Law and Institutional Capital

I spent several hours today in a meeting with a local entrepreneur who didn’t realize initially that my several personas of interest to him — law professor at Pitt, copyright specialist participating in Best Practices projects at the Center for Social Media at American University, and Pittsburgh blogger focusing on entrepreneurship and urban reinvention– converge in my one physical self.  (“You’re that Mike Madison?”)  I explained the alignment of my interests this way:  I’m interested in how law, among other things, shapes and is shaped by complex social forms. More below the jump.

So for that reason (and also because I’m a Research Dean), I’m fascinated by Bill Henderson’s take on what seems to be an entirely distinct problem:  How to build and conserve institutional capital in a law school market where “free agency” among law professors appears to be the norm.  Bill suggests analogizing law faculties to law firms, and he suggests solving the problem via long-term employment contracts that tie specific teachers to their schools — in exchange for compensation and other benefits that offset the perceived costs of foregoing the lateral market.  Jeff Lipshaw thinks that the law firm parallel is misplaced, partly because law firms are hardly ideals of institutional loyalty, and partly because there is more to firm-specific capital than the rule-oriented analysis supplied by Bill’s implicit game theoretic perspective.  Jeff looks at institutional capital in terms of leadership, something that is less tangible than outcomes from repeat-play transactions.

I think that Jeff is right that the law firm lens is too narrow, but I think that the culture-of-leadership framework is likewise incomplete.  Bill is right to be thinking in terms of structural solutions, but bilateral rule-following won’t do the trick.  Does leadership alone give members of an institution a justification for trading personal capital for a share of institutional capital?  If leadership means “persuading individual members to buy the institutional model,” then I think that the answer is no.  The deal still involves, as Jeff notes, trading one form of capital for another.  If individual members believe that selflessness weakens them, then leadership can’t change their minds.

If, on the other hand, leadership means building institutional capital in ways other than by coopting individual faculty members, then Jeff is onto something.  Faculty members need to believe that building institutional capital doesn’t involve sacrificing individual capital.  There’s a Prisoner’s Dilemma model buried here, as Jeff observes, but I’d characterize payoffs in cultural terms, and the payoff from cooperation requires accepting the inevitability of markets for academic prestige.  The long-term contract solution is unstable if faculty who buy into that model end up resenting what they believe is higher status among their free agent colleagues.  Institutional capital isn’t constructed solely out of institutional prestige, but prestige plays a big role, and prestige is relative; no one institution has the power to opt out.  A professor who buys the institutional argument is adding a share of institutional prestige to the existing prestige package.  And — finally — leadership can’t sell institutional prestige, that is, institutional capital doesn’t automatically translate into a better-functioning institution.  Institutional prestige has to sell itself, that is, individuals have buy in.  Individual members still have to get up in the morning and put on their institutional hats.

Structurally, in other words, the positive externalities associated with Bill’s bilateral long-term contracts are diluted immediately by the effect of the broader market for academic prestige.  Long-term contracts can’t offer all of that; they are detente in a world of law professors’ MAD (or, perhaps they’re a form of expensive law school SDI). The proverbial wall comes down, and stays down, when the other side thinks of itself as more important on the world stage when they aren’t chasing defectors.

What does all of that add up to?  In Pittsburgh (the region, not the law school), we have institutional capital coming out of our ears.  Urban partisans from around the world will disagree, but I’ll assert that present and former residents of Pittsburgh (and there are an awful lot of the latter) love this area (and its food, its football team, its slang, its traditions) like no other population loves its city.  As sports fans know, the core of the phenomenon is “Steelers Nation” and its outposts around the world, but Pittsburgh culture runs deeper and broader than that.

Where does that institutional capital come from?  From two things:

One, it comes from the community’s deep and abiding absorption in the history and mythology of Pittsburgh:  The power of its industrial heritage of a century ago, the model-of-urban-renewal experience of the 1950s, the “City of Champions” experience during the darkest years (the 1970s).  Professional sports in particular play an unusual role in Pittsburgh’s narrative:  The emergence of the Steelers after decades of ineptitude; the Pirates’ World Series win over the Yankees, Clemente, and the Pirates’ later We are Family era; Lemieux, and now Crosby and Big Ben.

Two, it comes from an economy that for generations has made it inexpensive to stay and costly to leave.  Real estate in Pittsburgh is dirt cheap compared to most other cities in the U.S.  Pittsburgh doesn’t need long-term contracts to keep people here; many people literally can’t afford to go anywhere else.  That might lead to a lot of defensiveness and anxiety, and at times it has. But it also produces an enormous well of regional pride.  Pittsburgh’s blue-collar self-image is pride born of necessity.

But all the regional pride in the world won’t turn the tide and make Pittsburgh a roaring economy any time soon.  In my Pittsburgh blog persona, with a few colleagues I think about how to activate that institutional capital to benefit the city — to get people to return, or to invest (time, money, and skill) to move the region’s economy forward.  It’s a difficult problem, and one that’s not unique to Pittsburgh, but it’s a problem that leadership cannot solve.  No amount of public persuasion — and there has been a lot of that — will motivate a community to wake up and simply align Pittsburgh’s interest with their interest.

How do we get people to put on their institutional hats?

What has to happen (and it may not) is that the community needs to perceive that if they do align the two, the proverbial pie gets bigger.  There’s the Prisoner’s Dilemma again.  Right now, the prevailing wisdom in Pittsburgh is that risk (i.e., aligning oneself with the institution) is a bad thing; life here is a zero-sum game.  We’re immensely proud of Pittsburgh, and we’re not going anywhere (either physically or conceptually), but we’re a region of defectors.

What does it take to make that happen?  I’ve concluded that the city basically cannot change itself.  Pieces of the city can reinvent themselves, and ultimately, perhaps, reinvent the whole.  Right now, certain Pittsburgh populations — economic and cultural communities — are positioning themselves as cooperators, and they are slowly appropriating and conserving Pittsburgh’s institutional capital:  certain high-tech entrepreneurs, certain sectors of the higher education community, the entertainment industry (such as it currently is).  That institutional capital is being reinvested, but largely only in those communities.  Pittsburgh’s zero-sum, risk-avoiding, “defector” population will, over time, simply fade in economic and cultural importance.  That’s the theory, anyway.

Can I translate that back into law school terms?  Not in any detail. But there are a few lessons, I think.

One is that a law school would do well internally to highlight successes in its institutional history (but not bury failures — those are part of the mythology, too), and to promote and continue rituals that connect past to present.  Never do that mindlessly; change and adaptation and all that.  The University of Pittsburgh and its law school partake deeply of much of Pittsburgh culture, but in my first years at the school I was often at a loss to understand aspects of the faculty’s behavior that were obviously grounded in its history and culture.  In Pittsburgh more broadly, newcomers to the city often look around in bewilderment at the city’s obsession with the steel industry — even though that industry has all but disappeared from the area.  But the history of steel is vital, and dismissing steel as an anachronism would be a terrible mistake.  Teach the newcomers, and have them teach their successors!  Create visible markers of that history.

Two is to create an environment where it is inexpensive to stay, and expensive to leave.  Are there ways to endow individual faculty members with a share of the prestige value of the institution?  Most law schools are part of larger institutions; does the larger institution have prestige markers that it can share?  Most law faculty can translate all of that into more and less concrete conditions.  Some of this is merely informational (how much do you know about what is happening elsewhere at your school?); some of it is (within limits) participatory (how often are you invited to participate in events connecting the school with its alumni?); some of it is architectural (in what ways does the facility naturally bring the faculty together, and in what ways does it separate them?).

Three is to accept that some people are natural cooperators and some people are natural defectors; coercion can solve problems at the margin — perhaps — but if a stable solution is to be found, it needs to arise largely organically. Institutional capital will accumulate and influence behavior when there is some relevant mass of people who take it upon themselves to make it so, and to act accordingly.  Some people will, over time, opt out.

Four, and the ultimate takeaway of this very long post, is that law (and any similar set of formal rules) may be a blunt and poor instrument for directly influencing the dynamic of any suitably complex social system.  This is counter-intuitive. Usually as lawyers we think of law and rules as increasing in importance as coordination problems expand with the size of a population; social or cultural norms are better suited to governance of small groups.  But the more I think about this general theme, the more convinced I am (whether in law schools, or recovering Rust Belt cities, or information markets) that this standard dualism is mistaken.  More another time.