Capacity for institutional development

The concepts of decentralization, governance, good governance, local governance, and water governance are all linked to institutional development and institutional capacity. Institutional capacity development refers to the processes that aim to establish or increase the capacities of (formal) institutions to exercise their legally-defined functions. Institutional development is not a separate activity or a project as such, but rather an endogenous, complex, and dynamic process of development or transformation. These, in turn, require a sense of ownership, and a willingness to change and to improve from within. Institutional development cannot be sustainable if done from outside. The primary stakeholders have to make the change themselves and thus, be committed to make the effort from the beginning.

Successful institutional development calls for broad-based participation which in case of the local governments entails all the community development actors within the administrative boundaries of the local government. However, there is a risk of shallow results in a complex environment as a result from comprehensiveness and wide participation. There may simply be too many issues and interests involved to make progress with any of the issues. Even if the activity is clearly focused on water and environmental sanitation, there will be a large number of stakeholders and interests involved. The challenge remains: how to address multiple issues

simultaneously, in an integrated manner, without missing the momentum for real change and tangible improvements? There are no quick fixes since strengthening institutional capacity takes time.

Institutions in this study are considered as more than organizations. Using the definitions given by North (1990), formal institutions consist of laws, regulations, and government structures, while informal institutions shape the unwritten codes of behaviour. Understanding informal institutions is of utmost importance for those concerned for sustainable development in a multi-ethnic, culturally diverse rural societies. Organizations, in turn, can be more formal and guided by written codes of practice. As defined by North (1990), organizations consist of groups of individuals bound together by a common purpose to achieve objectives. In other words, organizations are players in a game where institutions are the rules of the game. In this study, the Water Users and Sanitation Committees (WUSCs) and the lowest tiers of local government institutions represent formal organizations; i.e., those who create the enabling (or disabling!) environment and the broader governance structure. There are also a number of local informal institutions which have direct impact on such organizations as WUSCs who are meant to translate the policies into local action, or indeed, inaction. Informal institutions are especially relevant in the local context where they can have particularly strong influence with rather immediate, tangible results.

Shah and Shah (2006), among others, consider the new institutional economics helpful in clarifying local government roles and responsibilities on a broader framework of local governance. The frame of reference also gives an opportunity to acknowledge how the situation can get complicated by weak or extant countervailing institutions, path dependency, and the interdependency of various actions (pp. 18–19). This framework is useful in examining local government involvement in a partnership of multiple organizations. The authors introduce the network forms of local governance within which the local government has an opportunity to play a catalytic role in facilitating the roles of various types of networks in improving social outcomes for local residents. The authors call for a new local public management paradigm which demands the local government to separate policy advice from programme implementation. In this paradigm, the local government takes the role of purchaser of public services but not necessarily as a provider of them (p. 20). This is in line with the service delivery thinking concerning water supply, whereby the local government does have a role as a service authority, but not necessarily as the service provider or producer.

Water services are a multi-level system as described by Katko and Hukka (2015), ranging from on-site to cooperatives, municipal utilities, and various types of supra-municipal arrangements.

The authors are concerned that even with this evident multi-polarity, the debates concentrate just on one level, ignoring the others and their inter-relationships. The authors call for a distinction in between service provision and production, which until now has gone undetected by almost all parties (p. 222). This echoes with the new rural water service paradigms and the notions of professionalization of rural water services. This suggestion is supported by literature concerned with the existing incentives and accountability framework faced by existing levels of

government: these are not seen as conducive to a focus on service delivery consistent with citizen preferences (Shah & Shah, 2006, p. 21). This is particularly relevant in a country such as Nepal where, in the absence of elected local bodies, the services are delivered by centrally appointed bureaucrats.

Each local government and community has its specific characteristics, and traditions and cultural practices are diverse; informal institutions can be equally varied. Casson, Della Giusta, and Kambhampati (2008) discuss the importance of informal institutions in the development process. The authors highlight how a development-orientated institutional perspective also needs to emphasize more explicitly the role of informal institutions in shaping formal ones. Their interpretation of North’s theory of institutional change explains that formal institutions are a crystallization of informal ones, and that both co-evolve through the operation of organizations, both informal and formal social groups, from households and villages to networks, firms, parties, and governments (p. 137).

Casson et al. (2008) further note that issues of equity, economic rules and regulations, caste, religion, social capital, and elite groups affect the dynamics of institutions, and acknowledge that informal institutions do shape the formal ones. The authors draw attention to social capital and elite groups that are highly relevant notes for rural water sector and community-managed water systems. Here they define social capital as “trust, norms of reciprocity, sanctions and networks which allow co-operation. Social capital decreases the transaction costs of organising activities” (p. 139). Yet, while social capital can help to resolve problems, access to social capital may depend on a person's power and location. In this regard, the authors consider that sustainability may be compromised by such inequality (p.139). Adhikari and Goldey (2010) studied 129 community-based organizations in Southern Nepal, and concluded that upward enforcement of rules is impractical, enabling elite capture of resources and impunity due to the caste- and class-based hierarchical social organization and power-based vertical relations in the society in general (p. 192). Also Cleaver (2005 and 2012) acknowledges the challenges linked to social capital and related notions of participation.

The tension between formal and informal institutions can force institutional changes, both intentional and unintentional (North, 1990). The role of informal institutions gets even more important in a post-conflict situation where formal institutions are poorly defined or not functional at all. This is particularly relevant for the focus country of this study, Nepal. This is not entirely a negative matter; change can also be positive and constructive, and new synergies may emerge. Pahl-Wostl et al. (2008) considered strong interdependence and synergies between formal and informal institutions as an emergent feature of more collaborative governance styles.

The authors saw it particularly important for understanding institutional change and transitions towards more adaptive water management regimes (Pahl-Wostl, 2002; 2007a; Pahl-Wostl et al., 2005, in Pahl-Wostl et al., 2008).