Institutions vary greatly in how they function. Some, like SpaceX or Amazon, achieve far more than their peers. Some carry on in unexceptional fashion, like IBM. And some lurch from crisis to crisis while causing collateral damage to the society around them, like PG&E. How can we identify which institutions belong in each category? What mechanics of institutional health make the difference? And, in a world where functional institutions are now the exception, how do we build more exceptional institutions?

A common sign of an unhealthy institution is paralysis in decision-making. For example, the United States Congress has a well-earned reputation today for gridlock and partisanship, but it was a very different place in the 1960s. Back then, Congress was a responsive organization capable of addressing the great challenges of its time. When racial unrest and rioting swept the nation, Congress responded with landmark civil rights legislation, at a rate of about one new law every four years, that calmed tensions and established the racial compromises that persist in America today. In stark contrast with that more responsive time, the only major pieces of congressional legislation over the last decade were the Affordable Care Act of 2010 and the Trump tax reform of 2017. And even though Obamacare is ten years old, its upgrade or repeal has remained the source of an enduring political stalemate since then, with no resolution in sight.

Reforms for transparency and the abandonment of congressional patronage via methods like pork-barrel spending have made it harder for legislators to negotiate and cut deals in private. For all the problems with smoke-filled rooms, a camera-filled room may go too far in the other direction. “There is no such thing as bargaining in public,” Yuval Levin writes, because “interest groups and grandstanding politicians can tear apart a compromise before it is halfway settled.” The ACA, for instance, involved non-televised negotiations between President Obama and special-interest groups.

Another common sign of institutional decay is a decline in the quality and quantity of technical output. Google offers a good example. In the 2000s, it was regarded as the most productive technology lab in the world, a playground where engineers could develop and implement new ideas. Google not only revolutionized online search and advertising but also created Gmail, Google Earth, the Android operating system, and more. Today, the company’s output of world-class technology has slowed to the industry standard. Internal accounts from Google—now technically Alphabet Incorporated—tell stories of bureaucratization and internal politicking typical of a century-old behemoth like IBM. Ambitious projects like the Google News Archive, an historical-newspaper digitization project, were discontinued in 2011.

Eighty years ago, the Second World War directed some of the most effective organizations in history to the task of large-scale destruction. The militaries of the United States, Nazi Germany, and the Soviet Union were among history’s most formidable. But not all World War II-era governments were so effective. Italy, for example, lagged behind at every level. Italy produced about 80,000 vehicles over the course of the war, while General Motors alone turned out 800,000 for the United States. American industry produced more than four times as many vehicles as Italy per unit of 1939 GDP throughout the war. In combat, the Italians routinely struggled against foes that looked inferior on paper, suffering embarrassing defeats in North Africa and Greece before the tide was turned by German reinforcements with similar numbers, similar technology, and similar ideology. Whatever magic the great powers tapped into, Italy had no part in it.

The greater effectiveness of some organizations compared with others is not just a matter of technical skill in a few narrow domains. Rather, institutional health is the result of a self-reinforcing pattern of organizational structure. Like biological health, it indicates a complex system in which each component works to fulfill its purpose and support other components, and where the system as a whole tends to maintain and repair itself.

A key component of institutional health is personnel—people who understand the social system. Every institution has an official “org chart” and set of protocols, but beneath the org chart lies a deposit of “intellectual dark matter” vital to the institution’s function: private social networks, unwritten plans, roles with more or less power than officially stated, and more. This institutional memory resides in the heads of people who know how to use it.

Such people are essential to the maintenance of existing systems. A healthy organization needs leaders who understand not only what is being done but also why it is being done, which allows them to see which areas are succeeding or failing. Departments may be succeeding according to internal metrics but failing to advance the general mission of the organization. It often takes unusual skill to tell these apart. Without enough such people to repair internal drift and respond to changes in the external environment, an organization will become corrupt and obsolete.

Once an institution has enough people who understand the social system, the second key component is effective meritocracy. Merit must be defined in accordance with the logic of the specific institution. Skilled people must end up in the right roles or their talents will achieve very little. Healthy institutions don’t need to achieve the philosophical ideal of perfection. Rather, they need to get enough good people into responsible positions and put highly capable people into the most demanding roles. In most domains, relationships, soft skills, and effective combinations of skills—such as Scott Adams’s concept of talent stacks—tend to be more relevant to success than marginal differences in pure skill. Moreover, an effective meritocracy does not ignore the problem of trust and coordination between its meritocrats. Trustworthiness, loyalty, and other people skills are as important qualities as narrow skill in a domain. The competent people in an organization have to get along, one way or another, or nothing will get done.

This is especially true in politics. President John F. Kennedy was highly capable as a politician, but his success also depended on his looks, charisma, and family resources. He appointed his brother, Robert Kennedy, to be attorney general. An ideal meritocracy would condemn this as nepotism, but it would hardly make sense for JFK to have combed the earth looking for the objectively “best” candidate when he had a loyal, capable brother who was a graduate of Harvard and conversant with his aims. The degree of trust and loyalty between them outweighed any considerations for a marginally more competent lawyer when it came to the question of coordinating on government policy. Historically, dynasties like this were unremarkable, as it was widely recognized that family members would be motivated to work together.

Counterintuitively, this type of meritocracy can sometimes coexist with a rigid class system. For example, Britain in the 1700s was a highly stratified society, with hereditary nobility at the top of the social pyramid. Nevertheless, many of the most powerful people came from the middle class and gentry. Government ministers like Robert Walpole, generals like Robert Clive, and industrialists like Boulton and Watt faced few barriers as they rose to greatness and contributed to the dominance of the British Empire, while less competent nobility retained social privileges without real power. Weaker class barriers could have increased the pool of potential leaders even further, but so long as the pool is large enough, a society can thrive.

Training and education are essential to institutional continuity. A new generation of skilled people must be intentionally cultivated. Autodidacts may sometimes rise on their own, but never in sufficient numbers to make education obsolete. There are no societies of autodidacts; society must instruct its future leaders. Education is indispensable, but credentialism can be a far greater barrier to professional success than a rigid class system and was historically not the dominant system.

The Roman Republic’s cursus honorum put young elites in a variety of military and civil positions to get hands-on experience with the mechanics of power. The Ivy League of the early 1900s taught a broad classical curriculum to young American elites that prepared them for effective leadership, not for a specific profession or area of expertise. Individual companies, professions, subcultures, and other institutions must also pass down their individual traditions of knowledge or see them decay.

Effective institutions must also solve the succession problem. As time passes and skilled people retire or die, an institution must find ways to preserve the knowledge and structures that allow it to function. Existing institutions must solve the succession problem and hand control to people of sufficient ambition and skill. As new power centers arise, elites must find a way to incorporate them into the system. A more recent example is the effort to integrate tech companies into the ruling elite.

Many causes of institutional decay are foundational, and it is much more difficult to re-found an institution than to found a new one; it may be more straightforward to create mechanisms that alleviate symptoms within institutions. One might ask, in an unhealthy institution, how well the official org chart corresponds to the social reality. A reshuffling of roles may be the solution to a management problem, rather than hiring motivational speakers or a bigger budget. If you possess unique knowledge crucial to the functioning of your institution, is it written down so that someone else can do it, in your absence? In other words, have you solved for the Bus Factor?

Since institutions depend especially on the most skilled people, institutional health is largely determined by what happens to these people. Where they are plentiful and coordinated, institutions will flourish. Where they are scarce or fractured, institutions will decline. Outcomes depend not only on these skilled people but also on the design of institutions and the mechanisms that allow them to cooperate. The wide range of institutional variation throughout history shows us that, key commonalities aside, there is plenty of room for specialization. To make full use of past and present examples, we will need conscious and deliberate designers of institutions.

Stephen Brashear/Getty Images


City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).

Further Reading

Up Next