“First and foremost, the neo-classical and neo-liberal schools hardly consider that the institutions they propagate are the result of power as well.” See Peter Ho, “Empty institutions, non-credibility and pastoralism: China’s grazing ban, mining and ethnicity”, Journal of Peasant Studies, 2016, Vol. 43., No. 6, p. 1151
Thus, the idea that formalization and privatization, too, are driven by power dynamics does not play any significant role in the analysis of neo-classically trained scholars, and Acemoglu and Robinson are no exception. By contrast, formalization (and privatization) (…) [are in the credibility view] taken as a fundamental point of departure to study how divergences in power may work out.
“Second, in the neo-classical view formalization and privatization are seen as exogenously designable interventions. From there it is not a far step to establish democracy, good governance and human rights in other economies, societies and cultures in the name of freedom, open markets and private property rights.” See ibid., p. 1151.
“Yet adhering to endogeneity implies that actors’ action is inevitably followed by reaction, triggering chains of interdependent actions and reactions, that tie an alleged external ‘designer’ of institutions into a spontaneously ordered game in which intentions are inherently watered down into something different or unintended.” See ibid., p. 1151.
“Third, in the endogenous view power is not to be seen in moral terms of inefficiency, but in the way it structures institutions into credible, non-credible or empty arrangements.” See ibid. p. 1151.
“Ergo, when institutions persist over time and space, they are credible and functional, as they have evolved from a spontaneously ordered evolution, regardless of how that has been engendered by divergences of power. This principle equally applies to the change and extinction of less and non-credible institutions, as apparent through rising levels of distributional conflict, contestation and cleavage.” See ibid., p. 1151.