge and are enforced as aresult of self-interested behavior (e.g., Brinton and Nee 1998; North 1981, chap. 5; Ostrom 1990,chap. 6).

Perhaps the most important contribution that sociologists and political scientists havemade to the rational choice paradigm is to develop the so-called “choice within constraints”approach—a view that takes seriously that institutions, including informal norms as well asformal rules and regulations, limit the range of choices individuals are likely to make as theypursue their interests (Nee 1998; Scharpf 1997). For example, Margaret Levi (1988) argued thatpolitical rulers are predatory insofar as they are interested in maximizing the revenues theycollect from citizens. However, their ability to maximize revenues is constrained by the type ofpolitical institutions within which they operate. During the Middle Ages, English monarchseventually had to negotiate with Parliament over tax policy. This lent tax policy a degree ofcredibility and legitimacy that was absent in absolutist states, such as France, so English rulerswere able to tax more effectively than the French. Variation in institutional constraints made thedifference.

Finally, there has been some talk among rational choice institutionalists about the need tobetter incorporate an analysis of “ideas” into their work (e.g., Garrett and Weingast 1993;Goldstein and Keohane 1993). Many have acknowledged that cognitive structures, beliefsystems, and other sorts of ideas influence how actors perceive their interests and options in thefirst place, including which institutions they might prefer to build and sustain under differentcircumstances. Notably, the concept of bounded rationality, which rational choice theoristsinvoke frequently, often alludes to these sorts of cognitive constraints. Bounded rationality refersto the limited capacities of actors to collect and process important information and use it to makewell-informed decisions (Jones 1999). Yet, according to some rational choice institutionalists,although interest in the issue of cognition is increasing, their fellow theorists have failed toadequately incorporate an analysis of these sorts of ideas into their work. North (2005) hasrecently tried to rectify this omission through a wide-ranging discussion of how cognition andlearning affects institution building and, in turn, economic performance.

Organizational Institutionalism

One way organizational institutionalism differs from rational choice institutionalism is in

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its much greater emphasis on normative and cognitive ideas. Organizational institutionalism’sroots stretch back to Weber, Durkheim, and several mid-twentieth century organization theorists(DiMaggio and Powell 1991; Perrow 1986, chap. 5; Scott 2001, chaps. 1, 2). What is importanthere is that organizational institutionalists maintain that norms and values are an important partof institutional life. Organizations respond to the norms and values in their environment in waysthat result in behavior that does not fit traditional theories of organizational decision making,which rest on rationalist assumptions. These are the same assumptions that underpininstitutionalism in economics (March 1996, pp. 281-283). Thus, according to organizationalinstitutionalists, organizations seek to act appropriately vis-a-vis their cultural environmentsrather than instrumentally vis-a-vis their official goals.

The difference between a logic of appropriateness and a logic of instrumentality is centralto organizational institutionalism (March and Olsen 1984, 1989, chap. 2). According to thisview, organizations adopt whatever practices they believe their institutional environment deemsappropriate or legitimate regardless of whether these practices increase organizational efficiencyor otherwise reduce costs relative to benefits, as rational choice institutionalists contend.

Organizational institutionalists have generated a vast number of empirical studies arguingthe basic point that the behavior and formal structure of business firms, schools, nation-states,and other organizations are defined by their institutional environments and that theseorganizations seek legitimacy from their environments in order to ensure their survival (e.g., Boliand Thomas 1999; Scott and Meyer 1994; Thomas et al. 1987). In contrast to earlierorganizational sociologists, who focused on individual organizations, the institutionalists shiftedtheir attention to entire fields or populations of organizations within an institutional environment. For them, institutions include informal and common cultural frameworks, symbolism, and taken-for-granted cognitive schema as well as formal rule systems. Importantly, institutions alsocontain routines and processes that sustain these frameworks, symbols, schema, and rules and,therefore, reproduce themselves over time (Jepperson 1991, p. 145). Moreover, becauseorganizations of a common type, such as art museums or business firms, share a commoninstitutional environment, they all tend to adopt similar structures and practices over time. Hence, fields or populations of organizations gradually become isomorphic or homogenous. This is not because they all instrumentally seek and find the most efficient way of operating ortry to maximize benefits relative to costs, as rational choice institutionalists would expect, butbecause they seek to conform to the culturally appropriate scripts, schema, and organizationalmodels in their environment (DiMaggio and Powell 1983).

The distinction between normative and cognitive factors is important for organizationalinstitutionalists. Some organizational institutionalists emphasize that actors respond to thenormative and value laden pressures in their environments, and do so deliberately and self-consciously. Others stress cognition and how actors’ perceptions of what is an appropriatepractice depend on the taken-for-granted scripts, schema, habits, and routines that they possessand through which they interpret the world (Scott 2001, chap. 2). Indeed, actors may not have aclear sense of what their self-interests or goals are at all, particularly during periods of great

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uncertainty and information scarcity, and so they may act in unreflective and virtually automaticways according to these taken-for-granted cognitive structures. Hence, institutionalized scriptsand routines are said not only to constrain action, but also to enable or constitute it by providingactors with models to guide their behavior (Clemens and Cook 1999).

Organizational institutionalists are less sanguine about evolutionary change than manyrational choice institutionalists. To be sure, many argue that evolutionary change is the norm andthat even apparently revolutionary institutional changes may, upon closer inspection, stem fromthe gradual accretion of many incremental path-dependent adjustments. But others argue thatwhen change occurs it is more likely to follow a punctuated equilibrium pattern. That is, changeis episodic and marked by a brief period of crisis or critical intervention followed by a longerperiod of stability or path-dependent evolutionary change (e.g., Fligstein 1990; Powell 1991, p.197).

Regardless of whether they subscribe to an evolutionary or punctuated equilibrium viewof change, organizational institutionalists generally agree that fields of organizations adoptcommon (i.e., isomorphic) institutionalized practices as a result of three essential processes bywhich practices diffuse through the field. First are mimetic processes in which organizationsfacing uncertainty lack a clear idea of what they should do and so copy the practices of otherapparently successful organizations in their field. Second are normative processes in whichorganizational leaders have been professionalized to share similar views on what constitutesappropriate organizational practice. Third are coercive processes in which organizations adapt topressure from other organizations around them to conform to institutionalized standards(DiMaggio and Powell 1983; Mizruchi and Fein 1999).

Historical Institutionalism

Historical institutionalism is derived from classical political economy, particularly thehistorical materialism of Marx and the comparative institutional history of Weber. It has beendeveloped primarily by political scientists who have studied how political and economic decisionmaking is affected by the institutional arrangement of states, including the organization ofgovernment agencies, parliaments, constitutions, and electoral rules; by the institutionalarrangement of economies, including the organization of labor unions and business associations;and by the institutional connections between states and economies, including economic policy,business regulations, and property rights (e.g., Katzenstein 1978). In this view, institutions areformal and informal rules and procedures, such as those codified in the law or deployed bybureaucratic organizations like states and business firms (Thelen and Steinmo 1992, p. 2).

Much historical institutionalism has been developed in a macro-level comparativecontext. For example, many scholars have shown how variation in national political institutionsaffected the level and progressivity of tax codes across countries, the development of welfarestates, differences in national health care systems, and the responses of different governments tointernational economic crises. In all of these instances, and in contrast to organizational

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institutionalism, historical institutionalists have focused more on broader societal and statestructures than on organizations per se. The important point in much of this work is not thatinstitutions directly determine outcomes like these but, more modestly, that institutions constrainthem. In a classic statement of the position, Kathleen Thelen and Sven Steinmo (1992, p. 3)declared that, “what is implicit but crucial in this and most other conceptions of historicalinstitutionalism is that institutions constrain and refract politics but they are never the sole‘cause’ of outcomes.” This view resembles the “choice within constraints” approach of rationalchoice institutionalism, discussed earlier.

Central to this perspective is the notion that the institutions that guide decision makingreflect historical experience (Hall 1986; March and Olsen 1989, chap. 2). In other words, onceinstitutions have been established through complex struggles and bargaining among organizedgroups, they have a continuing effect on subsequent decision-making and institution buildingepisodes. Thus, historical institutionalists embrace the idea that policy making and institutionalchange tend to be path-dependent processes. This is because institutions constrain the choicesavailable to decision makers; because decision makers incrementally adjust their policies andinstitutions in response to feedback they receive from their constituents; and because decisionmakers learn gradually which policies and institutions best suit their purposes (Heclo 1974;Pierson 2000a, 2000b). Insofar as historical institutionalists have emphasized the importance ofpolicy learning, particularly as policy models travel from one country to another, occasionallywith a coercive push from powerful states, some of them have recently begun to discuss policydiffusion (e.g., Djelic 1998; Duina 1999; Hall 1989). In this regard historical institutionalistshave begun to develop similarities with a sizeable literature on cross-national policy transfer(e.g., Dolowitz and Marsh 1996).

However, historical institutionalists have also been very interested in abrupt andrevolutionary shifts in policy and institutions that represent sharp breaks from the past. Historical institutionalists frequently describe patterns of stability and change as punctuatedequilibrium (e.g., Baumgartner and Jones 1993; Hall 1993; Krasner 1984). According to somecritics, this has created problems for them insofar as their explanations of rapid, revolutionarychange do not square well with an analytic framework that talks a lot about path-dependence. Put differently, if institutions are so important in constraining policy-making outcomes in path-dependent ways at one moment, how can they suddenly become so unimportant and non-pathdependent at another moment (Peters 1999, p. 65; Thelen 1999)? For this and other reasons,some historical institutionalists have complained that the concept of path dependence is oftenused rather loosely without a clear specification of the mechanisms involved (Pierson 2000b;Thelen 2000).

Recognizing the importance of path dependence, some historical institutionalists havefollowed North in maintaining that what may appear initially as a sudden episode of policy-making or institutional punctuated equilibrium often turns out to be one of much moreevolutionary change. Notably, Paul Pierson (1994) argued that what appeared initially to manyscholars as an abrupt and radical overhaul of U.S. welfare policy in the early 1980s turned out

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later to be considerably less dramatic and more evolutionary. Nevertheless, some scholars haveargued that there is some truth to both evolutionary and revolutionary views. They argue that thebest way to describe institutional change is as a pattern of punctuated evolution whereby periodsof gradual evolutionary change are punctuated by crisis and rapid revolutionary change, whicheventually settles down again to another period of incremental evolutionary change (Hay 2001).

Researchers working in the historical institutionalist tradition have long accepted thatself-interest motivates behavior and institutional change. Increasingly, however, they have alsoemphasized that ideas and principled beliefs, such as convictions about what constitutes goodpublic policy and good government, also influence decision making (e.g., Derthick and Quirk1985). In this regard, they are clearly related to organizational institutionalism in recognizingthat a logic of appropriateness may be just as important as a logic of instrumentality (Hall 1993;March and Olsen 1989, chap. 2). In a few cases they have made efforts to deploy an analysis ofideas to help account for those moments when institutional equilibrium is punctuated by a crisisand eventually gives way to fundamental policy and institutional change. Mark Blyth (2002), forinstance, showed how struggles over foundational economic theories during moments ofeconomic crisis resulted in intellectual paradigm shifts among academic and political elites thatcontributed to the overhaul of economic policy during the late twentieth century in the UnitedStates and Sweden. Blyth argued that cognitive paradigms constrain the choices available toactors until they no longer provide answers to the problems these actors face. Then a search islaunched for a new paradigm that, when found, ushers in a new set of policies and institutions. In other words, although the instrumental pursuit of interests guides reform, so does thesensitivity of decision makers to what they believe are the appropriate blueprints for reform.

It should be clear by now that disagreements among these different approaches have beenprofound. Yet it should also be clear that there is some common ground shared by different typesof institutionalists. And this creates an opportunity for a partial reconciliation of approaches(e.g., Campbell and Pedersen 2001b). One way to do this is by developing a theory ofinstitutional change.

BRICOLAGE, TRANSLATION, AND INSTITUTIONAL CHANGE

Institutional change can be intentional or unintentional. An example of unintentionalchange would be judge-made law, which is often said to evolve in ways that result eventually inimportant shifts in legal institutions through the cumulative effects of many small judicialdecisions, but without much planning or deliberate design. The same is true for change thatstems from competitive selection (Rutherford 1994, chap. 5). In other words, while actors maybe purposive, the institutional changes that follow from their actions may be unintended (e.g.,Nelson and Winter 1982). Although unplanned institutional change may be important, it is notmy concern here.

Intentional change is a deliberate effort to reorganize or otherwise modify already existinginstitutions, by which I mean formal and informal rules, monitoring and enforcement

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mechanisms, and systems of meaning that define the context within which actors operate andinteract with each other. Institutions are settlements forged through bargaining and struggle. Asa result, they reflect the resources and power of the people who made them. In turn, once theyare created they affect the distribution of resources and power among people associated with theinstitution. Institutions are powerful external forces that help determine how people make senseof their world and how they behave. Institutions channel and regulate conflict and thus tend toensure stability in society. Institutional change is determined largely by struggles over resourcesand power.

Bricolage

Institutional change generally involves a process of combining and recombining alreadyexisting institutional elements. It is known as bricolage (Douglas 1986, pp. 66-68; Levi-Strauss1966, pp. 16-33). Bricolage tends to result in path-dependent, evolutionary change. Why? Onthe one hand, previously given institutions provide a repertoire of principles and practices withwhich actors can innovate creatively through recombination. On the other hand, the finite natureof this repertoire constrains the range of possible innovative combinations available to them. Hence, institutions simultaneously enable and constrain innovation. Furthermore, given thefinite nature of this repertoire, innovations differ from but still resemble those that precededthem.

For instance, Taiwanese entrepreneurs built hierarchically organized conglomerates afterthe Second World War by combining the institutional principles of large multi-divisionalbusiness firms that had already started to develop in Taiwan with the institutional principles offamily honor that had persisted in Taiwan for centuries. As owners of private firms began torecognize during the 1950s that survival and growth depended on building larger corporationsthey also realized that managing these conglomerates would become increasingly difficult due toprincipal-agent monitoring problems. They branched out into new and unrelated lines ofbusiness by extending the multi-divisional form but they placed close family members in topdivisional posts in order to ensure that the operations were run by people whom they could trust(Lin 1995). In short, two well established institutional principles (i.e., bureaucratic organizationand family honor) were combined in order to create a new institutional arrangement–but one thatdid not break entirely with the past due to the fact that it had been built by combining two alreadyexisting institutional elements.

Two important implications follow from this. First, even apparently dramatic and radicalinstitutional innovations are often, upon closer inspection, less revolutionary than they mightseem initially. This was certainly true in post-communist Europe during the first half of the1990s (Campbell and Pedersen 1996). For instance, some new enterprise structures andownership arrangements were derived from the recombination of old communist-era exchangerelationships among enterprises (Stark 1996). An apparently revolutionary shift from acommand to market economy actually involved an important evolutionary and path-dependentdynamic due to the fact that new institutions were crafted from the bits and pieces of old ones

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that were inherited by the institutional entrepreneurs involved.

Second, the distinction between revolutionary and evolutionary change is a tricky one. How can we tell how revolutionary or evolutionary an episode of change really is? It depends onhow many dimensions of an institution change over a given period of time. Revolutionarychange consists of simultaneous change across most, if not all, dimensions of an institution;evolutionary change consists of change in only a few of these dimensions; and stability consistsof the absence of change in most, if not all, of these dimensions. Thus, change can be located ona continuum ranging from stability on one end, through different degrees of evolutionary changein the middle, to more revolutionary change on the other end.

Translation

Bricolage involves a recombination of already given institutional elements. Butsometimes new elements may be added to the institutional repertoire through diffusion fromoutside the local setting. This increases the chances that institutional change will be relativelymore revolutionary than evolutionary and that it will not bear as strong a resemblance to theinstitutions of the past as would be the case if institutional entrepreneurs simply worked withintheir already existing repertoires. For example, much has been written about how newinstitutional models for organizing government ministries, human rights law, and managementforms have diffused through the community of nation-states with profound transformative effectson national level institutions (Boli and Thomas 1999; Guillén 1994; Risse et al. 1999).

Rarely, however, is a newly introduced element or idea adopted in toto and unchanged. In other words, once a diffusing element arrives at a local institutional location, it is modified inorder to fit with already existing local institutional arrangements (e.g., Westney 1987). I call thisprocess translation. It is similar to bricolage except for the fact that some of the elementsavailable to the institutional entrepreneur have been introduced from the outside. The more newprinciples and practices diffuse to a given locale and are translated fully into practice, the morelikely it is that change will be more revolutionary than evolutionary and that it will divergesharply from past precedents and legacies.

The rise of neoliberalism during the late twentieth century is a good illustration oftranslation. To a large extent, neoliberalism emanated from the United States to other parts ofthe world, often with the strong support of international organizations like the OECD,International Monetary Fund (IMF), and World Bank. Many countries adopted bits and pieces ofthe neoliberal model in order to change their institutions. However, these adoptions and changeswere not uniform across countries. Instead, they were tailored to local institutional contexts.

In Denmark, for instance, decision makers searched for ways to incorporate neoliberalprinciples into traditional Danish institutions where industrial policy had long been the norm anda product of elaborate negotiations between the state and private actors at the national level. These formal bargaining institutions were reinforced by the pervasive Danish belief that the only

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appropriate way to conduct policy making was through inclusive, corporatist negotiations. Indeed, it was difficult for Danes to imagine doing things differently after so many years ofnegotiation. Nonetheless, they were attracted to neoliberalism insofar as it emphasized thedecentralization of political control over the economy and a more efficient way to manageeconomic activity. So rather than abandoning industrial policy and absolving the state of itsresponsibilities for industrial development, as the hard-core neoliberal view would suggest,Danish leaders reorganized their institutions by establishing a more decentralized set ofinstitutional links between the government, local authorities, business, labor, and other privateorganizations. The result was a new, decentralized, but still negotiated and corporatist form ofdecision making that stemmed from a recombination of new and old institutional elements(Campbell and Pedersen 2007).

There is much evidence to support the notion that the international diffusion of ideas ismediated by translation processes. It has been documented for the development of new rules andnorms regarding citizenship (Soysal 1994), human rights (Keck and Sikkink 1998), stateformation (Westney 1987), and corporate regulation (Vogel 1996) as well as new fiscal policies,property rights, and other public institutional practices (Campbell 2001). Nationally specifictranslation is also evident in the diffusion of common market directives from transnationalauthorities to member states in both the European Union and Mercosur (Duina 2003, 1999). Inall of these cases, new ideas have been translated into local contexts in ways that result inconsiderable institutional change, but with much variation across countries and without completebreaks from each country’s institutional legacy. That is, although change occurred throughdiffusion, the process of translation ensured a degree of continuity between past and present—amore evolutionary, path-dependent process of institutional change than would be expectedtypically by the diffusion or punctuated equilibrium literatures.

A MORE PRECISE THEORY OF INSTITUTIONAL CHANGE

One can begin to reconcile the three competing versions of institutional analysis bythinking more carefully about how institutions change in terms of the processes of bricolage andtranslation. The following argument does this by considering the problems that actors face, theactors themselves, and the constraints under which they operate as they seek to changeinstitutions in order to solve their problems. By focusing on actors as well as the constraints theyface, the argument explicitly addresses both structure and agency. Hence, mine is an actor-centered theory of constrained institutional change.

To begin with, we need to think carefully about the conditions under which actors seekinstitutional change in the first place. Institutional change can be triggered by either exogenousor endogenous factors. Exogenous factors include things like war, economic catastrophe, andother calamities as well as abrupt shifts in prices, transaction costs, and state policies, dramatictechnological innovations, pressure from outside organizations, and the like. However, if weaccept the notion that institutions are multi-dimensional entities that are composed of differentinstitutional principles and logics guiding action, then we should expect that there may be much

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inconsistency among these dimensions and logics. In other words, institutions may createpotentially contradictory incentives and opportunities for action. Such inconsistency maygenerate enough tension, friction, and other problems to cause actors to seek new institutionalarrangements. In sum, constellations of institutions may themselves generate endogenouspressures for change (Friedland and Alford 1991; Lieberman 2002; Orren and Skowronek 1994;Schneiberg 1999).

For example, when the U.S. Atomic Energy Commission (AEC) was establishedCongress gave it a dual mandate. On the one hand, it was supposed to facilitate the developmentof nuclear technology that could be used by private utility companies to generate and sellelectricity. On the other hand, it was also supposed to ensure that the nuclear power industryoperated safely. Eventually, the logic of technology development and commercializationcollided with the logic of safety regulation. Developmental considerations took primacy oversafety considerations, political scandal ensued, the AEC was embroiled in a major legitimationcrisis, and, as a result, its authorizing legislation was rewritten and the agency was replaced bytwo new ones, each assigned one of the AEC’s original mandates (Campbell 1988, chap. 4).

Regardless of whether the origins of problems are exogenous or endogenous, I suspectthat problems lead to institutional change when they threaten the fundamental distribution ofresources or power of people operating within these institutions. Remember that institutions aresettlements that are born from bargaining and struggle, and that reflect the resources and powerof the people who made them. It follows that anything that promises to disrupt these settlementsand upset the distribution of resources and power is likely to trigger a struggle over institutionsthemselves. For example, during the 1970s and 1980s, the advent of new productiontechnologies among European steel manufacturers threatened the domestic market share for U.S.steel producers, who then successfully urged Congress to pass protectionist trade legislation(Scherrer 1991). Engagement in the First World War caused the U.S. War Department toexperience supply shortages, which led to the creation of temporary corporatist-style planningboards that were designed to improve industrial governance and increase production for the wareffort (Cuff 1973). In each case, situations developed that threatened actors’ access to resourcesor power (markets, customers, profits, and military supplies) and then precipitated institutionalchange (new rules regarding international trade and industrial governance).

Two clarifications are in order. First, just because a problem develops it does notnecessarily mean that institutional change will result. Actors may disagree how to resolveproblems, stalemates may result, inertia may set in, and problems may fester for a long timewithout steps being taken to resolve them. Actors may also try to handle them without resortingto changing institutions. Second, actors must perceive that there is a problem, that it requires aninstitutional solution, and that there are possible solutions available. We have much to learnabout how actors develop these perceptions but central to this process are institutionalentrepreneurs (DiMaggio 1988; Fligstein 1997, 2001). These are the ones who suggest how torecombine institutional elements in innovative ways. They are also the ones who framesituations as problems and who frame innovations as promising solutions. Suffice to say that

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unless problems and solutions can be framed in terms that convince decision makers to seekinstitutional change, not much is likely to happen.

But how do these institutional entrepreneurs decide on one bricolage rather than another? I submit that understanding how this happens does not begin with an assessment of theirindividual qualities, like genius or charisma, but with an appreciation of their position within aset of social relationships and institutions. Several things are involved. The discussion thatfollows sets forth a series of propositions that are worth further consideration and research in thefuture.

First, I propose that entrepreneurs with more diverse social, organizational, andinstitutional connections tend to have more expansive repertoires with which to work and tend tobe exposed to more ideas about how to creatively recombine elements in their repertoires. Similarly, entrepreneurs located at the borders and interstices of several social networks,organizations, and institutions will be more likely to be exposed to the diffusion of new ideas,which then become part of their repertoire and, thus, lead to relatively more revolutionary thanevolutionary institutional changes (e.g., Rodgers 1998; Westney 1987).

Consider the computer industry. Fledgling entrepreneurs in the Silicon Valley region ofnorthern California often operated simultaneously in several organizational environments. Forinstance, they frequently had links with Stanford University’s electrical engineering departmentsand other research organizations as well as various small electronics companies in the valley. Asa result, as the industry began to take off in the 1970s, these entrepreneurs envisioned cognitivelyall sorts of innovative formal and informal institutional arrangements that facilitated informationsharing and collective problem solving among firms and other organizations. These were quiteopen and unique institutional innovations compared to typical U.S. business practice in whichsuch information sharing was viewed as a threat to proprietary knowledge and, thus, competitiveadvantage. Yet these new institutions were made possible by the fact that entrepreneurs hadbroad repertoires of ideas about how technology, firms, and the industry over all might beorganized and function. In contrast, entrepreneurs on the east coast around Boston were muchmore insulated. They operated generally within a single, large, hierarchically organized firm. Inturn, they had a relatively limited repertoire of institutional principles and practices at theirdisposal. So when the industry began to develop on the east coast, entrepreneurs stuck to thetraditional, centralized, closed, and relatively rigid institutional arrangements with which theywere familiar. In the end, the advantage went to west coast entrepreneurs, who enjoyedconsiderable success, rather than east coast entrepreneurs, who did not (Saxenian 1994).

Second, all of this occurs within a broader institutional milieu that can have additionaleffects on how creative entrepreneurs are likely to be. For instance, in the United States duringthe 1980s, proposals for state sponsored industrial policy, which were offered as a way to sparktechnological and industrial innovation, were never adopted because opponents arguedconvincingly that industrial policy represented a form of state intervention that was tantamount tosocialism and, therefore, antithetical to basic American norms and values (Campbell 1998).

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Similarly, the entrepreneur’s location vis-a-vis regulative institutions will limit the range ofinnovations he or she is likely to pursue. In particular, the ability of entrepreneurs to reorganizeforms of economic governance in business has long been contingent on their ability to convincethe courts and regulatory agencies that these changes fit existing law (Campbell and Lindberg1990). In other words, the more entrepreneurs can demonstrate that their innovations fit theprevailing institutional situation, the greater will be their capacity for change and the greater willbe the likelihood that their innovations will stick. This implies that having to fit innovations toexisting institutional arrangements tends to constrain the degree to which changes will be morerevolutionary than evolutionary. Hence, a conservative dynamic results whereby institutionalchange tends to be evolutionary rather than revolutionary.

Third, access to tangible resources, like money and political clout, is also important. Ifentrepreneurs don’t have access to these resources, then their innovative ideas, no matter howbrilliant, will often fail to take hold and become institutionalized (Aldrich 1999, p. 76). Forinstance, nineteenth century merchants and industrialists in the United States were able to createhuge corporate organizations because they had the resources, including the ability to bribepoliticians, needed to win legal and legislative battles that reduced local business regulation,limited personal liability in the event of bankruptcy, and swept away other political andinstitutional obstacles to the growth of these enormous organizations. Had nineteenth centuryentrepreneurs not been able to change the law, a different set of institutional innovations wouldlikely have prevailed (Perrow 2002).

Thus, while an entrepreneur’s social, organizational, and institutional location affectstheir capacity for creative innovation, they face institutional and resource constraints that affecttheir capacity to make their innovations stick. Recognizing all of this is important becausewithout an understanding of these constraints and how they limit the range of creativeopportunities available to entrepreneurs we could assume incorrectly that entrepreneurs cancreate whatever innovation and bricolage they please, and that institutional change is simply amatter of their individual cleverness.

Fourth, the balance of power and political mobilization among entrepreneurs, competingfor the attention of decision makers, and other actors also affects institutional change. Indeed,political struggles frequently occur over matters of institutional change. For instance, thepolitical and legal battle that occurred during the 1970s in the United States over whethermicrowave telecommunications companies, such as MCI, should be granted access to ATT’slocal telephone exchanges was a protracted struggle over regulatory institutions. Once theseinstitutions were changed and local access was granted, innovations in telecommunicationstechnologies flourished (Bickers 1991). Not only is the process of bricolage, translation, andplanned institutional change a creative one, it is also very much a political process infused withconflict and struggle.

Fifth, and closely related to the preceding point, adoption of an institutional innovationmay also depend on whether powerful external actors in the surrounding environment can coerce

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or otherwise convince local actors to adopt it. For example, the degree to which countries werein debt and, thus, dependent on the IMF, World Bank, and other financial institutions in bothpost-communist Europe and East Asia during the 1980s and early 1990s very much affected thedegree to which these countries embraced neoliberalism or not. Those with great debt burdens orwho had come to rely heavily on financial aid from the international financial community weremore likely to accept the tough neoliberal approach (e.g., Campbell 2001; Wade and Veneroso1998a, 1998b).

Sixth, organizational characteristics may affect institutional change. Scholars have drawnon the policy implementation literature to argue that organizations that are exposed to newinstitutional principles and practices through diffusion are more likely to translate them intopractice if leaders inside the organization are sympathetic and ideologically committed to the newpractice. Translation is also more likely if the organization itself has the financial,administrative, and other implementation capacities necessary to support the new practice(Hironaka and Schofer 2002; Westney 1987; Zald et al. 2002). A similar argument has beenmade about nation-states. In particular, scholars have argued that small states that are especiallyopen to international pressures—both economic and geopolitical—tend to develop capacities thatenable them to respond quickly and flexibly to these pressures—in part by pursuing the sorts ofindustrial policies, noted above, that the United States has not followed (Cameron 1978;Campbell et al. 2006; Garrett 1998; Katzenstein 1985).

In sum, the degree to which innovations are implemented, or not, and, therefore,precipitate planned institutional change that is more or less evolutionary or revolutionary dependson local institutional contexts, power struggles, leadership support, and implementationcapacities. As such, the theoretical approach that I have outlined blends important insights fromeach of the three approaches to institutional analysis, but also corrects for some of theirdeficiencies and modifies some of their arguments.

My theory builds on some of the most important insights that rational choiceinstitutionalists have about institutional change. It accepts that exogenous shocks, which mightinclude things like changes in prices, transaction costs, threats of war, and the like, may providethe initial spark for institutional change. It also recognizes that institutional change is driven byactors that are strategic and goal oriented; that their pursuit of these goals is institutionallyconstrained; and that the outcome of any episode of institutional change depends on conflict,struggle, and bargaining as configured by the distribution of resources among the actors involved. However, my theory modifies and expands upon these insights. For instance, it suggests that theproblems that precipitate institutional change may be endogenous as well as exogenous in origin. It also stresses how the perception of these problems as well as opportunities for change playheavily in any episode of institutional change and that there are key actors—institutionalentrepreneurs—who play central roles in socially constructing these perceptions in the first place. And, it acknowledges that the cognitive dimensions of institutional contexts, especially theparadigmatic assumptions of decision makers, constrain the choices that actors are likely tomake.

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My theory also draws upon some of the core ideas of historical institutionalism. Specifically, it recognizes that the endogenous triggers for much institutional change emergefrom the tensions, frictions, inconsistencies, and contradictions within institutions themselves;that most institutional change tends to be path dependent and evolutionary; and that in order forinstitutional innovations to stick and succeed they need to fit the local economic, political, andadministrative context. However, it improves on these ideas by suggesting how the process ofdefining problems, elaborating possible solutions, and fitting these solutions to local conditionsinvolves much entrepreneurial activity and agency, such as the ability of actors to frameproblems and solutions in convincing ways. It also shows that the process of path-dependentchange stems not only from institutional and other constraints but also from the creative processwhereby actors draw upon the pre-given principles and practices around them and engage inbricolage. In this sense institutions are enabling as well as constraining.

Finally, my theory benefits from the insights of organizational institutionalism. It acceptsthat institutional change occurs when actors try to resolve problems that generateuncertainty—particularly uncertainty over the distribution of resources or power; that relativelymore revolutionary changes are typically associated with the diffusion of new ideas forinnovation into a field of organizations and other actors; that change often involves a process ofbricolage by which actors recombine already available institutional principles and practices thatexist in their repertoires; and that institutional entrepreneurs are central to much of this activity. It also relies on the important argument that institutions consist of cognitive and normativeelements as well as the regulative elements most often discussed by rational choice and historicalinstitutionalists. Yet it expands and modifies some of these notions. Notably, it contends thatthe capacity of entrepreneurs to innovate in evolutionary or revolutionary ways depends on theirsocial, organizational, and institutional locations, which determine the degree to which they areexposed to the diffusion of new ideas for innovation. Furthermore, it holds that the process ofdiffusion includes a critical translation step whereby innovative ideas are fit to local institutionalcontexts in ways that yield significant differences across locations. Lastly, it suggests that thedistribution of resources and power play an important role in determining what entrepreneurs cando.

THE ONTOLOGY OF INSTITUTIONAL CHANGE

Since I developed this argument, several other efforts have been made to document andtheorize institutional change. At issue are the following questions. What exactly constitutesevolutionary or revolutionary change, incremental or rapid change, and so forth? And how do weknow it empirically when we see it? I have reviewed this literature elsewhere (Campbellforthcoming), but one issue is worth addressing here.

Some researchers have argued that institutions are multidimensional sets of formal andinformal rules and procedures so it is important to track all the important dimensions over anappropriate period of time in order to determine how much and what kind change has occurred inspecific cases (e.g., Crouch 2005). In comparative political economy this has led recently to the

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use of quantitative techniques, such as cluster analysis, in order to identify different institutionaltypes of capitalism (e.g., Amable 2003; Boyer 2004). Combining cluster analysis withlongitudinal techniques like event history analysis or interrupted time-series analysis is a way tomore precisely identify the degree to which institutions change over time. The logic of trackinginstitutional dimensions can be used in qualitative as well as quantitative analysis. This is allvery much in line with my approach (e.g., Campbell 2004, chap. 2).

However, another recent approach is to focus on institutional functions. Here institutionsare considered to have changed if the functions they are said to perform shift or are otherwisetransformed (e.g., Streeck and Thelen 2005). But taking a functionalist approach to measuringinstitutional change is fraught with difficulties. First, determining precisely what functions aninstitution performs can be a devilishly tricky business, especially if we take seriously the notionthat some functions may be less obvious than others (e.g., Merton 1967). Second, pickingimportant functions is not always straightforward. There may be much disagreement aboutwhich functional indicators are most important to track (e.g., Hall and Gingerich 2004;Kenworthy 2006), if for no other reason than that selecting the “most important” functions ispartly a normative matter. Third, it is easier to determine the degree to which institutional rulesand procedures have changed than it is to determine the degree to which these changes haveaffected functional performance. This is because it is often hard to determine precisely howmuch institutions rather than other factors affect functional outcomes. Notably, institutionsaffect national political-economic performance, but so do exchange rates, oil shocks, wars,droughts, and more. Fourth, if institutions actually consist of both rules and functional outcomes,then the question becomes how much change has occurred if the rules but not the functionchange, or if the function but not the rules change? Are these two possibilities equivalent orsomehow significantly different? This is a tough question left unanswered.

All of this has implications for contemporary debates about the degree to which capitalistinstitutions are changing as a result of the rise of neoliberalism and economic globalization. Some suggest that national institutions are beginning to converge on a common set of practiceswhile others say they are not. Part of this debate revolves around exactly which institutions arebeing examined. But part of it revolves around whether institutions are defined in terms of theirrules or functions. A review of this literature is well beyond the scope of this paper, but myguess is that those who dwell on institutional functions may find more change than those whodwell on rules (e.g., Campbell 2004; Streeck and Thelen 2005).

In sum, definitions matter. The definition of an institution has major implications forhow researchers can study institutional change and how much institutional change they find. Most researchers would accept that changes in rules and procedures qualify as institutionalchange. I suspect that many would be less inclined to accept that changes in function alsoqualify.

CONCLUSION

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Although progress has been made recently, our understanding of institutional changeremains at an early stage of development. In my view, to advance this project scholars need topay more attention to the actor-centered processes of constrained change in order to avoidexcessive determinism in their arguments. They need to adopt a more theoretically eclecticposition that draws from all three versions of institutional analysis, at least for now, in order tograsp the complexities of institutional change–even if this results in less parsimonious theoriesthen we might prefer. They need to recognize the multidimensional and often contradictorynature of institutions. But they also need to be careful not to reduce the analysis of institutionalchange to an inquiry about institutional functions and performance.

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