From formal rules to informal norms So far, our discussion of institutions has suggested that there are some key rules

From formal rules to informal norms So far, our discussion of institutions has suggested that there are some key rules

in society that matter for economic development and that most attention has been paid in the literature to rules around property rights and their enforce- ment. But there have also been other areas of focus around the wider range of ways in which regulations are enacted, such as regulations surrounding the registration of businesses.

However, North highlights the key distinction between institutions as formal rules and regulations, on the one hand, and informal institutions (such as conventions, moral rules and social norms), on the other. Conventions are social rules that are commonly accepted in society. For example, countries have conventions about which side of the road people should drive on. Similarly, there are conventions that guide book-keeping practice and accounting. There are also conventions in legal practice. The purpose of these conventions is to guide the behaviour of members in society and to make their transactions and exchanges easier. Through these conventions, people know what to expect in terms of documents, behaviour on the road or accounting formats. This obviates the need to learn and assess a situation from scratch every time and to go through a lengthy process of decision-making about how to respond accordingly in any given context.

Moral rules or norms are those such as ‘do not steal’, ‘do not break your promise’, ‘respect the elderly.’ 1 These rules are imparted during one’s socialization process in all societies, and they are reinforced in different ways,

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for example, through the education system, children’s literature or religious instruction. Economists would also argue that there are solid economic reasons for these moral rules to be instilled in the minds of individuals. For example, when people are generally truthful and honest, it is easier to undertake contracts and conclude transactions because it is simply not possible to commit oneself to a written agreement every time one makes a transaction. These observations are in line with the views of the sociologist Emile Durkheim, who noted that there is a basic sociality that is ‘pre-contractual’ and without which it would be hard to undertake transactions. The transaction costs incurred would be enormous if it was necessary to pin down every possible aspect of a transaction every time it was made.

This ‘basic sociality’ includes a wide range of social norms that society expects of individuals. Social norms are patterns of behaviour that reflect the customs, traditions, values or ways of life of a particular society or group, the transgression of which generally leads to social ostracism. Jon Elster (1989, p105) defines a social norm as ‘the propensity to feel shame and to anticipate sanction by others at the thought of behaving in a certain, forbidden way. This propensity becomes a social norm when and to the extent that it is shared with other people.’ Given this definition, it should be noted that norms are not necessarily explained by the efficiency of their outcome. People would sometimes be better off without norms, and are sometimes better off with norms. Although social norms are shared with others, this does not necessarily mean that they are equitable in their impact – as Elster’s definition suggests, ostracism is often the result of breaching them. Thus social norms around the role of women in the economy, for example, have been a critical reason for their inability to gain access to particular jobs or leadership roles in society. It therefore becomes necessary to recognize how key social differences between people, such as gender, age, ethnicity, race, class, religion and so on create social discrimination.