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Institutional Dissonance and Bridging: A New Perspective on the Relationship between Religion and Development Min-Dong Paul Lee Department of Management.

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Presentation on theme: "Institutional Dissonance and Bridging: A New Perspective on the Relationship between Religion and Development Min-Dong Paul Lee Department of Management."— Presentation transcript:

1 Institutional Dissonance and Bridging: A New Perspective on the Relationship between Religion and Development Min-Dong Paul Lee Department of Management University of South Florida

2 Min-Dong Paul LeeContents Introduction: Does religion matter? Review of recent empirical studies Institutional dissonance oProperty Rights oContracts oMarket Interactions oOrganizational Management Institutional bridging Conclusion

3 Min-Dong Paul Lee Does religion matter for development? Classical social scientists all devoted significant efforts to understand religion and its effect on society and economy Adam Smith Emile Durkheim Max Weber

4 Min-Dong Paul Lee Does religion matter for development? Calvinist doctrine encourages certain values Changes in economic behavior bring about Capitalism Macro Micro Protestant religious doctrine Capitalism ValueEconomic behavior Appropriation of certain kinds of orientations to economic behavior Weber even went as far as saying that Protestant religion had a causal influence on the rise of western capitalism

5 Min-Dong Paul Lee Religion still matters! Until early 1980s, most social scientists assumed religion to be just a fading vestige of pre-scientific times (Iannaccone 1998:1466) Revival of religion everywhere since early 1980s oReturn to traditional faith in Eastern Europe oRapid spread of conservative Islamism oExplosion of Protestantism in Latin America

6 Min-Dong Paul Lee Religion also matters for development! Development goals cannot be achieved without the commitment and willing participation of local actors (Dar and Cooke 2008; Thomas 1996) oMobilizing local actors requires better appreciation and understanding of what is important to the local population. For people who adhere to a religion, it is often the most important thing in their lives. oIn religious societies, religion dictates almost every aspect of a persons life from deciding what to eat and buy to how to interact with others in society. Therefore, it would be difficult fully to understand or facilitate the process of development without considering religion.

7 Min-Dong Paul Lee Studies on Religion and Development 1990s – Revival of academic interest in religion 1.Cross-country analysis of the relationship between religion and economic development oLa Porta, Lopez-de-Silanes, Shleifer, and Vishny (1999): Protestant countries have more effective governments than Catholic or Muslim countries (measured by interventionism, public sector efficiency, quality of public goods provision, government size, and political freedom ) oBarro and McCleary (2003): Religiosity is positively related to economic performance 2.Religions effect on individual attitudes or values. oGuiso, Sapienza and Zingales (2003): religion was positively associated with the development of good economic attitudes

8 Min-Dong Paul Lee Religiosity and Economic Growth Source: Barro and McCleary (2003)

9 Min-Dong Paul Lee A Constant Puzzle Barro and McCleary (2003): strong religious belief (e.g., belief in heaven and hell) was, in general, positively associated with economic growth. However, Islamic countries, with their strong religious belief, have strong negative association. Guiso, Sapienza and Zingales (2003): religious participation improved development performance by increasing trust in government and social capital. However, despite their high level of social capital in the form of trust and economic reciprocity, Islamic societies often fared poorly in economic development.

10 Comparison of Economic Performance between Islamic States and a Selected Group of Countries and Aggregates, Country GDP 2002GDP per capitaGDP per capita annual growth rate %, b US$ (billions)PPP a US$ (billions) 2002 US$PPP a 2002 US$ Islamic States Iran Kuwait Saudi Arabia Egypt Morocco Syria Tunisia Comparison Group Chile South Korea Singapore Developing Countries East Asia & Pacific OECD World Note: a. PPP is an abbreviated form for purchasing power parity; b. Growth rates were calculated by the World Bank using least squares method. Source: Adapted from Askari, Hossein Middle East oil exporters what happened to economic development? (Cheltenham, UK), p. 84.

11 Min-Dong Paul Lee Institutional Explanation Society as an inter-institutional system material symbolic Institutions are material and symbolic systems that not only regulate human activity, but also infuse it with meaning (Friedland and Alford, 1991) Examples of institutions: Capitalism, state, democracy, family and religion Each institution has its own logic that shape individual preferences and organizational interests Institutional logics define the norms and values that structure the cognition of economic actors and provide a collective understanding of how strategic interests and decisions are formulated (Thornton, 2002)

12 Min-Dong Paul Lee Institutional Explanation conditioned by multiple (sometime, competing) institutional logics Individuals perception and interpretation of economic actions are conditioned by multiple (sometime, competing) institutional logics Sen argued that even though different commentators have chosen to focus on particular institutions (such as the market, or the democratic system, or the media, or the public distribution system), we have to view them together, to be able to see what they can or cannot do in combination with other institutions. - Development as Freedom (1999:142)

13 Min-Dong Paul Lee Institutional Explanation For a Muslim economic actor, two dominant institutional logics he/she faces are Islam and Capitalism These two institutional forces exert significant influence on how Muslim economic actors interpret their environment and make choices. Muslim Economic Actor Islamic Institutions Capitalistic Institutions Dissonance

14 Islamic teachings encourages certain economic values Effect on market interaction Macro Micro Islamic religious Teachings Macro economic outcome Islamic business ethics Economic behavior Appropriation of certain kinds of orientations to economic behavior Capitalistic Institutions 1.Islamic religious ideology encourages certain economic values 2.Muslim economic actors construct an Islamic business ethic based on their religious ideology and develop a particular orientation to economic behavior 3.Muslim economic actors perceive and interpret the capitalistic market institutions and various economic interactions through the lens of their Islamic business ethic 4.The resulting economic behavior and disposition determine the extent of Muslim economic actors participation in capitalistic markets and their competitive efforts

15 Islamic Business EthicCapitalistic Institutions Property Rights Inclusive rights Communally-oriented Stewardship (khalifah) Exclusive rights Individually-oriented Ownership ContractsInformal enforcement Conditional enforceability Formal enforcement Absolute enforceability Market Interactions In-group focus Closed network Out-group focus Open network Organizational Management Full liability Ambiguous authority Non-distinction from social life Limited liability Clear authority Distinction from private social life

16 Min-Dong Paul Lee Resolution of Dissonance? Persisting institutional dissonance prevents Muslim economic actors from fully participating in capitalistic economy without jeopardizing his/her social legitimacy Then, what can we do about the dissonance? Traditional remedies oInstitutional reform: replace inferior institutions with superior/ advanced institutions oProblem: superior institutions (often, democratic and rational institutions) also cause unintended dissonance with existing religious institutions oInstitutional reform can result in even counter-cultural movement

17 Min-Dong Paul Lee Institutional Bridging Alternative solution is creation of bridging institutions that harmonize existing institutional dissonances Muslim Economic Actor Bridging Institution Islamic Institutions Capitalistic Institutions

18 Min-Dong Paul Lee Example of Institutional Bridging Islamic Bank Source of Institutional Dissonance oIslamic business ethic: Islamic law does not allows the charging of interest (riba) in borrowing or lending oCapitalism: banking system is a central feature of capitalist economy. Banks facilitate secure and efficient capital flow between savers and borrowers through interests Institutional bridging: Islamic banks oBanking institution without the use of interest (riba) oUse the methods of profit and risk sharing to facilitate financial intermediation oResult: Devout Muslims can save and borrow money (participate in capitalistic economy) without compromising religious belief or loosing social legitimacy

19 Min-Dong Paul Lee Successful Resolution of Institutional Dissonance Rapid growth of Islamic banks: even faster asset growth in conservative Islamic societies (e.g. Iran) Assets held by the world's 100 biggest Islamic banks grew 66 percent in 2008 from the previous year oIn the same period, Asia's 300 biggest banks saw their assets rise by a much slower 13.4 percent, it said. (Asian Banker, 2009) The top 100 Islamic banks held assets totaling 580 billion US dollars last year, up from 350 billion dollars in 2007

20 Min-Dong Paul Lee Implication of Institutional Bridging Promise oCan minimize potential cultural and social resistance to development initiatives oCreates a space where local stakeholder can voluntarily build their own capacity and thrive Broad implications oInstitutional bridging in gender equality: Grameen bank in Bangladesh -> empowerment of rural women by giving them economic role and power through microfinance oInstitutional bridging in education: Educate! program in Uganda -> mentoring of high-school students

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