The central thesis of this paper is that institutions of all kinds are made, maintained and changed by political processes and that in order to understand economic institutions it is necessary to understand the political processes and distributions of power that shape them. As argued in the paper, politics is not a special or isolable domain of social life, but a necessary and unavoidable aspect wherever people are engaged in taking decisions about the use, production and distribution of resources, or making rules about it, whether in a family, a farm or a firm, as well as in the more conventional spheres of the state. The paper starts by reviewing the sprawling literature on the political approach to institutional formation, maintenance and change. It offers extended definitional distinctions between policies, institutions and organizations and goes on to outline a conception of politics as having two fundamental levels. The first concerns the formal rules of the game of politics (in a polity or any other social unit, such as a family or bureaucracy or company), while the second concerns the 'games' which are played within those rules. The paper suggests that stable politics and effective states presuppose widely agreed rules of the game and where this is not the case there is little likelihood of stable games within the rules and even less prospect of growth, let alone pro-poor growth. The paper continues by surveying different conceptions of power and the state and illustrates the central thesis by outlining the political factors which have shaped the institutional arrangements which constituted the developmental states. It next compares and contrasts the two main schools in the institutional analysis of politics - rational choice institutionalism and historical institutionalism. Having set the conceptual scene, the paper offers some illustrations from history, identifying the major factors which frame and contextualize the political processes which shape developmental institutions. It concludes with some ideas for research projects and suggests that by using institutions as a lens, it is possible to explore in a more robust way the manner in which political and economic institutions interact to promote or restrain pro-poor growth. It provides an Appendix with a range of different ways in which the concept of institutions has been used by social scientists.
IPPG Discussion Paper Series Number Fourteen, DFID, London, UK, 23 pp.