This chapter begins by defining ICs and their negative and positive dimensions. Then comes the definition of systemic governance and institutional fragmentation. The chapter ends with an explanation of the institutional trap.
1.1 Institutional Complementarity: Negative or Positive?
Institutional complementarity (IC) is used as an analytic concept principally in the literature of comparative political economy (PE) in order to explain the varieties of capitalism. In this literature, ICs are suggested to originate in the fact that the viability of an institutional form is strongly or entirely conditioned by the existence of several other institutional forms such that their conjunction offers better performance and greater resilience than alternative configurations (see Hall and Soskice 2001; Aoki 1994; Höpner 2005; Amable 2000: 659). In doing so, ICs generate two types of externalities . The first is synergy. For example, short-term finance, a corporate structure that concentrates authority in top management positions, and low-cost hiring and firing are, inter alia, three major ICs of the shareholder model of capitalism that is typically represented by the United States and United Kingdom. Top management in this model is thus able to adjust the labor demand of a firm according to changing market demands and operational costs. The second is supplementarity âin which one institution makes up for the deficiencies of the others, such as the offsetting of the vicissitudes of a highly liberalized labor market through strong familial supportâ (Deeg 2007: 613: Crouch 2005).
ICs make sense essentially in the strategic convergence of a set of intersections for the realization of certain formal or informal aims. Thus, in systemic terms, the theory of intercomplementarity enables the analyst to shed light on the holistic equations of a PE regime. It is within this context that Boyer (2006: 57) defines intercomplementarity as âone of the factors that provide the glue that holds together an overall institutional architectureâ. Despite gaining strong impetus over the past two decades, however, there remains a systemic gap in the literature on ICs that precludes making a complementarity theoretic analysis of G&D from a systemic perspective. It relates to the fact that ICs are taken for granted as an exclusively positive phenomenon assuming that the existence of ICs always underlies better performance and greater resilience. For example, following Aoki (1994), Hall and Soskice (2001: 17) argue that âTwo institutions can be said to be complementary if the presence (or efficiency) of one increases the returns from (or efficiency of) the other.â Underlying this is the positive connotation of the term complementarity, which is defined as ârelationship or situation in which two or more different things improve or emphasize each otherâs qualitiesâ by the Oxford English Dictionary.
An exclusively positive delineation of ICs, however, bypasses negative ICs and hence turns out to be a partial rather than a systemic analysis. In G&D terms, the positive and negative here refer, respectively, to ICs that contribute to the formation and consolidation of economic efficiency, industrial sophistication and social equity or economic inefficiency, industrial leisure, and social inequity . Such a distinction does not mean that any institution can be suggested to generate a fully positive or fully negative influence from a functionalist perspective. Instead, the influence of each institution can be classified into one of these categories to varying degrees. What makes us classify its influence as negative or positive is the center of gravity of that influence on the systemic conduct of an institutional stock.
In this book, the following two suggestions are made to extend the scope of a complementarity theoretical analysis to an overall stock of developmental institutions. The first is that there are likely to be NICs in a PE structure that cause it to perform worse than alternative configurations. For example, the institutional systems of the Gulf countries are, inter alia, made up of four major NICs. The first is an authoritarian ruling strata financed through the incoming export revenues of primary commodities, fuel, and gas. The second is extensive and indiscriminate subsidies provided by the state to a leisure business class such as the free or below-cost provision of government services (utilities, transportation, sector-specific inputs) and low petroleum prices and subsidized long-term loans. The third is overvalued exchange rates due to the phenomenal current account and budgetary surpluses, causing the Dutch disease. And the fourth is social benefits and subsidies provided to public as the sources of regime justification such as extremely low level of direct or indirect taxes, housing, health, education, electricity, water, and fuel. These four major NICs turn into a negative synergy prompting a positive-sum leisure among state, market, and society in these countries; sentence their economic development to low-value-added (petroleum related) primary products, such as rubber and plastic products, along with food and chemical goods; and, as a result, cause the region to be the least industrialized among the developing regions along with the sub-Saharan Africa (Askari 2006; UNDP 2011).
The second relates to the fact that NICs and PICs should be analyzed together to pin down how an institutional system works. It is not PICs or NICs per se but the overall clustering of both that determines how it works. For example, the state-led models of South Korea and Taiwan, during their developing or takeoff periods in roughly the 1960s and 1970s, essentially followed a PICs-dominated model. These PICs ranged from meritocratic, entrepreneurial forms of bureaucracy and well-functioning governance or deliberation councils between public and private sectors in managing industrial evolution to a gradual export-led industrial policy and patient money led by state banks for private investment in strategic, innovative and high-tech sectors, and so on. Beside these well-known PICs, both regimes included a number of NICs, too, such as the exclusion of pluralistic democracy , the suppression of organized labor, and the severe degradation of the environment (Wade 1990; Shin and Chang 2003).
These countries managed the evolutionary complications of their PICs and NICs using the former as a means of justifying the latter. Beyond any doubt, authoritarianism of any kind cannot be justified by any means. Because the people of these countries incurred unbearable costs of those NICs for a long period of time. In this sense, our point here is not that political authoritarianism would become a source of economic efficiency but that economic efficiency can be ensured under those authoritarian regimes that adopt a PICs-dominated systemic governance. These countries did so through authoritarian entrepreneurship as a mode of systemic governance, which mainly drew upon two managerial pillars. The first involved the authoritarian steering of production and distribution to establish workable mutuality between governmental development commitments and bureaucratic autonomy, protectionist liberalism and the innovative discretion of private enterprise, and political pressure and progressive wealth sharing. The second involved the optimization of developmental sequencing and timing between state entrepreneurial guidance and private enterprise-coordinated risk-taki...