Institutional Change from a Psychological Perspective: the case of the Reform and Opening Up in China

Institutional changes are necessary for the organization to adapt to the external environment in this turbulent era. At the late stage of his theoretical construction, Douglass North tried to reconstruct the theory of institutional change from the perspective of ideology. However, his framework and follow-up literature remain less clear on how ideologies are established and distributed during institutional change. Taking the case of the Reform and Opening Up in China, this study employed a psychological perspective based on Personal Construct Psychology to examine the ideological transition of China during the Reform. The Reform and Opening Up were one of the most important institutional changes during the 20th century. Economically, China integrated the market competition mechanism into its planned economic institution and increased investment in daily necessities rather than a pure focus on means of production. Politically, the Communist Party of China decentralized its political power, emphasizing intraparty democracy instead of over-concentration of power in the hands of particular leaders and initiated the bureaucratic reform to "abolish the de facto lifetime tenure system of government officials" and "modernize the contingent of government officials." Yet, this drastic institutional change could not be achieved without the help of the Intellectual Entrepreneur. By establishing the Practice Criterion as a superordinate construct, the leading Intellectual Entrepreneur, Hu Fuming was able to subsume the previous ideology as a subordinate construct into his own construction system. Since the practice criterion has a higher level of abstraction, namely stronger explanatory power, it replaces the Continuous Revolution theory developed by Mao Zedong. Further, by combining the Four Cardinal Principles with the Practice Criterion, Deng Xiaoping reconstructed this ideology launching the institutional change of the Reform and Opening Up. Our contribution is twofold. First, this study provides an alternative explanation for the institutional change of the Reform and Opening Up, verifying North's ideological theory on institutional change. Second, by integrating a psychological perspective from the theory of the Psychology of Personal Construct, this study adds to the existing Northian model of institutional change by elucidating the role of intellectual entrepreneurs and the top-down and bottom-up process of ideology.