Institutional Revolution

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* Book: The Institutional Revolution. Measurement and the Economic Emergence of the Modern World (Markets and Governments in Economic History. Douglas W. Allen. University Of Chicago Press, 2011.


"Few events in the history of humanity rival the Industrial Revolution. Following its onset in eighteenth-century Britain, sweeping changes in agriculture, manufacturing, transportation, and technology began to gain unstoppable momentum throughout Europe, North America, and eventually much of the world—with profound effects on socioeconomic and cultural conditions.

In The Institutional Revolution, Douglas W. Allen offers a thought-provoking account of another, quieter revolution that took place at the end of the eighteenth century and allowed for the full exploitation of the many new technological innovations. Fundamental to this shift were dramatic changes in institutions, or the rules that govern society, which reflected significant improvements in the ability to measure performance—whether of government officials, laborers, or naval officers—thereby reducing the role of nature and the hazards of variance in daily affairs. Along the way, Allen provides readers with a fascinating explanation of the critical roles played by seemingly bizarre institutions, from dueling to the purchase of one’s rank in the British Army.

Engagingly written, The Institutional Revolution traces the dramatic shift from premodern institutions based on patronage, purchase, and personal ties toward modern institutions based on standardization, merit, and wage labor—a shift which was crucial to the explosive economic growth of the Industrial Revolution."


Jeff Jarvis:

" I just read a fascinating book by Douglas W Allen, The Institutional Revolution, which attempts to explain England's transition from its apparently illogical early-modern institutions – aristocracy, purchased army commissions, lighthouses, private roads, even duelling – to modern institutions. And today, we see many of those institutions challenged.

Allen, an economist, argues that in a period when nature – weather, mostly – had a controlling influence on the work of the state, and before authorities had reliable measurements – synchronised clocks, the ability to navigate to longitude, standard units of length – there was no way for the crown to measure the performance of its agents, to "distinguish between shirking and sloth, on the one hand, and chance, on the other".

So they proved their trust through investing in what he calls hostage capital: building large estates, sending daughters to the court, buying army commissions in hopes of earning spoils of war. New means of measurement, he argues, opened the door to more sensible and effective management structures. "[P]rogress," he says, "has been often little more than the removal of randomness in outcomes."

I'm fascinated with Allen's examination of society's institutions – as organisations and as sets of rules – as they adapt to or are made extinct by new technologies. He points out that the transition to modern democratic institutions and bureaucracies was slow and syncopated. "As a result," he writes, "throughout the institutional revolution numerous circumstances would have existed where the old institutional apparatus was inappropriate for the new order of things. This mismatch would have acted as a brake on economic growth … [T]echnical innovations by themselves created institutional problems at the same time they solved engineering ones. Because the institutions took time to adjust, the full benefits of the technical changes took a long time to be felt."

Sound familiar? Allen does not attempt to extrapolate to today – and perhaps I should not. But he does suggest that "an institutional re-examination of the industrial revolution" could "help modern economists in their policy recommendations on matter of current economic growth and development". (Or a lack thereof.)

I wonder how inadequate – or doomed – our institutions are today in the face of new and disruptive technologies, including – to echo Allen – profound new means of measuring behaviour (which upends, for example, advertising, not to mention tracking government performance through its data). It's that kind of question that gets me in the most trouble with people I'll call institutionalists, who defend legacy institutions – journalism, media gatekeepers, the academy, government, et al – against the disruption I sometimes welcome.


Allen sheds no light on what could come next, nor could he or anyone. Instead, he offers a means of analysis. "[I]n the Darwinian struggle between nations, firms, and individuals," he writes, "societies are driven to find institutions that get the job done under the circumstances faced at the time." The issue for society is not affection or disdain for an institution and its traditions but the task at hand. Wishful thinking will not preserve the power of unnecessary old institutions nor make new ones. "Institutions are arrived at in many ways, often by accident or by trial and error."

And so we have begun the process of negotiating new norms and building new institutions, while seeing whether incumbents can adapt. In the face of social services and the means to speak and share and connect anyone to anyone anywhere any time, we are trying out new norms of privacy and publicness, etiquette and rudeness. Governments sense the threat of the internet and try to control it – under the guises of piracy, privacy, decency, security, civility – and contrary forces use the net to challenge their power. Journalism, publishing and education face new, more efficient competitors. #OccupyWallStreet demarcated battle lines between the 1% – the modern aristocracy – and the 99%.

As the aristocrats of Allen's early modern period traded in social capital, so do we today, though we constantly recalculate its source and worth. Just as early modern roads were first maintained and run privately, so today are our early digital roads privately owned, and we are negotiating whether that is best for society. (At the start of the 19th century, Allen says, commerce and civic services "demanded that the roads 'accommodate the traffic, rather than the traffic accommodate the roads'." That is our battle today, eh?) Prior to the institutional revolution, labour was a matter of master and servant; will the current relationship of company and employee continue? And on and on.

In his conclusion, Allen writes:

- Life is filled with examples of institutions that get the job done. Look around. Grand and broad systems such as 'the rule of law' and written constitutions exist, as do firms, churches, tribes, universities, societies and clubs, aid agencies, professional associations, unions, consumer's groups, political parties, condominiums, cooperatives, and so on. But many more informal examples abound of social systems that can be just as binding and often more interesting: families, friendships, social networks, peer pressures, customs, social norms, mores and religious values, and the like. All of these social factors – these collections of economic property rights that affect an individual's scope and ability of decision making – work together to make people behave a certain way: it is hoped in order to create a community that is prosperous, regenerating, and competitive. Not all societies are successful at achieving this end and often institutions are chosen that fail to meet the regularity of behaviour that is desired. Stagnation is common for a period of time, but in the competitive environment of institutions, successful ones often win out." (

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