One of the reasons I quoted that passage by
Douglass North is because it mentions political entrepreneurship. I went
looking for a quote from North in Institutions, Institutional
Change and Economic Performance because I was particularly impressed by
that book when I first read it about 30 years ago. (The quoted sentence appears
on page 87.)
As defined by North, institutions are “the rules of the game of society” that shape human interaction. He argued that formal institutions—such as constitutions, laws, and regulations—make up only a small proportion of the sum of constraints that shape choices. Informal constraints include codes of conduct, norms of behavior, conventions, and customs. They may be internalized in personal values, rather than imposed by others.
North acknowledged that political entrepreneurship
plays a role in institutional change. He doesn’t have much to say about political
entrepreneurship, but his analysis implies that political entrepreneurs may
play an important role in reducing transactions costs associated with institutional
change.
Path dependence and institutional stickiness
The transactions costs of institutional change are
high because of the path dependence of institutions. As institutions evolve,
ideologies tend to evolve to support them. Organizations and interest groups that
have grown up under existing institutions often have a stake in maintaining them.
The most important point I had remembered from
reading Institutions … is that countries with similar formal institutions
– constitutions, property rights etc. – can have vastly different economic performance
outcomes if informal institutions (cultural settings) are different. Governments
and international agencies that have sought to transplant formal institutions to
foreign countries have been slow to recognize that point.
The implications of path dependence have been further explored by Peter Boettke, Christopher Coyne, and Peter Leeson in “Institutional Stickiness and the New Development Economics”, Chapter 6 in Culture of Economic Action, ed. Laura E. Grube and Virgil Henry Storr (2015). The authors contend that the ability of a new institutional arrangement to take hold when it has been transplanted depends on that institutions status in relations to indigenous agents in the previous time period. They suggest that institutional transplants are unlikely to stick if they are inconsistent with indigenously introduced endogenous institutions.
The analytical
framework used by Boettke et al is also relevant to considering the challenges faced
by endogenous political entrepreneurs in bringing about institutional change.
Entrepreneurship
(political and economic)
As
discussed recently on
this blog, political entrepreneurship has characteristics that differ from economic
entrepreneurship. I suggested that it might be reasonable to assume that
political entrepreneurs are motivated largely by the satisfaction they obtain
from constructing ideological narratives and selling them, and from exercising
the political power required to implement policies.
Nevertheless,
there are similarities between political and economic entrepreneurship that
become apparent when economic entrepreneurship is considered in a cultural
context. In his article, “The discovery and interpretation of profit
opportunities and the Kirznerian entrepreneur”, reproduced as Chapter 3 of Culture
and Economic Action (cited above), Don Lavoie writes:
“Entrepreneurship necessarily takes place within culture, it is utterly shaped by culture, and it fundamentally consists in interpreting and influencing culture.” (p. 50)
He
suggests:
“entrepreneurship is the achievement not so much of the isolated maverick who finds objective profits others overlooked as of the culturally embedded participant who picks up the gist of a conversation.” (p. 51)
Later, he observes:
“Most acts of entrepreneurship are not like an isolated individual finding things on beaches; they require effort of the imagination, skillful judgements of future costs and revenue possibilities, and an ability to read the significance of complex social situations.”
In the following
chapter of Culture and Economic Action, Virgil Henry Storr and Arielle
John suggest that rather than viewing Lavoie’s contribution as a critique of Kirzner’s
theory of entrepreneurship it is more appropriate to view it as a suggestion as
to how that theory may be fruitfully amended. The amendments suggested by Lavoie
seem to me to make the role of the economic entrepreneur seem similar in some
respects to the role of a political entrepreneur.
Max Weber’s
understanding of political entrepreneurship
Douglass
North seems to have given minimal acknowledgement of Max Weber’s work as a
social theorist, even though there was considerable overlap in their areas of
interest. Francesca Trivellato has noted that in one
publication North does refer to Weber as a scholar of “the role of belief and
values in shaping change”. Weber is, of course, most often remembered for his
theory of the Protestant ethic but he also made other important contributions.
Weber’s writings on charismatic and demagogic
leadership shed some light on the nature of political entrepreneurship in
democracies. The following points summarize an article by Xavier Márquez, entitled “Max
Weber, demagogy and charismatic representation”, published in the European
Journal of Political Theory (2024).
- Weber argued that effective leaders must be able to fight for ‘causes’ beyond the narrow immediate interests of economic groups or party organisations and thus to struggle against the impersonal forces of bureaucratization (the subsumption of politics under bureaucratic and technical imperatives). Effective leaders must therefore have a charismatic form of authority – the only form of authority capable of overcoming the constraints of organisation, legality and tradition.
- The need to appeal to mass publics in modern democratizing societies selects for leaders who have a talent for mobilising large groups of people through rhetorical means. In the context of mass politics, charismatic authority manifests as demagogy. Weber thinks of the masses as unorganized and irrational and argues that even ‘democratically’ elected leadership is a form of ‘dictatorship which rests on the exploitation of the emotionality of the masses.
- Weber's praise for charismatic and demagogic leadership is tempered by the worry that political leaders must also be responsible. This is so in a twofold sense: objectively, a political system must be able to hold leaders accountable for their actions; and subjectively, leaders must display an ethics of responsibility, and thus be able to ‘take responsibility’ for their actions.
- Elections formalize the recognition of charisma. If charismatic leaders capable of mobilizing and representing broad masses will tend to arise in any case, it is better if the recognition of their charisma is subject to periodic formal tests rather than informal, extra-legal events.
- Charismatic authority in the broadest sense tends to appear in moments of deep, even existential crisis, where the charismatic leader performs a ‘miracle’ for a group that feels otherwise impotent and deeply threatened, and can sustain itself only when the leader can provide such ‘miracles.
- The charismatic demagogue produces a wondrous or miraculous representation of the people as a charismatic community but also a ‘wondrous’ representation of himself.
- Weber argues that charismatic leaders must provide evidence of benefiting their charismatic community if they are to retain their authority. The implicit ‘bargain’ between leaders and followers that exists even in cases of strong charismatic authority allows us to speak of a degree of accountability and influence.
- Instead of distinguishing between the ‘mere’ demagogue and its antithesis, the statesman, in terms of whether or not they deceive the demos or act for the common good, Weber stresses the ethical distinction between the politician who is responsible for their cause, and thus capable of intentionally and rationally directing state power towards its achievement (in what is, strictly speaking, a value–rational way), and the politician who is not.
- Lack of objectivity (wishful thinking, extreme overconfidence, ignoring inconvenient information) in assessing a situation leads to irresponsible political action, insofar as it leads to a misunderstanding of the means necessary to achieve particular ends and the physical, social and political constraints on the use of such means. All leaders are susceptible to these vices, but the situation of the charismatic demagogue, surrounded by adoring followers and capable of summoning the adulation of crowds, makes these vices extremely common occupational hazards.
- Weber hoped that training in committee or party work would hone the political judgement of leaders so that they would be more likely to see the consequences of their decisions and to take responsibility for them.
Márquez argues that Weber's conception of charismatic
authority allows some demagogues to play a genuinely
democratic role in modern societies when viewed through contemporary theories
of representation. He suggests that a Weberian analysis of democracy points to
the need for strong accountability mechanisms and for institutions that
socialize potential leaders into productive habits of adversarial conduct and
responsibility, while preventing easy ‘buck passing’.
Márquez observes that although Weber provides a stronger
sense of democratic possibility than did Joseph Schumpeter, he is very much the
ancestor of the ‘minimalist’ model of democracy that Schumpeter first
articulated explicitly in Capitalism, Socialism and Democracy. (I wrote
about Schumpeter’s model of democracy here
in 2012.)
Directions of future research
This essay is the second in a series in which I am
attempting to obtain a better understanding of political entrepreneurship. The
first essay can be found here.
My next step is to read Robert Faulkner’s book, The Case for Greatness (2007). I am wondering whether the ancients thought it was possible for a charismatic demagog to also be a "great-souled" leader who is keen to promote liberty and opportunities for individuals to flourish.
After that, I will consider how the concept of political entrepreneurship fits in with modern public choice literature.
Summary
and Conclusions
This essay briefly
considers the context in which political entrepreneurship is most relevant, some
similarities between economic and political entrepreneurship, and the role of
charismatic and demagogic leadership in political entrepreneurship within
democracies.
The essay
begins by considering the role that Douglas North saw for political
entrepreneurship in bringing about institutional change – i.e. change in the
rules of the game of society. Political entrepreneurship is required to overcome
high transactions costs of change that arise from the path dependent nature of
institutions. Building on the concept of path dependency, Peter Boettke,
Christopher Coyne and Peter Leeson developed an analytical framework to
consider the consequences of institutional stickiness for foreigners engaged in
institution building exercises that seek to transplant institutions from one country
to another. That framework is also relevant to considering the challenges faced
by political entrepreneurs seeking to bring about institutional reforms in their
own countries.
The essay
then turns to consideration of the relevance to political entrepreneurship of Don
Lavoie’s view of economic entrepreneurship. Lavoie suggests that entrepreneurship
takes place within culture and is concerned with interpreting and influencing
culture. He makes the role of the economic entrepreneur seem similar in some
respects to that of the political entrepreneur.
The other
major topic considered in the essay is the contribution that Max Weber makes to
our understanding of political entrepreneurship through his writings on charismatic
and demagogic leadership. Weber makes the case that charismatic and demagogic leadership
may be required to overcome the impersonal forces of bureaucratization within
democracies. He also sheds light on the circumstances in which demagogic leadership
can be consistent with democracy.
North and Weber both add to our understanding of the role of the political entrepreneur in overcoming obstacles to institutional change. However, the fundamental question that both leave aside is how to ensure that institutional change enhances liberty and opportunities for individuals to flourish.
Addendum
Do ideas play
a larger role than interests in bringing about institutional change, or is the
opposite true? Prominent economists have been associated with opposing views on
this question. Keynes and Hayek emphasized the role of ideas; Stigler and
Becker emphasized the role of vested interests.
Perhaps the
respective influence of ideas and interests depends on the narratives
constructed by political entrepreneurs. The role of political entrepreneurs in
constructing narratives has been discussed briefly in an
earlier essay.
Some recent
research suggests that political entrepreneurs discover “memes” (narratives,
cues, frames) that invoke voters’ identity concerns (interests) or shift their
ideas about how the world works. (Ash E, Mukand SW, Rodrik D, Economic
Interests, Worldviews, and Identities: Theory and Evidence on Ideational
Politics , Research Paper, May 2024). The authors identify a potential
complementarity between worldview
politics and identity politics and illustrate how they may reinforce each other. The authors develop a model
which predicts that adverse economic shocks will lead to a greater incidence of
ideational politics in affected regions. The results of empirical work using
televised political ads seem to be consistent with their model predictions.
Further Note
Readers may also be interested in a later series of essays on political entrepreneurship.
