RULES

Institutions are the rules of the game in a society or, more formally, the humanly devised constraints that shape human interactions. ... They are a guide to human interaction, so that when we wish to greet friends on the street, drive an automobile, buy oranges, borrow money, form a business, bury our dead, or whatever, we know (or can learn easily) how to perform these tasks.

— North (1990: 3–4)

The most famous and cited definition of social institution appears right at the outset of Douglass North's monograph on Institutions, Institutional Change and Economic Performance. North is primarily an economic historian, known for his work on trade and growth in early modern Europe. His writings however have influenced many scholars outside his field of specialization, and for this reason in 1993 he was awarded the Nobel Prize in economics. The conception of institutions as rules is not North's invention, to be sure. Similar definitions can be found in the writings of prominent social scientists of the twentieth century, like Max Weber, Talcott Parsons, and Friedrich Hayek. In philosophy, rule-based theories are equally popular — an original version proposed by John Searle will be discussed later in the book.

The conception of institutions as rules is intuitive, and fits with our pretheoretical understanding of many paradigmatic institutions. Consider marriage for example: the state of being married is associated with several rights and obligations. In most Western countries both husband and wife are responsible for procuring the material resources that are necessary to support the family. They are responsible for their kids' well-being and education. Moreover, they share a mutual obligation to be faithful and to help each other in case of need.

At the level of token institutions these general principles are translated into more specific behavioral rules that govern the division of labor of the spouses in their everyday tasks. Some rules regulate chores ("I cook, you wash dishes"), others regulate child care ("I change nappies, you feed the baby"). Some rules concern finance, others concern sexual behavior, and so on and so forth.

The reason why such rules exist is fairly obvious: they help husband and wife achieve goals that would be difficult to attain if they acted independently. If they both devote a lot of time to cooking, but nobody feeds the children, the kids are going to starve. If they both look after the children but no one goes to work, there will be nothing to cook tomorrow. As an analogy, consider a team of basketball players: if they follow their coach's assignments (he runs, you pass the ball; she defends, you attack) a group of players can hope to win matches and trophies. Without rules, in contrast, they will probably lose every single game. Another example that recurs in discussions of institutions is with the rules of traffic: institutions regulate individual actions in such a way that everyone can benefit from orderly behavior, just like complying with traffic rules is generally beneficial to drivers. Unpleasant events — accidents, jams, disputes — are avoided, or at least their frequency is significantly reduced if we all follow the rules.

Two points must be clarified before we move on. First, the idea that institutions are beneficial is dubious and perhaps even meaningless unless we specify clearly the contrast case: they are beneficial compared to what? Second, that institutions are generally beneficial does not mean that they benefit all individuals in the same manner. It is easy to find examples of unequal or unfair institutions: in traditional marriage arrangements, for instance, women are often burdened with more obligations and fewer rights than men. Similarly, servants are definitely worse off than their masters under the institution of slavery.

The latter example is particularly controversial: how can slavery be "beneficial," given that the institution itself is the main cause of servants' misfortune? The answer is that we are not comparing the welfare of slaves under this terrible institution with the welfare they could enjoy in a more humane institutional arrangement. The right comparison is with the welfare they would enjoy in a noninstitutional arrangement. Historically, slavery has tended to arise whenever the asymmetry of power between two social groups has been so large that one of them could easily exterminate the other. The enslavement of Native Americans in the sixteenth century, for example, was the consequence of the superior military technology, organization, and resistance to diseases of the European conquerors. Slavery thus was "beneficial" to the slaves only in the grim sense that the noninstitutional alternative for Native Americans would have been genocide. So the point is merely that institutions improve people's lives compared to a situation without institutions, in which they behave independently without the guidance of rules. Institutions, in a nutshell, are better than chaos.

This is entirely compatible with the fact that many people might be better off under an alternative institutional arrangement. There is rarely a unique way of regulating our lives. In a basketball team, I might be the shooting guard and you might be the center, or the other way around. In a family, the husband may stay at home and the wife may go to work, or vice versa. Each particular institution — who does what, or who fills which role — allocates burdens in different ways, and consequently some people may prefer one type of institution to another. Occasionally, it may happen that we would all be better off under an alternative arrangement. People sometimes get stuck with bad institutions because they cannot decide to change the rules, or because they are not sure that new rules will be followed, or simply because they cannot see that a better institution is available.

One final remark on "beneficial" is in order before I proceed. The term refers only to the group of people whose behavior is regulated by the institution. Since institutions are often group-specific and exclude many people, it is possible that the benefits they confer to the members of one group are offset by the negative effects they have on the members of another group (the outsiders). A typical case is the Mafia, an institution governed by rules of secrecy, cooperation, obedience that benefit the mobsters but harm their victims. But even legal institutions like the army may have positive consequences for some individuals (the soldiers, the people they protect) as well as extremely negative consequences for others (the enemies and civilians who are killed during a war, for...