A New Institutionalism Analysis of Electricity Sector Reform: Theoretical and Comparative Perspectives

INTRODUCTION In recent decades, reforms in the utilities sectors in general and in the electricity sector in particular have become a leading re-structuring strategy in developed and developing countries (Bartle 2002; Jamasb 2006; Rainer and Jabko 2001). The utilities sectors provide basic infrastructures, so inefficiencies in these areas may create bottlenecks that delay the development of other sectors and hinder economic growth (Jamasb 2006; Newbery 2002). Reforms in these areas include regulation, corporatization, privatization, restructuring and legislation (Bartle 2002; Jamasb 2006). The international experience in the area of utility sector reforms raises several broad questions that reflect on our understanding of public sector reforms in general and policy practice in particular. A major question concerns the pace and timing of reforms. Are public sector reforms radical, one-time changes or gradual and incremental? Regardless of the current situation, we must determine which is the preferred approach (Pollitt and Bouckaert 2004; Streek and Thelen 2005). These questions also concern the depth and impact of learning, and the diffusion of ideas in the reform process. Another theoretical dilemma is the role of institutions and individual players in reform processes as well as the interaction between them (Moynihan, Pandey and Wright 2011). The literature offers contradictory depictions and recommendations that must be synthesized. Broadly speaking, the dispute revolved around whether structural factors and institutions explain policy outcomes better than individual entrepreneurship and leadership do (Weingast 2005). An important factor in this debate concerns the role of culture and national characteristics in explaining such dynamics. In addition, are there categorical differences between the dynamics of institutional change in developed countries as compared to developing countries? This paper builds a theoretical framework that addresses these broad questions in the context of utility sector reforms in general and electricity sector reforms in particular. We then test the framework empirically and present a comparative analysis and a case study. The comparative literature on utility sector reforms tends to compare the telecommunications and electricity sectors (Levi-Faur 2006). However, they differ in various techno-economic aspects that make the influence of transnational pressure more significant in the telecommunications sector than in the electricity sector (Bartle 2002; Humphreys and Padgett 2006). Technological improvements that eliminate the monopolistic nature of the service are more advanced in the telecommunications sector than in the electricity sector where such improvements are relatively rare (Jamasb 2006; Tishler et al. 2006). Thus, the electricity sector provides a rich environment for analyzing the ways in which intra-state institutional variables as well as strategic interactions between individual players influence reforms and institutional change. The case study we present is the ongoing process of restructuring and reform in the electricity sector in Israel in recent decades. The Israeli case is especially interesting because there we can identify characteristics of developed countries and essential features of developing countries. In terms of economic indicators, Israel is often considered a developed economy (IMF 2008), yet its highly centralized bureaucratic structure and political culture resemble those of developing countries (Mizrahi 2004; Mizrahi et al. 2009). This tension has implications for the ability to reform the Israeli public sector in general and the electricity sector in particular. Indeed, only minor institutional changes occurred during the 1990s and 2000s in the Israeli electricity sector. These characteristics, particularly the relative stability of the status-quo, suggest a very interesting empirical setting that can be compared to many other cases and may help address some of the broad theoretical questions mentioned earlier. …