Institutions, Institutional Change and Economic Performance

Institutions have (re)emerged as a popular topic in development studies, particularly after Why Nations Fail (2012). However, the study of institutions and institutional change should trace back to key work of Douglass C. North, namely the 1990 book "Institutions, Institutional Change and Economic Performance". Given several decades have passed, parts of the book are less relevant today. It is worth reading to better understand the history and development of ideas (and at only 140 pages of text, it is not a lengthy read).

The book "provides the outline of a theory of institutions and institutional change", which at the time of writing, was a relatively novel contribution. North writes in the Preface to the book that "History matters. It matters not just because we can learn from the past, but because the present and the future are connected to the past by the continuity of a society's institutions. And the past can only be made intelligible as a story of institutional evolution" (p. vii). Again, later in the text: "Path dependence means that history matters. We cannot understand today's choices (and define them in modeling of economic performance) without tracing the incremental evolution of institutions" (p. 100).

First, North takes down a dominant mode of thinking: "If political and economic markets were efficient (i.e. there were zero transaction costs) then the choices made would always be efficient. That is the actors would always possess true models or if they initially possessed incorrect models the information feedback would correct them. But that version of the rational actor model has simply led us astray. The actors frequently must act on incomplete information and possess the information that they do receive through mental constructs that can result in persistently inefficient paths. (p. 8).

Why institutions? "Institutions provide the basic structure by which human beings throughout history have created order and attempted to reduce uncertainty in exchange. Together with the technology employed, they determine transaction and transformation costs and hence the profitability and feasibility of engaging in economic activity. They connect the past with the present and the future so that history is a largely incremental story of institutional evolution in which the historical performance of economies can only be understood as part of a sequential story." (p. 118)

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The Black Man's Burden

The role of institutions in development has becoming increasingly important, most notably in the recent works "Economic Origins of Dictatorship and Democracy" (2006) and "Why Nations Fail" (2012). Before these books, Basil Davidson wrote "The Black Man's Burden: Africa and the Curse of the Nation-State" (1992), which places a large emphasis on the role of institutions, their legacy, structure and formation. In is also a work that he writes offers the "conclusions of a lifetime" of experiences and study. Davidson writes "in this book I present in summary and perspective whatever wisdom I have gathered in these forty-odd years of African study" (p. 8).

The following offers some quotes that summarize his key arguments, but this is essential reading in full:

"Africa's crisis of society derives from many upsets and conflicts, but the root of the problem is different from these: different and more difficult to analyze. The more one ponders this matter the more clearly is it seen to arise from the social and political institutions within which decolonized Africans have lived and tried to survive. Primary, this is a crisis of institutions. Which institutions? To this the answer is easier. We have to be concerned here with the nationalism which produced the nation-states of newly independent Africa after the colonial period: with the nationalism that became nation-statism. This nation-statism looked like liberation, and really began as one. But it did not continue as a liberation. In practice, it was not a restoration of Africa to Africa's own history, but the onset of a new period of indirect subjection to the history of Europe. The fifty or so state of the colonial partition, each formed and governed as though their peoples possessed no history of their own, became fifty or so nation-states formed and governed on European models" (p. 10).

"The contrast with Japan after 1867 could really not be more accurate. Japan was able to accept "Westernization" on its own terms, at its own speed, and with its own reservations, ensuring as far as possible that new technology and organization were assimilated by Japanese thinkers and teachers without dishonor to ancestral shrines and gods. Japanese self-confidence would be salvaged. Such an outcome was impossible in dispossessed Africa. In retrospect, the whole great European project in Africa, stretching over more than a hundred years, can only seem a vast obstacle thrust across every reasonable avenue of African progress" (p. 42). In essence, the post-colonial efforts, by in large Davidson argues, faced and embraced an environment wherein the 'traditional' was ignored, considered backward and stagnant.

"At the outset of independence there had been a narrow gap in trust and confidence between the bulk of the population and the beneficiaries or leaders of anticolonial nationalism. The social aspects of the anticolonial struggle still retained primacy of influence over all those aspects concerned with nation-statist self-identification… Now, after ten or twenty years the gap has widened to an abyss: on one side, a great mass of resentful and impoverished rural people and, one the other, a small minority with quantities of wealth. Into that abyss there had plunged, more or less helplessly, the legitimacy and credit of the state which had allowed this gap to yawn." (p. 214-215). 

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Post-doc: Policy perspectives on ecological chemical risk management

Posting: Two Postdoctoral Fellow Positions at McGill University

Location: Montreal, Quebec, Canada

Start Date: January 2017 or as soon as possible

Salary: $45,000 per annum

Duration: 2 years, with possibility of 1 year extension

We are seeking candidates for two fully-funded Postdoctoral Research Associate positions. One position will be primarily supervised by Steve Maguire, Professor of Strategy & Organization in the Desautels Faculty of Management and Director of the Marcel Desautels Institute for Integrated Management. The other position will be primarily supervised by Gordon Hickey, Associate Professor in the Department of Natural Resource Sciences, Faculty of Agricultural and Environmental Sciences.

The successful candidates will conduct individual and team-based research on ecological chemical risk management, policy and regulation, with a particular focus on the role of institutional entrepreneurship in complex innovation systems. Both postdoctoral fellows will have substantial freedom to define their research focus as long as it aligns with the general focus on understanding (1) the organizational challenges posed by ecological chemical risk management, policy and governance; and (2) the process of deinstitutionalizing prevailing practices of ecological chemical risk management and institutionalizing new ones based on toxicogenomics. Initial areas of focus include:

  • How do institutional entrepreneurs transform the field of ecological chemical risk assessment by catalyzing the abandonment of prevailing practices and adoption of new ones based on toxicogenomics?
  • How can new practices based on toxicogenomics have the most significant – and beneficial, from the perspectives of diverse stakeholders – impact on ecological chemical risk assessment, policy and governance networks in terms of the outcomes they achieve?

Essential Duties: The primary responsibilities of the post-doctoral fellows (PDFs) will be to conduct innovative research and outreach in collaboration with a diverse group of university scientists as well as their industry and government partners. The specific duties will include literature reviews; stakeholder liaison activities; project management; data collection, analysis and interpretation (via ethnographic, qualitative and/or quantitative methods, depending upon each PDF's interest and experience); report writing; and the preparation of manuscripts in cooperation with the supervisors. The successful candidates will also be responsible for training graduate students and contributing to the development of competitive research grants as needed.

Application deadline: 31 October 2016. Only short-listed candidates will be notified.

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Contesting Power

Acemoglu and Robinson's Why Nations Fail (2012) offers insight into why wealth and poverty exists (see post here). It also provides direction as to how more inclusive political and economic institutions are formed, which draws on their 2006 book, On the Origins of Democracy and Dictatorship. They open with a comment about the Arab Spring: "In this book we will argue that the Egyptians in Tahrir Square, not most academics and commentators, have the right idea. In fact, Egypt is poor precisely because it has been ruled by a narrow elite that have organized society for their own benefit at the expense of the vast mass of people." (p. 3) Towards the conclusion of the book, the idea of conflict is returned to: "Inclusive economic and political institutions do not emerge by themselves. They are often the outcome of significant conflict between elite resisting economic growth and political change and those wishing to limit the economic and political power of existing elites" (p. 332)

  • "Political institutions determine who has power in society and to what ends that power can be used. If the distribution of power is narrow and unconstrained, then the political institutions are absolutist… In contrast, political institutions that distribute power broadly in society and subject it to constraints are pluralistic. Instead of being vested in a single individual or narrow group, political power rests with a broad coalition of plurality of groups." (p. 80)
  • "The rule of law is a very strange concept when you think about it in historical perspective. Why should laws be applied equally to all? If the king and the aristocracy have the political power and the rest don't, it's only natural that whatever is fair game for the kind and the aristocracy should be banned and punishable for the rest. Indeed, the rule of law in not imaginable under absolutist political institutions. It is a creation of pluralist political institutions and of the broad coalitions that support such pluralism. It's only when many individuals and groups have a say in decisions, and the political power to have a seat at the table, that the idea that they should all be treated fairly starts making sense." (p. 306)

However, it has not only been violence and conflict:

  • "…there were other ways to influence Parliament and thus economic institutions. The most important was via petitioning, and this was much more significant than the limited extent of democracy for emergence of pluralism after the Glorious Revolution. Anybody could petition Parliament, and petition they did. Significantly, when people petitioned, Parliament listened. It is this more than anything that reflects the defeat of absolutism, the empowerment of a fairly broad segment of society, and the rise of pluralism in England after 1688. The frantic petitioning activity shows that it was indeed such a broad group in society, far beyond those sitting or even being represented in Parliament, that had the power to influence the way the state worked. And they used it." (p. 193)

They conclude not on the means, but the outcome:

  • "What is common among the political revolutions that successfully paved the way for more inclusive institutions… is that they succeeded in empowering a fairly broad cross-section of society. Pluralism, the cornerstone of inclusive political institutions, requires political power to be widely held in society" (p. 458)
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