How Institutional Economics May Support the Analysis of Individual and Collective Capabilities

ABSTRACT

The analysis in this article starts from the recognition that institutions make an important part of the Capability Approach, as conversion factors from resources to capabilities and as affecting agency. The tradition of Old Institutional Economics is critical of the neoclassical view of the individual and agency and emphasises the importance of social context. Hence, there is some common ground between the Capability Approach (CA) and Old Institutional Economics (OIE). The purpose of this article is to explore how insights from OIE might enrich the CA both conceptually and empirically. This may be done for individual capabilities as well as for collective capabilities. A better understanding of collective resource-institutions and collective agency-institutions will also contribute to the analysis of capability expansion in the community economy through collective productive capabilities in commons, cooperatives and mutuals. The conclusion is that an understanding of institutions in the tradition of OIE may help to clarify the relationships between social norms and agency; complement the notion of constrained choice with enabling institutions; and point at how institutional transformation may support individual and collective capability expansion.

KEYWORDS:

• Capability Approach
• Old Institutional Economics
• institutions
• Thorstein Veblen‌
• community economy
• collective capabilities

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Sen (1984, 497) defines entitlements as “the set of alternative commodity bundles that a person can command in a society using the totality of rights and opportunities that he or she faces.”

2 A recent example from the Netherlands is about a single mother with functional impairments, living in the city of Tilburg. She has been dependent on welfare for years, and when her vacuum cleaner broke down, the rules entitled her to receive money to buy a replacement. But the municipality did not trust that the appliance had really broken down. Hence, the civil servant of the municipality asked the woman to come to the municipality offices with the vacuum cleaner to demonstrate that it indeed was not working. Lacking a car and saving money on a bus fare, she struggled carrying the heavy load on her bicycle to the city centre. There, the civil servant required her to plug it in a wall socket in the main hall of the municipality building, under the eyes of citizens visiting the building. She emotionally described this experience in a TV show on inequality as very embarrassing. Although she was granted the money to buy a new vacuum cleaner, she felt deeply humiliated by how the civil servant had treated her.

3 Hodgson (2004, 422) emphasises that in OIE, “the understanding of the (rational) individual presupposes an understanding of specific social structures, just as the understanding of social structures presupposes an understanding of individuals.”

4 Ostrom (2004) did, however, acknowledge that she was influenced by Commons (1924).

5 Note that beliefs are also institutions and not simply limited to the minds of individuals. “Beliefs are part of social reality, because human actions can not only depend upon beliefs but also have to take into account the supposed beliefs of others” (Hodgson 2004, 424). An example is a strategy of modesty by women during high-end job interviews when they expect the interviewer to have stereotype gender beliefs about women negotiating for a higher salary in the same way as men do, labelling them in their minds as “bitches” (Leibbrandt and List 2004).

6 Efficiency is here used in a general sense and not as in neoclassical welfare economics where it refers to Pareto Optimality.

7 As indicated in Table 1, institutions that enable capability expansion may constrain certain behaviours.

8 An example of such a belief is that in southern Africa albinos are sometimes considered as witches, which may result aggressive attacks on albino children or expulsion from the community.

9 Collective action by various groups of domestic workers worldwide has eventually resulted in the adoption of the ILO (2011) Convention on Domestic Workers.

10 See f.e. Comim (2008) for a good discussion on this point of Sen (2005).

Additional information

Notes on contributors

Irene van Staveren

Irene van Staveren is Professor of Pluralist Development Economics at the International Institute of Social Studies in The Hague, The Netherlands (part of Erasmus University Rotterdam). As a pluralist economist, she works at the intersection of a variety of economic approaches, including the capability approach, institutional economics, social economics and feminist economics. Her research focuses on the entanglement of economics and ethics, through concepts such as gender norms, social cohesion and efficiency. She is the author of a pluralist textbook, with a freely accessible online course on Coursera, Economics after the Crisis – an Introduction to Economics from a Pluralist and Global Perspective (Routledge, 2015). She recently published Alternative Ideas from Ten (almost) Forgotten Economists (Palgrave, 2021). She is also the director of the freely available online cross-country database Indices of Social Development.