As noted above, biological evolution theories infl uenced the old institu-tional school, especially Veblen. Th erefore, it is logical that the interpreta-tion of instituinterpreta-tional changes has an important place in theory. According to Veblen, innovations in the industrial sector demand changes in hab-its of thought and behaviour in the industrial and fi nancial (“pecuni-ary”) sectors, and this usually meets resistance. Nevertheless, institutional changes come about in the form of selective adaptation to technological innovations. Veblen places emphasis on the non-intentional, spontane-ous features of the adaption process, allowing for instances of deliberate design. Institutional change is a continuous process in which institu-tional structures are composed of the habits of thought and behaviour that emerged from the adaptation of the community to the objective circumstances in a previous period. Th is process was coined “cumulative
causation” by Veblen. In contrast with the neoclassical equilibrium theo-ries, adaptation is not necessary, social evolution is an open, not teleologi-cal, process, and its outcome is uncertain and not necessarily a state of equilibrium (Bush 1994 ). Th e views of the old institutional school can be traced in the representatives of the current, new “old” institutionalism, as well as in historical new institutional analyses.
Because the old institutional school became insignifi cant after WWII, interest in changes in institutions was lost as well. Th e modernisation theories of the 1950s and 1960s were concerned with the democratic and capitalist institutions gaining international ground. Th ey expected
“pluralist industrialism”, which evolves under rational, technocratic gov-ernance as a result of the global convergence between the American and the Soviet structures. During the 1960s and 1970s, neo-Marxists wrote about how capitalist institutions would eventually be transformed into socialism. However, the 1970s brought new challenges for institutional systems to face. Th e Fordist model—based on mass production and con-sumption—began to change, the Keynesian welfare state shrunk a bit, and the economy became less regulated. Various countries could meet the structural changes diff erently, which aroused scientifi c interest in institutional reproduction, change, and comparison (Campbell 2010 ; Streeck 2010b ).
Within new institutional economics, changes are usually explained by aspects of effi ciency; due to the deliberate activity of the economic actors, institutional change is considered an effi cient answer to the changes in environment and circumstances. Approaches to dealing with property rights, economic organisations and collective action, are typically in tan-dem with the assumption of rational choice. Authors applying the game theory—similar to the Austrian school—explain institutions as outcomes of interactions between self-interested players. Th is approach relates to the evolutionary and the Austrian tradition, and Hayek regards the insti-tutional changes as evolution, which does not necessarily lead to a state of equilibrium. In particular, Hayek emphasises that changes are unin-tended results of individual actions and that institutions are not the result of design. Th e formation of social norms is not motivated by the desire to produce a social institution; only legislative processes are not sponta-neous. In the functional-evolutionary explanation (based on the legacy
of Hayek), institutions are already selected at the time of their forma-tion—following the analogy taken from biological evolution—according to whether they have a social function (Rutherford 1996 ).
New institutionalists from the fi elds of political sciences and sociology criticise economic theories, showing great propensity for coining these theories of rational choice institutionalism. In their opinion, the state and politics and values and ideologies have not been taken into account.
However, as mentioned in connection with North ( 2005 ), new institu-tional economics has opened up to these issues as well.
New institutional analyses with no basis in economics have been cat-egorised into several trends as well, 5 but a detailed description of these trends is not within the scope of this work. Hereinafter, the term “histori-cal new institutionalism” will be used exclusively because it is the most frequently mentioned approach in connection with comparative analy-ses. Institutionalists with backgrounds in sociology and political science trace the changes in institutions to several factors. A direction of research is concerned with the diff usion of the western institutional practice, which may manifest in three diff erent ways. Organisations may adopt normatively appropriate solutions or mime and copy the best-performing institutional practice, or it may be that international organisations coer-cively impose such practices on countries (Campbell 2010 ). However, confl icts and power struggles are considered even more important for the explanation of changes of institutions, and several economists have included this signifi cance in their theories (for example, Amable 2003 ; North 2005 ).
In addition to the reasons why institutions change, the mechanisms of these changes and transformations are investigated as well, with special regard to the incremental changes that lead to the transformation, that is, the changes in institutions in time. Historical new institutionalists seem particularly enthusiastic about this topic. I will draw attention to those approaches that—according to the leading scholars of the school in ques-tion—are the most widespread. Streeck and Th elen, based on their obser-vations, distinguish four types of transformations. By displacement, they mean that a new institutional model appears to replace the old one. When new institutions—which may have a transformative eff ect—are inserted into old ones, they speak about layering. Conversion occurs when an old
institution is redirected to serve new aims and functions. In the case of a drift, an old institution is neglected purposefully (Streeck 2010b ; Th elen 2010 ). Campbell ( 2010 ) notes that the transformation of institutions often means that institutional principles and practices rearrange and recombine in a new and creative way, which has been termed “bricolage”.
If new elements are added to the existing institutional arrangement, it is termed Campbell “translation” because new elements often have to be modifi ed in order to blend properly with the old institution. Th e former is similar to layering, as seen in the above categorisation, and the latter to conversion.
In order to be able to understand institutions, it is essential to have an explanation of their transformation and for their continuity. As shown above, Veblen was interested in this problem. Currently, the greatest infl u-ence is attributed to the path dependu-ence theory of North, according to which past events and decisions appearing in institutions may persist for a long time and may restrain actors’ potential decisions for the future.
As in other cases, when institutional constraints are taken into account, the path dependence theory also involves the risk that actions and deci-sions of actors are considered predetermined. North avoids this trap;
however, the change can occur in an incremental, evolutionary manner, and adaptation can begin only at the margin of the institution (North 1990 , 2005 ). Path dependence is interpretable for evolutionist authors as well (Nelson 1995 ). A version of path dependence theory has developed within historical institutionalism, in which arguments taken from politi-cal science and sociology are applied to underline why institutions are resistant to change (for example, political institutions have high start-up costs, politicians deliberately introduce processes that would be diffi cult to change, knowledge is accumulated with the given institutionalised policy style or decision-making approach, given practices are taken for granted by the actors, and so on). Institutional complementarity and the presence of social-political coalitions are among the important explana-tory factors. Some authors try to explain the changes that may emerge despite path dependence, such as situations where exogenous shocks and crises disrupt the status quo (Campbell 2010 ).
Th e study of the relations between institutions is especially important in comparing institutions. Institutionalists seem to agree that economies
are functioning in a complex institutional environment and, as a result, economic actors, if they want to make any changes, may choose from dif-ferent institutional principles or practices. Nevertheless, opinion seems to be divided regarding the question of whether institutional diversity makes hybrid solutions possible, stimulates institutional innovation, or complementarity restricts the sphere of solutions, at least the effi cient ones.
Th e second standpoint—that certain institutions complement each other and therefore occur together—is a widely accepted idea in com-parative institutional analyses. Complementarity has been explained in several ways. Coexisting institutions may complement each other’s defi -ciencies and handicaps. Others interpret complementarity as a kind of similarity. Complementary institutions encourage economic actors to show similar behaviour and reinforce each other’s eff ects. Another conse-quence is that hybrid institutions show worse performance. Economists explain complementarity—by applying the game theory—in such a way that the co-existence of certain institutions creates stable models by mutually reinforcing each other. Crouch ( 2010 ) points out that the concept of complementarity has several errors. One of them is that the complementarity of institutions is often linked with economic success, but in reality, it is exactly their stability (that derives from the comple-mentarity) that may worsen their ability to change. Another—and more severe—problem is that the number of market economies that can be compared is too small to be able to make a defi nite statement about the strength of interconnectedness between the institutions, and their co-existence in itself is not informative: their causal relationship and the direction of it are unknown.