Category: Institutional Economics

The economist who exposed the hypocrisy of the free market

benjaminselwynLeave a comment

The economist Alice Amsden’s work unmasked the dirty secret underlying capitalist development: it relied on states breaking all the rules of the free market. But her work also showed that industrialization required corporate discipline, not welfare.

For American defenders of economic liberalism and free markets, China’s rise has been deeply disorientating. Unmoved by concerns about the market distorting effects of picking winners, the Communist Party of China has engaged in a focused campaign of industrial policy, using the state to discipline firms that have gone on to become globally competitive.

For the economist Alice Amsden, who came to prominence in the late 1980s for her writing on global development and died in 2012, the success of China would not have come as a surprise. Amsden began her career as powerful development institutions such as the World Bank were touting deregulation and privatization as solutions to global poverty. But the experience of the postwar years, in which South Korea — a recurring object of study for Amsden — used industrial policy to drag itself into middle income status, was a refutation of the orthodoxies rehearsed at Davos and in the International Monetary Fund.

The embrace of state subsidies to firms, tariffs, and large-scale infrastructure spending under Joe Biden and Donald Trump’s presidencies is partly a concession to the kind of developmentalist thinking advocated by Amsden. However, Amsden, a fellow traveler, if not devotee, to Marxism offered a more ambivalent assessment of the records of late industrializing nations like South Korea and China than defenders of Biden/Trumponomics are perhaps willing to countenance. For her, the repression of labor was as important to the success of these nations as large-scale economic coordination.

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The Economist Who Solved the Free-Rider Problem

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Defenders of capitalism argue that cooperation is undermined by individuals’ tendency to take more from society than they contribute. The economist Elinor Ostrom refuted this idea, but without identifying capitalism as the real cause of exploitation.

Socialist arguments that cooperation and collective action represent the basis of a better society are often dismissed by supporters of capitalism. “Human nature,” so the argument goes, is inherently self-seeking.

The so-called “free-rider problem” purports to prove that large-scale cooperation is unsustainable because individuals seek to benefit from the collective action of others while minimizing their own contribution. This tendency is, the argument goes, a barrier to collective solutions to social problems.

Rather than cooperate, individuals should allow market forces to dictate how they decide to allocate their time and resources. Such arguments are applied by supporters of capitalism to explain why rational collective resource management and attempts to tackle climate breakdown are unlikely to succeed without the aid of market forces.

Since capitalism emerged as the world’s dominant economic system, its defenders have argued that private property rights and the pricing of natural resources are the only way to collectively manage our social goods.

The economist Elinor Ostrom provided a sharp critique of such notions from within the framework of mainstream economics. She demonstrated that cooperative management of natural resources can preserve rather than degrade them, and that trust between strangers can be established, expanded, and become the basis of collaborative ways of managing what she described as “common-pool resources.”

Within the field of sustainable development studies, her work became highly influential and helped to bring the notion of “the commons” to a broader audience. However, outside of academia, she remains largely unknown — a glaring oversight in a world in which education, water, and even land are increasingly run and managed for and by private companies.

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Rethinking Economic Development from the Household: Property, Resilience, and Institutional Adaptation in Rural China

tingxulawLeave a comment

What if the story of economic development doesn’t begin with the market, but with the household? And what if property, often assumed to be a static bundle of rights, is better understood as a dynamic institution—adaptive, historically layered, and relational?

These questions sit at the heart of my recent research, which I had the opportunity to present at the Open University’s legal histories conference Land and Property Beyond the Centenary. While my work focuses on property governance and transformation in rural China, its implications stretch far beyond. It challenges dominant liberal narratives about property and development by presenting institutional change as a process of negotiated adaptation shaped by vulnerability and crisis, rather than a linear path towards free markets and individual ownership.

At its core, this work brings into dialogue three theoretical frameworks that are rarely combined: resilience theory, Martha Fineman’s vulnerability jurisprudence, and evolutionary institutional economics inspired by Thorstein Veblen. Together, they offer a rich toolkit for reimagining how development happens—and for whom.

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The Nobel Illusion: Why the Nobel Prize in Economics Needs to be Abolished

Dr. Dawa SherpaLeave a comment

Every year the Nobel Prize is awarded to different disciplines including Economics. And each year it generates a wave of euphoria and hype. But unlike literature and natural sciences, economics is the only social science where the Nobel is awarded. Even critical voices within the discipline get swayed by the hype of Nobel. Notwithstanding the problem of absolute marginalization of Blacks, Women and economists critical of Capitalism among award winners, there are other serious problems with Nobel Prize in Economics.

First of all, the Nobel Prize in Economics is not actually a Nobel Prize. The award in Economic sciences was not among the original set of disciplines included in the Nobel Prize in 1901. It was established by the Central Bank of Sweden (Sveriges Riksbank) in 1969, after 68 years, rather than by the Nobel Committee itself. The greatest irony is that this fact is mentioned even on the Nobel Prize website, which states, “The prize in economic sciences is not a Nobel Prize.” (NobelPrize.org, 2018). Hence contrary to all other Nobel prizes in different subjects/fields, the Nobel Prize in economics is called by the special name “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”.Initially, members of the Nobel committee (including family members of Alfred Nobel) strongly objected to naming the prize given by the Central Bank of Sweden as the Nobel prize (Offer & Söderberg, 2016). To quote Alfred’s great-grandnephew Peter Nobel, “Nobel despised people who cared more about profits than society’s well-being. There is nothing to indicate that he would have wanted such a prize”, and deliberate association of Nobel prizes in Economics is “a PR coup by economists to improve their reputation” (The Local – Nobel Descendant Slams Economics Prize, 2005).

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The nobel of influence in Economics or Why theories fail

Yaku1 Comment

The only Nobel Prize that has nothing to do with the will of its creator, Alfred Nobel, was announced on Monday, October 14th. As usual, the announcement sparked a range of reactions, and as economist Noah Smith points out, this prize has traditionally been awarded to influential scholars within the sphere of economic discipline. This time, the prize did its job and recognized the contribution of neo-institutionalism to economics. Its influence is undeniable, as can be seen from the fact that these authors are widely cited in macroeconomics courses. For instance, Daron Acemoglu had long been mentioned in academic circles as a favorite to win the Nobel, much like Leonardo DiCaprio was repeatedly named a favorite for the Best Actor Oscar. While we are already familiar with the kind of economics that dominates classrooms and the hegemonic media, as well as the economics that influences politics and shapes economic policies, it’s worth discussing the theoretical and empirical contributions being recognized and their main critical observations.

Daron Acemoglu, Simon Johnson, and James A. Robinson (AJR) have been awarded for studies of how institutions are formed and affect prosperity. Their work addresses what is perhaps one of the most important questions in economics: How do we explain the economic disparity between countries? Why are some nations persistently wealthy while others remain consistently poor? We should understand prosperity as the plain and simple economic growth. If we rule out biological, cultural, or geographical reasons, what remains is dimension of the historical-political order. Development, then, is largely dependent on one key factor: In the early stages of nations, before they became modern states, what forms of government, civil codes, and laws were established? According to AJR, the root of development lies in the different types of political institutions that were established across the world. Thus, inclusive institutions are in sharp contrast with extractive institutions.

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Combining dependency theory and the regulation school: Understanding economic rents in Burkina Faso

Juliette AlendaLeave a comment

Dependency theory is experiencing some kind of comeback and has been discussed at length on the Developing Economics blog. However, one criticism that often comes up when researchers work on the phenomenon of dependency is the fact that the separation between the spheres of periphery and centre may be too simple, insofar as the working class is also exploited in the countries of the centre, and the elite also benefits from such a system in the periphery. While some strands of dependency theory may provide important angles for analysis of trade between the Global North and South, such analysis also risks pitting development in the center against underdevelopment in the periphery. It is worth noting, however, that many dependency theorists did not think of the world in such binary terms, but rather centered class analysis in their frameworks.

In our recent work, we approach the problem of dependence slightly differently in an attempt to nuance our analysis. Dependence is linked to the country’s international insertion, marked by both political and economic relations of domination with the industrialized countries of the “center”, and is reflected in unequal economic specialisations and unfavourable terms of trade. However, ‘dependent’ countries have followed varied trajectories, which need to be analysed in their context, as dependency is not black and white. Let’s zoom in on West Africa. There, dependency is mainly based on rentier-type economic regimes. A rent is defined as obtaining income without contributing to the production of additional goods and services. In a paper dedicated to the situation in Burkina Faso, we have sought to understand a very specific historical case, representing an important rentier economy that was also well integrated into the global economy. We have sought to combine dependency and regulation theories to understand the stability of such a rentier economy. Let’s explore the economic history of Burkina Faso.

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Ha-Joon Chang has exposed the fallacies of neoliberalism

benjaminselwynLeave a comment

Korean economist Ha-Joon Chang is a brilliant, best-selling critic of neoliberal orthodoxy. But Chang stops far short of taking the necessary next step: questioning the capitalist system itself.

Ha-Joon Chang is a rarity in the contemporary world: an economics professor who is highly critical of the neoliberal free-market orthodoxy, advocates progressive social change, writes and speaks accessibly, and is very, very popular.

Chang’s books have sold millions of copies, and he is a regular contributor to mainstream media outlets. According to Chang himself, his aim is not simply to challenge free-market orthodoxy, but also to support, through his work, the kind of “active economic citizenship” that will demand “the right courses of action from those in decision-making positions.”

While socialists can learn a lot from Ha-Joon Chang’s work, we also need to read it critically and identify some of the gaps in his thinking. Chang’s self-professed aspiration is to promote an alternative form of capitalism, but our goal should be to develop an alternative to capitalism.

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The Co-evolution of Diversity in Property and Economic Development: Evolutionary Economics and the Vertical Dimension (Part 2)

tingxulaw3 Comments

Having laid out the horizontal dimensions of diversity in property in Part 1, I here offer a critique of the assumption in mainstream economics that all kinds of property institutions need to be or will be transformed into private property to promote economic development. I also reflect on my previous work that applies and develops Darwinian mechanisms of variation, inheritance, and selection—which has been extensively discussed in evolutionary biology and evolutionary economics—to study property regime transformation in China.

While working on our co-authored paper, Professor Erik Reinert introduced me to two very important books and encouraged me to think about the relevance of the work of Darwin and Veblen to study property regime transformation in China: Full House: The Spread of Excellence from Plato to Darwin by Stephen Jay Gould (1941-2002), Harvard biologist and historian of science; Thorstein Veblen: Economics for an Age of Crises edited by Erik himself and Francesca Viano. Erik also introduced me to the work of evolutionary economists including Professor Richard Nelson of Columbia University.

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