Institutional modernization, crisis and change management: Thoughts from and for the Greek crisis

6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” This is a pre-print version with minor editing changes. Institutional modernization, crisis and change management: Thoughts from and for the Greek crisis 1. Charis Vlados [email protected]  Department of Economics, Democritus University of Thrace, Komotini, Greece 2. Dimos Chatzinikolaou [email protected]  Ph.D. Candidate, Department of Economics, Democritus University of Thrace, Komotini, Greece 3. Michail Demertzis [email protected]  Postgraduate student, School of Law, Democritus University of Thrace, Komotini, Greece Abstract This study has a purpose of highlighting how the current crisis and restructuring of globalization is linked to partial phenomena of institutional crisis and underdevelopment, by discussing the case of the Greek crisis. It suggests that the emergence and prevalence of institutional innovations is a prerequisite to overcoming the crisis and is linked to the establishment of new and more effective public change management mechanisms. In conclusion, the “Stra.Tech.Man” approach (synthesis of strategytechnology-management) to organizational dynamics can offer a repositioned change management policy. Keywords: Global socioeconomic crisis; Institutional innovation; Change management; Greek crisis; Institutional development/underdevelopment, Stra.Tech.Man approach 1. Introduction: Crisis and institutional modernization in Greece It seems that the conventional—of neoclassical orientation—approaches cannot still distinguish the different concepts of economic growth and economic development explicitly (Perroux, 1962; Schmidt, 2018; van den Bergh and Kallis, 2013; Yu, 2012). Therefore, the evolutionary dynamics of a socioeconomic system and its ability to assimilate change are usually bypassed analytically (Abraham-Frois, 2002; Boulding, 1981; Braudel, 2014; Dosi, 1982). However, an evolutionary perspective to socioeconomic development is necessary in order to understand that 1 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” the historically-defined context also defines future developmental prospects (Scazzieri, 2018). In this context, socioeconomic development is a matter of the institutions that a socioeconomic system can create and valorize within its particular historical trajectory (Gillis et al., 1996). More specifically, an institution is the structure of the political and economic organization based on the particular human perceptions which are taking shape within the historical space and time (North, 1981). Also, this definition of institution is the methodological framework upon which the relatively new field of “institutional economics” tries to explain the phenomenon of development and underdevelopment that specific spatialized socioeconomic entities are facing (Acemoglu, Johnson, and Robinson, 2004; Hodgson, 2009; Landes, 1998; North, 1999; Stein, 2008). The aim of the present study is to highlight how the current restructuring and crisis of global capitalism (Laudicina and Peterson, 2016; Vlados, Deniozos and Chatzinikolaou, 2018), which reorganizes the institutional foundations of the global economy as a whole, is linked to the particular phenomenon of the Greek crisis, by exploring new ways of institutional modernization. According to Akan (2011), modernization is a multi‐dimensional transformation covering all areas of human thought and action. This overall transformation, in an institutional context, brings out the organization of social life around political democracy, the market economy, and civil society. According to Zhukov and Lyamin (2016), during modernization, archaic norms, social structures, and governmental and political institutions do not die off, but adapt, accustom into new ones, both transforming modernization innovations and being transformed by them. The existence or absence of institutional innovations is path-dependent and, therefore, it requires also new forms of anti-crisis change management policies (Vlados, Deniozos, Chatzinikolaou and Demertzis, 2018). In particular, concerning an institutional crisis, the following definitions can be useful. According to Schmidt et al. (2018), an institutional crisis is a period in which the institutional arrangements of a policy sector are confronted by a relatively strong, continuous decline in legitimacy. Riaz (2009) suggests that the current crisis calls for examination as an institutional crisis, resulting from the interplay of the financial industry organizations and broader formal and informal institutions. Such an examination requires understanding the mechanisms of organizational‐institutional interplay that follow from basic tenets of new institutional theory. In light of these introductory clarifications, the following structured steps of this article demonstrate the methodological approach: 2 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY”  First, it introduces some contemporary approaches to the crisis in Greece while, next, links the critical dimension of competitiveness to the Greek productive system.  Upon that, it explores whether institutional innovation and effective change management policies are prerequisites for exiting a structural crisis by introducing the concept of “Stra.Tech.Man change management cycle.” Finally, it concludes with the findings of the study, discussing its implications. 2. Approaches to the Greek crisis Many scholars have tried to analyze the phenomenon of crisis in Greece, especially after the “conjuncture” of the economic crisis that started back in 2008. A synopsis of some theoretical approaches from the relevant literature follows:  According to Andrikopoulos (2013), the credit spreads of Greece were affected by the political environment of the public administration that associates the expansion of the public sector (mostly financed with debt) with the perseverance of power by ruling parties.  Glynos and Voutyras (2016) argue that the rhetoric of mainstream political and media elites framed responses to the Greek economic crisis in patriotic terms, which was subsequently adopted by groups from across the entire political spectrum, whether part of the establishment or not.  Tsoulfidis et al. (2016) suggest that the economic crisis in Greece is structural and the result of the international impasse of 2007; in Greece, the falling profitability discouraged new investment, decreased production and gave rise to unemployment. The authors conclude that the Greek crisis is one of the worst economic crises since the Second World War that requires alternative economic policies.  Christopoulou and Monastiriotis (2016) explore the “public-private wage duality” during the recent Greek economic crisis, finding out that the adjustment in public sector wages has been slow, while the private sector recorded substantial adjustment, changing its valuation of worker and job characteristics. According to the authors, the private sector within the crisis rewards more intensively marketable skills, which is an essential feature regarding the prospective recovery of the Greek economy.  Ioannides and Pissarides (2015), search for the supply or demand origin of the Greek crisis, arguing that the supply-side problems have been present since the 3 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” accession of Greece to the EU in 1981; the demand contraction, on the other side, was caused by austerity and wage cuts. The authors are in favor of Eurozone-wide policies that could help Greece recover. Most of these approaches tend to focus on the macro-level of analysis. It can be more fertile, though, to introduce a repositioned perspective in terms of institutional innovation and public change management by starting the theoretical analysis in the “cellular” competitiveness of a socioeconomic system. The term “cellular” means the micro-competitiveness generated by the organizational syntheses at strategic, technological, and managerial level (Vlados, Katimertzopoulos, & Blatsos, 2019). In this context, the Greek crisis is a case of a less competitive socioeconomic and productive system, because of the prolonged under-developmental trajectory caused by a variety of ineffective institutional structures (Luo et al., 2015). This structural crisis of the Greek socioeconomic system it can be reversed by the emergence and prevalence of innovational dynamics in broad institutional terms and by the prerequisite mechanisms of change management: this combination can practically enhance the cells of the Greek socioeconomic system, that is, the locally-based entrepreneurship (Bloch and Metcalfe, 2018; Covi, 2016; Edler and Fagerberg, 2017). Concerning the Greek economic policy, this has been a mixture of a myopically implemented “Keynesianism” of demand stimulation by the reproduction and dominance of clientelistic practices in the public-private sector relationships (Itoh, 2012; Trantidis and Tsagkroni, 2017). To exit now the deep and structural crisis and to enhance competitiveness, direct and drastic reforms are required, along with renewing the political system, creating more attractive investment conditions, and continuously focusing on the institutional modernization of the country (Andersson and Henrekson, 2015; Atkinson, 2012). 3. Institutional innovation and effective change management in Stra.Tech.Man terms Therefore, what can the global community do to enter a path of balanced and effective institutional modernization on a global scale? According to Lawrence (1996), we have to distinguish between a “shallow” and “deep” version of globalization, because to change only the way we trade is not enough. In Ruggie’s (2004) perspective, we have to reconstitute and legitimate the intergovernmental institutions according to social priorities, in what the author calls as “embedded liberalism.” Stiglitz (2013) suggests that inequality creates a divided society that 4 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” endangers our future; thus, we must limit wealth-seeking and accumulation of capital and apply competition rules that can be equal. Although not explicitly stated, these approaches call for a repositioned global institutional framework. To this end, an evolutionary approach to globalization dynamics is increasingly important (Adda, 2006; Delapierre, Moati, and Mouhoud, 2000; Michalet, 2005). The term evolutionary denotes the transformations of a socioeconomic system’s structural substrate over time, where the changes in “thinking” and “action” (Burnes, 2009; Wooldridge, 2011) of the partial socioeconomic actors change structurally also the rules of their global external environment. In this context, the evolutionary process is a synthesis of endogenous and exogenous factors, for every participating partial socioeconomic system (Dopfer, Foster and Potts, 2004; Mann, 2011). According to Ruttan and Hayami (1984), institutions are the rules of society that facilitate the coordination of individuals. In this context, they propose that institutional innovation and diffusion can be achieved by treating the changes endogenously. Hargrave and Van de Ven (2006) define institutional change as a dialectical process where opposing actors confront each other and engage in political behaviors to create and change institutions. Acemoglu and Robinson (2013), on their widely-cited book “Why nations fail: The origins of power, prosperity, and poverty” understand this evolutionary change according to “inclusive” or “extractive” institutions. This institutional theory attempts to interpret the prosperity of different nations throughout historical time. Specifically, the inclusive institutions are in favor and secure the private property rights, while encouraging the investment in new technologies and skills; on the other hand, the extractive institutions are structured in such a way, so the elites extract resources from the rest of the population, while they do not provide incentives for economic activity. In practice, within the current restructuring phase of globalization, there is a concurrent structural change of the socioeconomic rules internationally, along with the parallel effort of the spatialized socioeconomic systems to adapt in this change. This adaptation requires an overall re-synthesis of the socioeconomic systems’ institutional potential, repositions the global dynamics, and creates conditions for the future adaptation: and this is, indeed, how the overall framework of institutional innovation emergence is structured nowadays (see Figure 1). 5 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” Figure 1: The structure of institutional innovations emergence In this context, the concept of “institutional innovation” can be particularly useful to understand the different institutional conceptions and forms within a socioeconomic system:  “Institutional innovation requires a very different dynamic of the relations within society than do technological innovation and technologically driven economic development. Significantly, it requires much interaction and learning between citizens and government, business and civil society players.” (Woodhill, 2010, p. 49)  “Change in an institutional arrangement can be determined by observing the arrangement at two or more points in time on a set of dimensions (e.g., frames, norms, or rules) and then calculating the differences over time in these dimensions. If there is a noticeable difference, we can say that the institution has changed. If the change is a novel or unprecedented departure from the past, then it represents an institutional innovation.” (Hargrave and Van de Ven, 2006, p. 866)  “The study of institutional innovation needs to be contextualised within its governance context (e.g. wider natural, societal, political, and historical aspects). This matters not only in analysing the collective choice arena, but also normatively in deciding on what is considered to be ‘innovative’ because this may vary substantially between different contexts.” (Patterson and James, 2018, p. 12)  Institutional innovation is, precisely, a “novel, useful and legitimate change that disrupts, to varying degrees, the cognitive, normative, or regulative mainstays of an organizational field. Institutional innovation, 6 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” like all innovation, is both novel and useful, but differs in that it is also legitimate, credible and appropriate.” (Raffaelli and Glynn, 2015, p. 407) Thus, institutional innovation is about how an “institutional entrepreneur” can change the institutional framework in which he or she operates (Hargadon and Douglas, 2001). In this context, two significant forces influence the diffusion of institutional innovation: the economic reforms and the resistance to economic reforms. Concerning economic reforms, these are wide-ranging changes to the established institutional framework, aimed at increasing economic efficiency by promoting the privatization of markets, free competition and the strengthening of property rights (de Soysa and Vadlammanati, 2013). They are usually also time-consuming and politically challenging to implement and, therefore, only a motivated government can create a business environment that allows efficient private sector operation and investments, transparent lending markets, efficient procedures, and decision-making structures, lowered tariffs, and other factors that facilitate cross-border trade (Hvidt, 2011). Consequently, concerning the aspect of resistance to economic reforms, it seems that the literature tries to explain whether resistance to reform derives from distributional conflicts between different economic classes or is instead rather broadbased (Parlevliet, 2017). In this context, according to Thomas et al. (2017), it seems that interventions by veto players or wars of attrition by powerful interest groups cause resistance to structural reforms. In broader terms, the uncertainty associated with dramatic and large-scale change can explain resistance to reforms, while the lack of information about future outcomes creates difficulties for those implementing the reformative policies (Castañeda Dower and Markevich 2014). Economic reforms have implicitly a content of change and institutional innovation that cannot be easily managed by the public policies. In terms of organizational theory, institutional innovation provides organizations with the ability to generate innovations at other levels, including products, business models, and management systems (Hagel and Brown, 2013). In this context, institutional innovation, like any other form of innovation, deals with frictions and resistances during its implementation (Oreg, 2003; Robbins and Judge, 2019) and, therefore, it requires prerequisite forms of effective change management policies. For the concept of effectiveness in managing the change, some useful and recent definitions are the following:  “Convincing people to change their behavior is not effective by itself; it is more effective to engage them using a compelling reason for the need to 7 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” change. One method to do this is to show that the status quo is more dangerous than the proposed change”. (Varkey and Antonio, 2010, p. 269)  “To make change fast and effective, you need to convince change makers that the status quo is no longer acceptable and that change is unavoidable.” (Serrat, 2017, p. 370)  “Preparation and readiness was also seen as important in effectively managing change. This entails ensuring that employees are ready and confident about their ability to implement the change. Having an organization culture supportive of change also helps ensure success.” (Guerrero, Teng-Calleja and Hechanova, 2018, p. 377)  “Change management involves effecting reform in a systematic, structured and sequential manner to transform the organization from uncertainty to certainty when volatility, uncertainty, complexity and ambiguity are around. Change management calls for value-based, principle-centered leadership to achieve organizational transformation effectively. In a nutshell, it is about managing change effectively, with all the tools available, without inviting resistance.” (Rao, 2015) Therefore, to perceive how an institutional innovation acquires legitimacy and usefulness, it is critical to study the ways of articulating more effective public change management mechanisms. Concerning change management in public policy, some useful and recent definitions are the following:  According to Kuipers et al. (2014, pp. 16–17): “Researchers could improve the theory building on change management in public organizations with more and stronger empirical research that builds on a clear understanding of practice … However, they would also need to pay more attention to the outcomes and successes of change in public organizations … i.e. to support practitioners in their search for lessons on what makes a change successful.”  According to Van der Voet, Kuipers and Groeneveld (2016, p. 843): “Despite the importance of organizational change for public management practice, organizational change is generally not studied as an implementation problem in public management research ... Instead, public management research concerning organizational change is often focused on changes at the sector or national level.”  According to Kickert (2014, p. 700): “Politicians are not interested in management and organization. Politics is about policy content. That holds true for members of parliament, but also for ministers. Ministers are accounted for in parliament by their substantive policy proposals.” 8 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” However, most of change management approaches are often struggling to build an integrated mechanism that can nurture the institutional innovation systematically. To this end, the “Stra.Tech.Man” approach (synthesis of strategy-technologymanagement) of innovation, even though it is a business approach of strategic management, can be useful for the articulation of an anti-crisis economic policy (Vlados, Deniozos, Chatzinikolaou and Demertzis, 2018) (see Figure 2). Figure 2: An anti-crisis economic policy: Reforms and institutional innovation Adapted from Vlados, Deniozos, Chatzinikolaou, and Demertzis (2018). Specifically, the Stra.Tech.Man approach (Vlados, 2004; Vlados, 2012; Vlados, Katimertzopoulos, and Blatsos, 2019) explores how every “living organization” is formed by the three co-evolving spheres of its strategy, technology, and management. Every organization corresponds to its particular Stra.Tech.Man “physiology” by responding to a threefold set of profound questions:  Strategy corresponds to “where am I, where do I want to go, how do I go there and why?”  Technology corresponds to “how do I draw, create, synthesize and reproduce the means of my work and know-how and why?”  Management corresponds to “how do I use my available resources and why?” In this context, a constant strategic repositioning, technological progress and managerial modernization of institutional innovation frameworks, in the specific terms of public policy articulation, is crucial for all the socioeconomic actors and systems, within the shaping of the new phase of globalization. Simultaneously, this framework of institutional innovation presupposes the activation of integrated 9 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” change management mechanisms around the evolutionary Stra.Tech.Man synthesis concept (see Figure 3). Figure 3: The Stra.Tech.Man dynamics and the new architecture of public policy. Reproduced from Vlados and Chatzinikolaou (2019) This integrated public policy, structured upon the institutional innovation interventions, can be articulated with the concept of public policy change management in Stra.Tech.Man terms. Specifically, this Stra.Tech.Man framework of change management follows five successive steps: i. Build a new vision that corresponds to the overall reform strategy; ii. Enrich the technological tools that the reform effort valorizes; iii. Manage even more effectively the reform’s resources; iv. Synthesize the three previous steps to produce the institutional innovations which the reform effort proposes in Stra.Tech.Man terms; and v. Assimilate this evolutionary change and start over toward a new public policy change management cycle (see Figure 4). 10 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY” Figure 4: Stra.Tech.Man cycle of public change management 4. Conclusions and implications This article explored the Greek and global structural crisis and constructed a concise examination of the literature of institutional innovation and the relative public change management. Upon these, it concludes now in the following implications and points of future research:  The current crisis and restructuring of globalization and the search for new “anti-crisis” paths (Vlados, Deniozos, Chatzinikolaou and Demertzis, 2018) calls for constant institutional modernization (Akan, 2011; Zhukov and Lyamin, 2016) for all the integrated socioeconomic systems in globalization.  For the less developed nations (Acemoglu and Robinson, 2013), those suffering from structural crises such as Greece, there is no public policy “recipe” easily transferable from one socioeconomic system to another; this depends from the institutional and historical context.  Every socioeconomic system must try to build and reproduce a favorable climate for innovative entrepreneurship and a prosperous economy by fostering the “cellular” competitiveness generated by the organizational syntheses at strategic, technological and managerial level (Vlados, Katimertzopoulos, and Blatsos, 2019). 11 6th International Conference on Applied Economics “INSTITUTIONS & THE KNOWLEDGE ECONOMY”  To this end, a new economic policy should always strive to create and assimilate multiple institutional innovations (Raffaelli and Glynn, 2015) by enhancing the competitiveness of the locally-based entrepreneurship and by attracting new investments (Andersson and Henrekson, 2015; Atkinson, 2012). To this end, the articulation of a new public policy requires drastic rearrangements, related to producing institutional innovations and to assimilating and diffusing them through effective change management mechanisms; at all the spatial levels within globalization: local, national and international. The Stra.Tech.Man (synthesis of strategy-technology-management) cycle of change management seems to be useful for every public policy reform. Therefore, to manage the change of institutional innovation, five successive steps of public policy change management in Stra.Tech.Man terms seem particularly useful: (a) Build a new vision, (b) Enrich the technological tools, (c) Manage more effectively the reform’s resources, (d) Synthesize the previous steps to produce the institutional innovations, and (e) Assimilate the evolutionary change and start over. 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