How Do Institutions Shape Society?

The economist Douglass North described institutions as "the rules of the game in a society" — the humanly devised constraints that shape interaction. Some are formal: constitutions, laws, school timetables, employment contracts. Others are informal: customs, expectations about gender roles, ideas of what counts as success, unwritten rules about who speaks in a meeting.

We are born into institutions we did not choose, and they often feel like the natural order of things. Recognising them as human creations is the first step toward understanding — and improving — them.

Research in economics, sociology and political science has documented many ways institutions influence outcomes. Secure property rights, functioning courts and accountable governments are associated with long-run economic development in many cross-country studies, though scholars debate the direction of causation and the role of other factors such as geography and culture.

At a smaller scale, simple changes to institutional defaults — for example, automatically enrolling employees in retirement savings schemes while allowing them to opt out — have been shown in several countries to increase participation substantially.

A common mistake is to explain every social problem by the character of individuals — corrupt officials, lazy students, greedy businesspeople. Character matters, but institutions shape what is easy, rewarded or punished. A well-designed institution makes it easier for ordinary people to act well; a poorly designed one can make even good people act badly.

The reverse is also true: institutions are made and sustained by people. Values, understanding and courage in individuals are what eventually change institutions. An integral view holds both together.

Thinkers differ on how institutions should change. Some emphasise gradual reform and the wisdom embedded in long-standing traditions. Others emphasise that many institutions entrench inequality and require more fundamental change. Some see markets as the most effective institutions for coordination; others stress the role of the state, the community or the commons.

Elinor Ostrom's research showed that communities can sometimes govern shared resources effectively without either privatisation or central control — complicating simple debates between "market" and "state."

Choose an institution you are part of — a school, workplace, housing society or family — and ask a few questions.

• What are its written rules? Its unwritten ones?
• What behaviour does it reward, and what does it punish?
• Who can change its rules, and how?
• What outcomes would you like it to produce that it currently does not?