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2023 | Book

Institutions and Economic Development

Markets, Ideas, and Bottom-Up Change

Authors: Bryan Cheang, Tom G. Palmer

Publisher: Springer Nature Singapore

Book Series : Classroom Companion: Economics

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About this book

This book is a survey of the field of development studies from a political economy perspective. It first reviews the academic literature on development and highlights the fundamental importance of institutions and social values, over and above other alternative theories, as determinants in long-run development. In this context, the book draws from the works of Nobel Laureates Douglass North, F.A. Hayek and Elinor Ostrom, and argues that the ingredients of property rights, the rule of law, and market freedoms are essential in generating socio-economic progress.

Successful reforms however are not simply a function of constructing formal institutions, but must cohere with the social values, norms, and cultural commitments of local communities. It is in this spirit that the book theorises on the oft-neglected role that political entrepreneurs play in driving endogenous institutional change. Specifically, this book integrates the theoretical discussion on market-driven development with a range of case studies from around the world, featuring the bottom-up efforts of local change agents to pursue institutional reforms and changes in social opinion.

Table of Contents

Frontmatter
Chapter 1. Development and Progress
Abstract
This chapter provides an introduction to the topic of development studies. It starts by arguing that development is essential for human flourishing and highlights the tremendous economic progress—understood as the ‘Great Enrichment’—that humanity has achieved in recent centuries. Progress, however, is by no means inevitable and requires the right ‘ingredients’, which may be divided into proximate vs deep determinants of development. The wealth of nations, on a proximate level, is increased through gains from trade and the gains from innovation, both of which increase the productive capacity of an economy and thus material well-being. These gains, however, may be affected by deeper factors, such as culture, geography, institutions and the nature of political leadership. Accordingly, this handbook approaches the challenge of development from an institutional perspective and asks ‘what are the rules and cultural values most conducive to encouraging wealth creation, production and innovation’?
Bryan Cheang, Tom G. Palmer
Chapter 2. A Brief History of Modern Development Thinking
Abstract
This chapter provides a brief historical overview of key thinkers in development economics, from the classical development economics of the post-war era to contemporary times. This overview is divided into three sections. First, the contributions of early classical development economists, such as Paul Rosenstein-Rodan, Ragnar Nurkse, Albert Hirschman and Arthur Lewis, are explored. These early models typically assume the presence of high state capacity necessary to catalyse development through a ‘big-push’, an assumption that may not always bear out in the real world. Second, the contributions of some contemporary thinkers are explored, namely Jeffrey Sachs on foreign aid, Robert Solow on growth accounting, Paul Romer on human capital and Amartya Sen on freedom. This chapter also ends by comparing two heterodox, anti-establishment thinkers in the form of Peter Bauer and Ha-Joon Chang. Despite their ideological differences, their works are highly valuable in pointing attention towards the political economy dimensions of development and the role of the state.
Bryan Cheang, Tom G. Palmer
Chapter 3. Markets and Development
Abstract
This chapter explores the importance of ‘getting the prices’ right. Economic progress first requires a sound mechanism that achieves economic coordination in the face of uncertainty, human self-interest and limited rationality. While markets are highly imperfect, they nonetheless, on a comparative basis, are the best available system available to deal with these inevitable constraints of social life. Accordingly, societies that achieve higher degrees of economic freedom are those that do better on a variety of welfare indicators. Pro-market reforms, however, are best pursued in a bottom-up fashion by local organisations and change agents, who possess the crucial contextual knowledge needed to pace, sequence and structure the reforms to maximise their impact. This chapter accordingly documents policy reform efforts by local change agents in five different countries.This chapter also identifies two leading market-critical schools of thought: market failure theory and dependency theory. Both point to the weakness of neoclassical economics: its overly idealised conditions and absence of institutional analysis, as well as its inability to account for power relations. Consequently, this chapter also presents a ‘market process’ view, which allows for a greater appreciation for policy entrepreneurs and institutions.
Bryan Cheang, Tom G. Palmer
Chapter 4. Institutions and Market-Driven Development
Abstract
This chapter explores the importance of ‘getting the institutions’ right. Institutions may be understood as the rules and values that characterise the basic structure of society. They govern human behaviour and thus fundamentally determine the prospects of long-run development. Economic progress requires institutions that encourage social cooperation and wealth creation rather than conflict and resource extraction. A sound institutional environment is one that protects private property rights and upholds the rule of law. It was a failure to ensure proper and functioning governance that explains the past setbacks of foreign aid programs and Washington Consensus market reforms. Good institutions, however, are not easily transplanted from one context to another and require the participation of local communities who provide local knowledge that makes institutions stick.
Bryan Cheang, Tom G. Palmer
Chapter 5. Culture, Development and Liberal Values
Abstract
This chapter explores the importance of ‘getting the culture’ right. Culture is not an immutable trait or an essential characteristic of a people, nation or group, but as a set of dynamic values that evolve over time. The prevailing climate of opinion, determined by intellectuals and various dealers of ideas, affects whether society supports growth-enhancing activities or socially sanctions them. Accordingly, liberal values rooted in respect for individual rights, dignity and agency are essential ingredients for economic development and progress. By dignifying wealth-creating activities of entrepreneurship, work and investments, liberalism unlocks the economic potential of nations. Ultimately, however, the prevailing cultural climate in society is a product of an uncertain process of competition in the cultural marketplace, where various entrepreneurs put forth different social values and struggle for dominance.
Bryan Cheang, Tom G. Palmer
Chapter 6. State Capacity and the Political Infrastructure of Development
Abstract
This chapter explores the political factors necessary for development. State capacity, understood as the capability of a state to implement and enforce its decisions, is indeed an essential ingredient for development. State capacity, however, does not exist in a vacuum and may at times be enhanced through knowledge transfers from civil society organisations. Crucially, state capacity must also be tempered with meaningful constraints on the exercise of power, lest it degenerates into predation. Authoritarian governance, technocracy and developmental state arrangements may on occasion be able to achieve rapid income growth but will fail to deliver sustained cutting-edge development and the freedom that a good life entails. Liberal democracy is therefore the political regime that is most consistent with sustained economic progress and human flourishing. While liberal democratic institutions may take many forms, depending on local cultural differences, it is premised on commitments to limit arbitrary coercion under the rule of law. Ultimately, this chapter recommends a strong consideration of polycentric governance—inspired by Elinor Ostrom’s work—an approach combining high state capacity, state constraints well as accommodation for cultural diversity.
Bryan Cheang, Tom G. Palmer
Chapter 7. Conclusion—Humane Liberalism, Bottom-Up Change and Institutional Entrepreneurship
Abstract
This chapter concludes by focusing on the contributions of civil society in development. Beyond a purely state vs markets approach, individuals, organisations and groups in civil society play an important role in enacting positive social change. While market policies, institutions and liberal values are essential ingredients, as previously established, positive change requires the work of local change agents, who provide policy advice, improve understanding of the necessity for change, lower the political costs of policy reforms and mobilise the public to act. They therefore translate abstract theoretical knowledge about the ‘right’ ingredients for development into concrete implementation on the ground. The myriad policy experiments of local change agents comprise a trial-and-error process of learning in the experimental laboratory of global development. The future of development, liberal society and human welfare is, however, ultimately uncertain and depends on the sustenance of active citizens willing to defend liberal norms.
Bryan Cheang, Tom G. Palmer
Metadata
Title
Institutions and Economic Development
Authors
Bryan Cheang
Tom G. Palmer
Copyright Year
2023
Publisher
Springer Nature Singapore
Electronic ISBN
978-981-9908-44-8
Print ISBN
978-981-9908-43-1
DOI
https://doi.org/10.1007/978-981-99-0844-8

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