The primary focus of this strategy is on strengthening legitimate and effective institutions on the national as well as local level in order to enable these to deliver essential services. This approach is partly a reaction to the various failures of the Liberalization First strategy. Despite their common dedication to the ideal of a democratic market economy, the two approaches differ with regard to the means of implementation. In particular for state building in postconflict societies, the formula “institutionalization before liberalization” is deemed appropriate (Paris 2004, 179-211). The basic assumption made by adherents of this strategy, such as Fukuyama (2004), is that knowledge about organizational structures, public administration, and the creation of institutions is transferable while other aspects—sociocultural factors (such as social norms) in particular—can hardly be influenced by external actors. Proponents of the Institutionalization First approach share a belief in the socializing effects of political institutions that—in the medium and long term—contribute to alter the behavior of local actors and further processes of collective learning, which in turn promote respect for public institutions thereby strengthening their capacity to govern effectively. Their activities are therefore primarily directed at establishing and consolidating political institutions (parliaments, councils), promoting the rule of law (establishing constitutional courts, for instance), strengthening and reforming public administration (in particular tax, customs and fiscal authorities), and fighting corruption. Another core task is the creation of institutions and procedures for conflict management and dispute settlement, such as ombudsman offices, committees, arbitration panels, “councils of elders,” and traditional courts.
The legitimacy of such measures is crucial to the involvement of all relevant societal groups in these institutions. Institutionalization First is thus compatible with informal or formalized power-sharing models, which place a premium on the inclusion of all relevant actors, not least to prevent cleavages between minorities and the rest of the population. All-party governments, proportional representation, quotas that ensure a fair distribution of offices as well as veto rights are common measures to ensure equal representation (Reilly 2001; Schneckener 2002; O’Flynn and Russell 2005; Jarstad 2008). Other methods for political decision making that do not necessarily correspond to democratic standards, but are nevertheless accepted as legitimate by the local population, are traditional forms of rule, neopatrimonial structures (patron-client relations), and procedures aimed at co-opting and consulting societal groups. This approach is in line with the promotion or revitalization of existing institutions influenced by local traditions inasmuch as these contribute to the consolidation of statehood. Hence, proponents of this concept are not only skeptical regarding rapid economic liberalization but also regarding the imposition of the classical model of a majority democracy (Westminster style), in particular in the context of multiethnic societies. In practice, bi- and multilateral donors pursue this approach especially with a view to reforming public administration and promoting the rule of law.
Since the Institutionalization First approach is emphasizing the need to create or enhance institutional capacity, the strategy tends to privilege actors whose main objective is to secure their power basis and pursue their particularistic interests, rather than to consolidate statehood in the long run. The elite-oriented, top-down perspective of this approach favors such tendencies. In particular the necessity inherent in this strategy to (temporarily) draw on pre- or nondemocratic procedures and institutions, respectively, may undermine or entirely frustrate the long-term goal of democratization. The unintended result of this strategy could, thus, ultimately be the consolidation of authoritarian or clientelistic structures, whose representatives reject any type of reform-oriented policy by making reference to tradition, ethnicity, or religious beliefs, and who continue to pursue their policies behind institutional “facades”—see, for instance, the latest developments in Sudan, Zimbabwe, or Kenya despite official power sharing or grand coalition arrangements between the “old” regime and opposition parties. Correspondingly, the gap between legally formalized procedures and factual politics would widen. In the long run, this would harm the legitimacy of externally induced institutionalization and would exacerbate the population’s alienation from the state’s institutions.