| Under the theoretical framework of neoclassical economics, the "invisible hand" coordinate thebehaviors in economic division, the role of institutions has not been concerned about. OldInstitutional Economics from the outset objected against the view of "neutral" point of institution.They found that institution not only constrain economic behavior but also be took advantage ofand changed by individuals or small groups. Constraint of economic behavior means that theinstitutions are not irrelevant, changing and taking advantage of the institution means that inaddition to the production and consumption decision, consciously controlling and changinginstitution is a way of utility maximization. Unfortunately, the economists of Old InstitutionalEconomics did not establish a set of self-consistent and complete theoretical system.Neo-institutional Economists developed one branch of Old Institutional Economics-Veblen’stradition, they defined institution as ideology, and identified the “tool functions "and" ritualfunctions of institutions, and focused on the mechanisms of institutional change. ButNeo-institutional Economics’ research areas is narrow-only informal system which is equivalentto the modern system theory, and stressed that institutional change is the result of the evolution ofideology, completely ignored around the intense social confrontation over the choice of institution.New Institutional Economists expanded the scope of the institution to the formal, informalinstitutions and their mechanisms of implementation, but concerning the functionality ofinstitution, they emphasized the role of institution in reducing behavioral uncertainty, orinstitution existing in order to reduce transaction costs, which means that the existing institution isalways relative efficiency. This theoretical implication is clearly incompatible with the recentempirical findings that some countries or regions remains poverty and chaos for a long period, itis precisely because they choose inefficient institutions. This reminds us of the need to rethink afew of the most basic problems:1) the nature of the institutions;2) how the institution is chooseand changed?3) does the institutions always adjust toward the efficient direction?New Economic School of History (North) argue that institution is inefficient because the rulerselect the institution for their own interests rather than the overall interests of society, but theyhave no depth discussions around the violent conflict over the choice of institution and over howthe conflict is resolved. As to Evolutionary economics, the conflict between the interests group issuperseded by the evolution of the customs and ideas. After a long development, the examinationof institutional change seems to be back Veblen era, the advance is just embodied in researchmethods improvement from simple speculation to game models.In fact, the Marxist Political Economics discussed all three basic questions mentioned above. Inthree aspects of the social production relations, distribution is the ultimate issue and ownership isthe basis. Superstructure services economic base (the sum of the relations of production),therefore, the fundamental function of institution is allocation. Marx believed that, when the development of the productive forces is constrained by the existing relations of production, thiswill be reflected to the ideology of the class who represent advanced productive forces, and theywill want to change the existing relations of production, this requirement will inevitably lead tothe superstructure conflict. When the advanced ideology overcomes backward ideology, and theold political and legal system is replaced by a new political and legal system, the new relations ofproduction has been established. This is an process when economic conflict rise to political andideological conflict, then the low-level conflict solve through high-level conflict. Of course, out ofthe need to describe macro patterns of social change, Marx did not examined how every levels ofconflict solve, he just predicted that the capitalist system will inevitably be replaced by socialismfrom the perspective of the historical development. The authors believe that the two ideologies,contest between two institutional preferences does not depend on the merits and demerits, butdepends on whether weak or strong they are, so, we need to refine the institutional conflictsfrom the perspective of power game, to do which we need to find or develop a power gametheory.The radical institutional theory systematically discussed the source of power, the mode of theiraction and power relations in the capitalist system, but there is no explanation of how powerrelations influence the choice of the institutions and their changes, and radical institutionalist didnot put forward a maneuverable concept of power.The purpose of this study is to make the concept of power concept maneuverable, then explain thechoice of institution from the perspective of the power game. Specifically, this study containsfollowing content:(1) Combing a variety of perspectives on the system function, after a comparative analysis andtheoretical interpretation, demonstrating that institution is a benefit distribution mechanism bytheir fundamental properties.(2) Synthesizing predecessors’ arguments, especially the view of Marxists, radical institutionalistsand new institutional economists about the mechanisms of institutional change, building antheoretical framework about institutional change based on the perspective of power;(3) Taking economic institutional change as background, building a mathematical model ofinstitutional change based on the the power game, analyzing features of powers combined in avariety of institutional change path, discussing short-term efficiency and non-efficiency attributesof institutional change;(4) Based on the mathematical model to simulate the long-term economic institutional change,speculating the boundary conditions of various institutional equilibrium path, long-termefficiency and non-efficiency properties of institutional change, explaining institutional changepath dependence based on the power perspective;(5) In order to demonstrate the explanatory power of this theoretical framework on the real worldproblem, a schematic simulation of China’s reform of the economic institution since The Reformand Opening Up was performed. According the prediction of possible evolutionary trends inhealthy distribution, recommendations for future reform was made.The society is a multi-layered composite organization, in order to achieve common interests,members of the organization need to reach a formal or informal contract on mutual rights andresponsibilities and put into practice, this process is a transaction. The transaction is always faced with a variety of environmental uncertainty and behavior uncertainties. Institution is the formal orinformal regulations on behavior of counterparties. Such a regulation is able to reduce theuncertainty of the behavior, so that the transaction can be carried out; On the other hand, theinstitution defines counterparties’ strategy set, thereby constraining the maximum benefits each ofthe parties may achieve, and thus has assigning function. Social actors formed a variety oforganizations for the common good, but the direct purpose of this combination is self-interested,and thus the distribution function of the institution is more fundamental attributes. Because thesocial actors are aware of the distributing function of institutions, there must be thus goalsconflicts with respect to choosing institutions, each party want to take advantage of the institutionso that their own interests are stable protected.Conflict over the choice of institutions is settled through the power-based game. Power is theability that counterparties have to influence others by virtue of their control of resources. Theseresources include those that exist only with the individual’s physical presence, called metadataresources, such as the individual’s physical strength, intelligence, knowledge, experience andskills; also include those that exit with the actual control of organization by virtue of theorganization’s institution, ie derived resources, such as wealth (property rights) and organizationalresources. The counterparty can use these resources to influence others sources of utility(punishment and reward) and utility functions (influence others ideology) to win the recognitionof the others on the system.The most direct conflict over institutional choice occurs in economic institution, not only becausethe economic institution determines the total output of society, but also because it determine howthe total output is assigned. Interest groups may use the economic power as threat of withdrawingfrom cooperation to influence the choice of institution; may also use de jure political power,namely the powers entrusted to them by the political system to influence the choice of institution;may also use the de facto political power, namely the use of the actual control of resources toorganize collective action to influence the choice of the system.The conflict on the economic institution may rise to the conflict on the political institution. Thesolution of this conflict involves the current de jure political power, and the de facto politicalpower and the struggle in the ideological field.(current) de jure political power comes from theexisting political institution and have an impact on the future political institution; de factopolitical power comes from the current allocation of resources and have an impact on the futurepolitical institution. Ideological evolution is well influenced by the political power of interestgroups, but also a result of the accumulation of knowledge and ideas in human survival activities.This accumulation of knowledge beyond the individual self-interest is the fundamental drivingforce for the progress of social systems.Comprehensive formulization of the above analytical framework for institutional change can notbe obtained in a single mathematical model, so this article select one section of the framework, tobuild mathematical models, and to perform numerical simulation, thus to interpret the evolution ofthe economic institution.Economic institution was formulated as a mapping relationship from the resources put into theincome distribution, one of the most critical parameter is the pricing of the resources invested.The higher the pricing of a party is, the favorable the economic institution is to it. The differences on the economic institution is the differences on resource pricing. Party with strong politicalpower propose reform of the economic institution, the government decided whether or not tocomply with this requirement, but regardless of the government reform or not, it will face thepolitical opposition from the injured party,and the political support from the from the beneficiary.The injured party also threatened to withdraw from the co-production and thus reduce governmentrevenue. In every game, whether the economic institution change or not depend on the variouscombination of political power, economic power, as well as the cost of institutional reformation.Since each party make choice toward the target to maximize their own utility, thus thecombination of strategies can not guarantee that the reorientation of economic institution goestoward efficiency.Under selected economic institution, the parties decide whether to participate in the co-productionand thus their gain is determined. These gains is the basis of economic power and the de factopolitical power under next institutional game (another factor affecting the de facto political poweris the ability of interest groups to solve the problem of "free riders", ie. collective consciousness),these gains also work as the identity when political institutions allocate de jure political poweramong parties. It is in the process of wealth and power Iterating that the Changes of the economicinstitution was completed. The multi-phase numerical simulation based on game model of theinstitution indicate that, given the initial economic institution and the allocation of resources, aftera certain period of adjustment, the economic institution is always able to reach a stable state, butthe state’s style will be different. If the relevant parties do not have enough open attitude andcooperation of wisdom, the alternative program will be very few, the proposed change will belarge, which in turn will cause the revolt of vested interest parties (mastering most of socialwealth), for tax reasons, the government prefers to let extreme economic institution exist for along time, resulting in long-term imbalance of the distribution of social wealth and social outputinefficient; Conversely, if the community can find a fine-tuning program of economic institution,once the imbalance occurs in the distribution of wealth, the small changes between the variouspowers will contribute to the adjustment of the economic institution, the economic institution willbe slightly fluctuating in the range of all parties can tolerate, the total output of society will not becut down due to serious imbalance of resource allocation.The change of the exogenous variables such as political institution, the collective consciousness,the marginal output elasticity, will lead to equilibrium migrating. For example, when the marginaloutput elasticity of a group improve, institutional equilibrium will change toward the direction itprefers, but the institutional evolution toward the direction of "distributing accordingcontribution” can not guarantee the long-term efficiency of the economic institution, because in agiven institution,"the rich are getting richer" positive feedback loop always play a role. To ensurethe long-term efficiency of the economic system, you need to adjust the economic institution in atimely manner according to the changes in the distribution of social wealth status.Study the changes of the economic institution from the perspective of the power game, one canfind the same path dependent characteristics of institutional change, but the cause is quitedifferent from what North said. Sequentially iterating of variable between adjacent stages implythat once the social system fall into some state, it can only comply with this state formed andendogenously evolve, presenting path dependence. In China’s reform and opening up, to encourage elements active, the government set the economicinstitution in favor of party with large marginal output elasticity, a measure that opens the "richgetting richer" positive feedback loop. Combined with some mechanism in the political institutionwhich distributes political power based on the possession of wealth, the economic institutionbecame more and more inclined to certain group. If this trend continues, vulnerable groups willfall into absolute pauperization from the relative impoverishment, the reform of the economicinstitution will no longer have the characteristics of a Pareto improvement. The Group of absoluteimpoverishment will draw on the de facto political power to push the economic institution towardthe opposite pole. Due to prior serious imbalance in the distribution of social wealth, the reversedeconomic institution can not immediately make the distribution of wealth back to the relativelybalanced state, collective action of the poor will sustain for a long-term. Reconfiguring thepolitical institution parameters, the simulation results show that, when the reform of the economicinstitution reach a point where some of the groups is going about absolute pauperization, if thegovernment reduce correlation between wealth levels and the de jure political power to create arelatively balanced power structure, the extreme tilt in the economic institution will not appear,and thus the social unrest caused by the collective action and the loss of efficiency can be avoided.Overall, this study is a theoretical exploration rather than solving a real problem. The authors wishto learn from previous deep insights about the attributes of power, the function of institution, themechanism of institutional changes to build a theoretical framework of institutional change basedon the perspective of power, this attempt could go with a certain degree of risk, but the authorshope to use this kinds of attempts to report on the progress achieved after Dr. stages of learning. |
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