Institutions are the mechanism through which human beings coordinate their behaviour, enforce their agreements, and provide for their collective needs. Everything else about them is secondary to this function.
The Foundational Function
Institutions exist because human beings need to coordinate their behaviour with strangers — people they do not know personally, whose interests are not identical to their own, and whose future behaviour they cannot fully predict — in ways that allow the collective action that individual action cannot produce. The market that allows strangers to exchange goods and services without prior acquaintance. The government that provides the public goods that private actors will not provide because the benefits cannot be restricted to those who pay for them. The professional association that maintains quality standards that individual practitioners could not credibly commit to without institutional certification. The religious institution that provides the community and the moral framework that sustains individual commitment to collective obligations. Each of these institutions performs the foundational coordination function in a specific domain and for a specific population.
The secondary functions of institutions — the provision of specific services, the enforcement of specific norms, the management of specific resources — are expressions of the foundational coordination function in specific domains. Understanding what institutions are for requires holding the foundational function in view alongside the specific functions: the institution that is performing its secondary functions well but failing its foundational function is not performing well in any sense that matters for the populations it is supposed to serve.
Institutions are for enabling the collective action that individuals cannot achieve alone. Every other function they perform is an application of this foundational purpose. The institution that forgets its foundational purpose — that optimises for its secondary functions, its own perpetuation, or the interests of its most powerful participants — has substituted institutional self-interest for the purpose that justifies the institution's existence.
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