Capital–Legitimacy Substitution: A Structural Account of Governance Failure in Capital-Intensive Institutions

Roshan Ghadamian
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Roshan Ghadamian: Institute for Regenerative Systems Architecture

IRSA Working Papers from Institute for Regenerative Systems Architecture

Abstract: Resource dependency is well understood: capital constrains what an institution can afford to do. This paper describes a different and less examined condition, in which capital stops constraining the option set and starts supplying the justification for choosing within it. Capital--legitimacy substitution (CLS) occurs when capital substitutes for institutional legitimacy as the basis of decision authority — when decisions are justified through capital scale, continuity or urgency rather than through mandate, evidence or procedure. The distinction is not one of degree. Under resource dependency an institution does what it can afford; under CLS it does what the capital's presence makes defensible, and the two diverge exactly where the decision is contested. CLS is not a general property of capital-rich environments. It requires three conditions to coexist — legitimacy scarcity, capital scale asymmetry and justification ambiguity — and it varies systematically with insulation architecture, the procedural, temporal and fiscal buffers standing between a capital source and the decisional core, which is why domains under comparable capital pressure exhibit it to very different degrees. Its consequences are procedural rather than ideological. Institutions under CLS remain formally compliant and become structurally fragile: authority migrates from deliberation toward responsiveness to capital dynamics, without any actor intending it and without any rule being broken. That is what makes it hard to see and harder to attribute — and, because the conditions are structural, what makes it addressable by design. The remedy is procedural containment: rules governing how a decision may be authorised, which neither adjudicate values nor restrict capital flows.

Keywords: capital--legitimacy substitution; decision authority; resource dependency; insulation architecture; procedural containment; institutional legitimacy; governance under pressure (search for similar items in EconPapers)
JEL-codes: D02 D72 D73 G30 L31 (search for similar items in EconPapers)
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