Rule obedience, organizational loyalty and economic development

Some societies have well functioning institutions that channel individuals" energies into socially productive activities leading to economic and social progress, while in others the poor quality of the institutional infrastructure frustrates attempts at reforms and perpetuates stagnation. The quality of a society"s institutional infrastructure depends not only on the content of the norms and rules but also on the degree to which people actually follow these norms and rules or, in other words, the degree of rule obedience. This paper argues that: (1) a minimum level of rule obedience is required for a well functioning societal institutional infrastructure; and (2) this minimum level of rule obedience is lacking in many societies. In societies which display more than this minimal level of rule obedience, institutional efficiency is supported by constructive kinds of internalization of goals, which lead to socially beneficial behavior that goes well beyond merely following the rules. Goal internalization may apply to the society as a whole and to subunits within the society. It may apply to geographical areas such as the town, the province, and the region; to social classes and religious groupings; to the extended family; and to organizations. Some organizations are characterized by intensive interaction among individuals, which leads in some cases to a high degree of goal internalization. In turn this leads individuals to act on behalf of the group interest in ways that go far beyond mere rule obedience. These individuals exert extra effort, take the initiative to start new projects, and take on responsibilities for matters that fall between the cracks of other people"s jurisdictions. This type of behavior involving effort, initiative, and responsibility will be called EIR behavior; it seems to be the key to effective organizations. Both rule obedience and EIR behavior may be motivated by self interest or by internalization of group goals. What internalization means in this context is that individuals incorporate group goals into their own utility functions. Individual with such utility functions are not necessarily disadvantaged relative to those with purely self-oriented motivation; moreover, recognition of such arguments in utility functions is eminently realistic as attested by many studies in social psychology. The paper attempts to advance our understanding of institutional differences across societies by exploring some of the determinants of rule obedience and EIR behavior. A basic idea in the paper is that there are forces that lead societies to evolve to very different levels of rule obedience; in other words, there can be multiple equilibria, reflecting varying levels of rule obedience. The forces sustaining three different levels include both narrow considerations of self interest and the evolution of attitudes that reinforce past patterns of behavior. A similar idea is claimed in the paper to apply to EIR behavior, which it is argued occurs primarily within organizations rather than within broader communities, and tends to be more highly rewarded and more highly valued within an organization as it becomes more common. Some organizations develop a high level of group loyalty, or esprit de corps, which under certain conditions can enhance overall organizational effectiveness. In a competitive environment, business organizations with low levels of rule obedience and EIR behavior will tend to be driven out of business. Rule obedience in the society and organizational effectiveness tend to support one another in a variety of ways (with obvious qualifications with regard to the purposes of the organizations at issue). To the extent that economic and social progress in poor countries is being held back by low levels of rule obedience and of organizational effectiveness, a deeper understanding of these phenomena may contribute to the formulation of policies for reform. (Author abstract)