Institutional isomorphism vs. the free market
DANA BENCIKOVA – DAVID COLE
A pure capitalist society is predicated on neoclassic theory. This theory is based on the rational expectation that people try to maximize their utility and firms try to maximize their profits while everybody does this based on the available information. In other words, people know what they want, they will try to do their best to achieve their desires with the minimum amount of effort, and at the same time companies will try to make the most amount of money from their customers. However, this theory ignores the influences of non-market institutions on society. People do make decisions that can be counter-productive to themselves, to society, and to future generation. The answer to what drives people to make those decisions lies in their social and cultural background and can be looked at from psychological point of view.
In our research we are trying to find out what preferences young people have concerning their future careers and determine reasons for those choices. Based on a survey conducted among students of Faculty of Economics, our paper demonstrates how certain institutions become so strong that the entity itself becomes more important than the task the institution was originally purported to serve.
Keywords: embeddedness, Mathew effect, over-socialized conception of man
1. Introduction
In our hyper-competitive world we can assume that people are motivated by their self-interest.
This self-interest is rooted in neo-classic theory which states that people have rational preferences among outcomes, individuals maximize utility and firms maximize profits and people act independently on the basis of full and relevant information (Weintraub 2002). If this situation was true, more people would be making decisions that would result in greater access to material gains. In other words, people would choose occupations and places to live that would give them more money, thus entitling that person to a greater stature based on income.
Economists and human beings in general desire predictability, i.e. ups and downs should follow the path of a near-perfect sine wave. Decisions should be made on rational outcomes. Unfortunately, this rarely happens. The following antidote illustrates the point.
One day, during a conference, a high level education official was extolling the values of higher education and its absolute necessity in life when a tenured university professor asked:
“If that were true, then why does my plumber make so much more money than me?” One could ask: if plumbers were so highly paid, then why does nobody want to be one?
It needs to be noted that there is no such thing as a pure free market. Non-market influences need to be considered. These influences usually reside in the established institutions of a society, such as government, church, family, and culture. If the theoretical pure free market existed, people would make more rational choices based on Darwinist principles, i.e. survival of the fittest. In today’s society it is not only important to be successful; it is also important to be successful within the institution.
Our theoretical plumber may be making a lot of money. With this money he would be able to afford a higher living standard that could afford him the higher status. Unfortunately for him, the fact that he is a plumber keeps him in a lower ranking because of the perceived lower ranking in society. Money and material gains have only a limited effect on status.
In Slovakia, as in all other post-socialist countries under the influence of the former Soviet Union, the common worker was given a strategic place in society. Workers were given
top status. The collapse and utter abandonment of this model in 1989 was so extreme that a schism developed between old and new. The old way was bad and should be shunned while the new ways to success can be found in concepts from the west.
2. Embeddedness and post-transitional states
All individuals in a society have certain allegiance or cultural expectation to society. In former social, aka communist, times, the allegiance was often enforced by fiat or decree. This extreme form of socialism meant that society had a broad-based level of inclusiveness. In other words, most people were in the same boat together. Some extreme forms of free-market systems have a much looser alliance with the state as a whole. This leads to stratification in society where the members break down into exclusive groups. Each group feels less beholden to other groups in society. For example, those who live in gated communities have less sympathy for those outside of these communities.
This can be described as societal embeddedness. The concept of embeddedness, championed by Mark Granovetter (1985), states that we are embedded in our society and thus are compelled to do its bidding. He went on to describe a condition in which non-market societies are less embedded than the market oriented ones, e.g. members become embedded in the market-oriented society, not the social ones. Broad-based embeddedness has given way to a more focused, more limited embeddeness with stronger ties to the environment in which they belong. As society becomes more embedded into the market oriented structure, people become more sensitive to the views of others. Those outside of this embedded society are looked upon with distain.
The sensitivity to others was addressed in Sociologist David Wrong’s book The Oversocialized Conception of Man (1999). He stressed that people are “overwhelmingly sensitive to the opinions of others and thus are obedient to the norms and dictates of society”
(Wrong 1999). This sensitivity leads us to achieve a perceived higher status, not necessarily money. Our theoretical plumber remains unloved even though he is successful and performs a necessary duty to society.
In the transitional economies of central Europe, a condition had risen where the actors in society are torn between two systems: one that promoted a broader concept of society and the other that promoted a tiered system based on higher status. This has lead to the abuse of the institutions on the broader level in order to achieve a higher tier in the neo-classic sense; a classic utilitarian approach. This condition resembles the parable illustrated in Garret Hardin’s Tragedy of the Commons (1968). In this story, ranchers all share a common plot of land upon which to graze or feed their livestock. Since no one controls access to this land, it is in everyone’s self-interest to over-exploit this freely available resource without protecting its sustainability. In the end, the pasture is completely destroyed and thus benefiting no one.
The dual embeddedness creates a condition where institutions rooted in the former socialist system are exploited to the point of collapse by the new vanguards of the free market.
Yet, this same social network is expected to be there anytime it is needed. Loyalty to established institutions is weak.
3. The weak links between citizenship and country
Nationalism is often associated with racial tendencies and xenophobic notions however there has been no good single definition as to what is “nationalism.” This term is often used to describe a range of negative attributes and often given to people who are considered, in one way or the other, lower class and in Europe, white. Because of Europe’s torrid history of negative events that cumulated with World War II, it was seen that the path forward for a
scientist George Will (2010) noted, “… since WW II, European elites have been convinced that the continent's nearly fatal disease was nationalism, the cure for which must be the steady weakening of nationalities …”. On the other hand, the EU government has a dual purpose of both promoting national identity and European unity making it difficult to define what appropriate nationalism is. Is patriotism a good thing or is it only for the blindly ignorant?
The wide differences in pay between east and west compel citizens from the East to seek material gains in the west. The high tech economies of Western Europe need a supply of labor to perform menial task. Before the collapse of the iron curtain this labor force was grudgingly supplied by people from Islamic or African backgrounds. Then, in 1989, all of this changed within the blink of an eye as the iron curtain collapsed. So unexpected was this change that no one could imagine that this was even possible. Suddenly, a new source of labor could be obtained, a source that had three common factors: being white, European, and good looking. The latter of these factors cannot be dismissed as trivialness of aesthetic qualities, though hardly discussed, is one of the most important aspects to acceptance. Never before have immigrants been greeted with such open arms.
This acceptance of immigration along with its promotion by the EU governing body has in fact turned citizens of Central Europe into free agents. For the purpose of this paper we can define a free agent as a person who feels little to no loyalty to society either on a local, national, or even a family level. The free agents look to maximize their own utility for themselves and maybe for the immediate family. They have no qualms with receiving benefits from the public but feel no loyalty to give back to society unless, again, it is maximizing their utility. Consider the following conflicts in Slovakia:
Table 1. Free agent conflicts in Slovakia (text table)
Entitlement Conflict
A person gets a free education from the state.
Yet, the person goes to another country to work and earn a higher wage than at home, denying the home nation the fruits of the education A person working in another country does not
pay into the social insurance in his home country.
Yet, it is expected that the grandparents still get a pension and people with special needs, i.e. the handicapped, get their care.
A person receives inherited property from parents or grandparent.
Yet, he feels no need to maintain the property and there is little incentive to divest the property A person can work on special contracts where
legally no social insurance is collected. Yet, he fully expects a pension upon retirement The capital city is expected to be the showcase
of the nation and the seat of prestigious government jobs.
Yet, this showcasing causes a transfer of wealth from all parts of the nation to the capital city.
Source: own construction
4. The importance of status
With the change from socialism to capitalism came a change in the notion of status. The cold war was a contest of ideas especially in Europe. Communism did not die in a hail of bullets but through utter humiliation with the victors being the west, and thus the new paradigm for living is based on western concepts of success. This includes big cars, houses, typical family arrangements, and white collared or service oriented jobs.
With communist mentality, the images of success can be found in the factory. Tall chimneys and smokestacks dotted the country with symbols of production. Most of these symbols today lay in total ruin; a reminder to all in the local community of the failure of their mission. The pride of craftsman was replaced with the concept of cunning. There is a
perception that “dirt” is evil. With technology, the perception is that modern industrialized nations are built on “clean” jobs. Financial services surpass manufacturing. We began to lose our fascination with the way things were getting made and instead focused on the way things are getting bought (Rowe 2010). Thus the new institutions and high status are clean jobs which are mostly found in the big cities. The hallmark of success is a white shirt and a tie. In other words, selling, buying, and financing things is more important than creating and making things. A work bias has been created on the idea that desk jobs are superior to trades jobs.
Status is not on what you create but how you finance it.
5. The isomorphic institutionalization of the desk job
The view of work today has become myopic with only one type of work being considered.
With young adults in University training this work tends to focus on desk jobs and office work environments; the “desk jockey.” Thus the concept of work has changed into a form of institutional isomorphism; a process where one institution becomes so strong, all other institutions evolve and adopt the same strategy (Dimaggio–Powell 1983).
In all societies, there has always been tension between blue-collar and white-collar workers as which provides the better form of utility, i.e. which would provide the greatest form of satisfaction. The white-collar worker has always had the upper-hand through higher status and cleaner environments, but the unwritten rule was that white collar workers needed a certain higher cerebral finesse in order to succeed. In other words, the white-collar workers had to be smarter. As Eastern Europeans looked westward for insight, inspiration came in the form of the steel and glass churches of western culture; Wall Street and Canary Wharf for finance, Brussels for Government, Prague and Bratislava as gatekeeper cities to capital, i.e.
money. So big were the opportunities that most anyone could find a starting point for climbing the ladder of success; or so it was thought.
As young people pursue career paths, they often seek the path of least resistance. The desk jobs in its many forms have appeal to the young as it is seen as the way to achieve the necessities in life. The paths forward to success all lead to the same desk job, thus morphing the status of success. The gleaming towers of the big city with many office workers become the ultimate status symbol. Thus an institutional morphing of work is fully entrenched into the desk job environment.
If this is not immediately achievable, then an alternative can be found through temporary immigration to another country for higher incomes. Not only can more money be obtained, but also language skills, especially in the form of English, can be used as a competitive advantage upon return. Unfortunately for most graduates, the jobs being offered by the host countries are lower skills, leading to a degradation of the skills learned in Universities. A period of “arrested development” occurs, leading to post-adolescent atrophy and indecisiveness at the very time that family planning should begin.
6. The imposition of the public sector
Neoclassic theory states that imbalances should be short lived. A rebalancing based on supply and demand will bring greater rewards to the things that are in short supply. For example: the plumber gets a higher wage for his rare abilities as the office worker’s compensation is deflated as too many workers seek that position, but not all work resides in the private sector.
The non-profit motivation of the public sector, i.e. government bureaucracy in its many forms, helps to facilitate the white-collar environment. In other words, rules and regulations tend to beget more rules and regulation creating more white-collar work in gleaming glass towers. In Eastern Countries this creates a symbiotic and parasitic relationship between the capitalist and
− Large corporations tend to locate themselves in capital cities (Bratislava, Prague, Budapest, etc.) in order to get access to the government (especially since the government may be one of the biggest clients).
− Government agencies tend to cluster around the capital since their clients (the large corporations) are also located there.
− The conditions of the big city require rules to help regulate the problems of such a large cluster. These rules are applied uniformly across the country even though they are only necessary in large metropolis. These same rules could be detrimental to smaller cities and rural areas, thus creating a condition were more people will move to the capital.
Bratislava, as a gateway to the rest of the country has become the center of this magnet.
As a gateway to capital, it is like the New York City for the nation. As the seat of government, it is like Washington D.C. And as the center for car production, with Volkswagon and Peugeot located close to Bratislava and Kia just up the road in Žilina, it is like Detroit. For such a small country as Slovakia this is too much activity in one location.
According to a survey by Mercer, an HR company, Bratislava is the 57th most expensive city in the world, down from the 37th most expensive city last year. Still, young people tend to flock to this area as it is seen as a stepping stone to a rising living standard.
7. The Research
In our research, we wanted to measure the current trend and mind set of young people who are planning their adult lives in the University System in Slovakia. We have conducted two preliminary tests at the Faculty of Economics, Matej Bel University in Banská Bystrica, Slovakia. A series of three studies were performed to measure the students’ future intention of migration, family planning, and material acquisition. All tests were in the form of questionnaires, while the first test was a questionnaire that measured the responses to migrating to another country, the second test measured the response to job choices and spending habits in the crucial first few years after graduation and the final test was a measurement of visual responses to various factors in life including where to work, where to live, status, family, and material acquisition. Below we are providing the description of the outcomes in more detail.
7.1. Test 1. Questionnaire about emigration to another country
In this section, students were asked questions about immigrating to another country to obtain a favorable advantage over staying in Slovakia. The conditions for the new country became increasingly difficult with each new question. It needs to be noted that the country of choice tends to be both England and Ireland with their easy immigration policy and the use of English as the default language. The following is a report on the outcome. The results for each question are illustrated in the graphs.
Question 1. You have an opportunity for a job in a neighboring Member State of the EU with a higher salary.
A) You accept it.
B) You refuse it. You don’t want to leave your home country other than for a holiday.
This question measured the likelihood of a student to go to a neighboring country in the EU to earn a hire salary. It had a predictable response since the Czech Republic is next door and the two countries used to be one.
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8. Conclusion from the survey results
There are some profound indications from the results of this survey. Because this is just a preliminary survey that was conducted only at one faculty at one university (Economics), it is too soon to indicate a trend; more testing at different places needs to be performed. However, certain indicators of a trend have emerged. They are as follows:
− Adolescent life is being extended. The concept of successful adulthood has been rewritten in such a bounded way; the failure to obtain the “right job” gives the students a reason to hide in either higher education or in a foreign country until such a time that the coveted job appears. Thus students wait too long to move to the next stage in life.
− Students tend to be more speculative that pragmatic. Students will try to obtain jobs and their accompanying status even though these jobs are few and more and more less paid.
There is a false notion of “knowledge work” as white collar work can be divided into two camps: Humanities based fields and STEM (science, technology, engineering, and medicine) based fields. Engineering students study the hardest while business students study the least (Perez-Pena 2011). There is no shortage of available jobs in STEM based fields, but these subjects require an intense training when compared to humanities based courses. Still, the notion of the lawyer, the banker, and the engineer are on the same level pedestal and the blue collared tradesman is not.
− People want to work in the big city, but they don’t want to live there. It is clear that students don’t want to live in the big city. In Slovakia there is a notion of home living as opposed to living in a flat. The big cities, especially Bratislava, are unable to provide these opportunities. The illusion is that there would be some sort of compromise as they would be able to live in a small town just outside of the big city. If this was to become reality, Bratislava as well as all other Central European capitals will become suburb- ringed metropolis linked by highways.
− People are much more motivated by status than material gains. This is especially true for women. Status is primary; money is secondary. In all societies, there has always been tension between blue-collar and white-collar workers as which provides the better form of utility (i.e. which would provide the greatest form of satisfaction). The white- collar worker has always had the upper-hand through higher status and cleaner environments, but the unwritten rule was that white collar workers needed a certain higher cerebral finesse in order to succeed. In other words, the white-collar workers had to be smarter. As Eastern Europeans looked westward for insight, inspiration came in the form of the steel and glass churches of western culture; Wall Street and Canary Wharf for finance, Brussels for Government, Prague and Bratislava as gatekeeper cities to capital (i.e. money). So big were the opportunities, most anyone could find a starting point for climbing the ladder of success; or so it is thought. It can be said that this concept is breaking down as the supply of white collar wannabes are outstripping the demand.
− Certain groups in society, especially blue-collared men, are socially disadvantaged. The extreme example of this case is the farmer, who has so little respect that few want to take of the profession. This prejudice against the blue-collared man is so strong, that it tears at the fabric of society.
− Students would have the more family oriented lifestyle if the possibilities were there. At least in Slovakia, family orientation still exist and the notion of “just getting on with life” is something students are willing to do, if opportunities were there to make this happen. These opportunities are rooted in obtainment abilities; the prerequisites that are needed for family. These prerequisites include cars, homes, and job security.
As of now the big city is provided job security whereas the small towns and villages can provide the material assets of life. One key to the future viability of the nation would to increase the job security and status for the small towns and disadvantage regions. It is not in the scope of this paper to address how this process should be undertaken, but it needs to be noted that it is not impossible. To illustrate that fact, we have provided the following example: Under the leadership of Sir Michael Lyons’, England moved 20,000 civil service jobs out of the center of London to places around the country, starting in 2004. He stated
“dispersal of civil servants would also aid the regeneration of some of the country’s deprivation black spots and make government less London-centric4.“
The biggest threat to many nations in Europe is the lack of family as expressed through demographic statistics. The biggest threat to family is the inability for young people to secure adequate housing at the appropriate age in life.
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