Institutions, Social Norms and Economic Development

Jean-Philippe Platteau

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9789058230584
• eBook ISBN: 9781136600449
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In order for economic specialization to develop, it is important that well-defined property rights are established and that suspicion and fear of fraud do not pervade transactions. Such conditions cannot be created ex abrubto, but must somehow evolve. What needs to develop is not only suitable practices and rules themselves, but also the public agencies and moral environment without which generalized trust is difficult to establish. The cultural endowment of societies as they have developed over their particular histories is bound to play a major role in this regard, and the matter of cultual endowment is one of the central themes of this book. On the other hand, division of labour does not only require well-enforced property rights and trust in economic dealings. It is also critically conditioned by the thickness of economic space, itself dependent on population density. This provides the second major theme of the volume: market development, including the development of private property rights is not possible, or will remain very incomplete, if populations are thinly spread over large areas of land. The book makes special reference to sub-Saharan Africa.

Chapter 1
The Subject Put into Perspective

1.1 Radicalism vs. Gradualism: the Intellectual Debate of the 1950s and 1960s

During the 1950s and the 1960s, a set of ideas largely shared by social scientists interested in development problems was associated with the so-called modernization approach. The proponents of this approach were sociologists influenced both by the historical experience of industrial transformation in the Western countries and by the tenets of structural functionalism. Talcott Parsons' writings were an important source of inspiration for these scholars, particularly his views that 'the dominant value system, as embodied in culture, shapes everyday role behaviour and interactions' and that 'economic and technical activities are inextricably bound up with and underpinned by the web of social relations and the cultural ethos' [Kennedy, 1988: 136], A central argument in the modernization doctrine is that traditional societies cannot graduate smoothly into the industrial era because their social structures, personality traits and value systems (which are narrowly interdependent) are inimical to the required kind of changes, in short because their very traditional features are incompatible with modernity. Upon this view, therefore, development cannot occur unless traditional patterns of action, motivations, attitudes and values are previously abandoned [see, e.g., Hoselitz, 1960; Hagen, 1962; Smelser, 1963; Moore, 1963; Eisenstadt, 1966].

The modernization approach has been subject to an intense fire of criticisms, both conceptual and empirical, and the impact of such criticisms was so devastating that the ideas it represented fell into almost total disrepute. The room was then cleared for other views considered to be less biased by Western prejudices, in particular, those which lay more emphasis on the dynamic potential of preindustrial societies and on the adaptability of traditional values and attitudes, or those which explain economic backwardness as a result of unequalizing mechanisms operating through international relations rather than as the outcome of internal inadequacies [see, e.g., Webster, 1990: chap. 34]. It can hardly be denied that the modernization school deserved to be criticized on account of its one-sided approach to the prerequisites of development. Sometimes also, its adherents just seemed to be saying that traditional society does not change because by nature it is resistant to change [Higgins, 1968: 251]. This being said, it may be regretted that the demise of the modernization approach in the field of development studies practically meant an obliteration of the possible role of cultural and institutional factors as a (temporary) brake on change.

Not surprisingly, development economists have lent much less attention to cultural issues than other social scientists. As hinted at in the introduction, their intellectual effort was absorbed into other directions pointing to capital accumulation, education, technical change, and planning. Yet, during the 1950s and 1960s, the most prominent among them have usually mentioned cultural and social aspects of development, albeit shortly, and expressed (sometimes crude) opinions about whether traditional institutions, attitudes and values are likely to block or to promote economic growth. Some of these authors, eager to identify determinants or prerequisites of modern economic growth, have made statements very close to the modernization view. This applies to Walter Rostow (1960, 1963), Stephen Enke (1963), Simon Kuznets (1966, 1968), Henry Bruton (1965) and Benjamin Higgins (1968) who tended to look at development as the result of a 'big push' driving traditional societies out of secular stagnation into the era of self-sustaining growth. What characterizes their writings is a good amount of optimism concerning the pace at which traditional culture and institutions can adjust to the requirements of the new system of growth.

For example, Benjamin Higgins wrote that where 'cultural stability is incompatible with rapid economic growth, the culture will adapt readily and painlessly enough to an economic 'big push'...", and it is important to recognize that 'rapid and complete cultural change is likely to be less traumatic than gradual and partial change'. Hence, 'we end up with a "big push" doctrine in the socio-cultural field as well as in the economic field', and 'development economists should fight tooth and nail any line of argument that might result in a reversion to gradualism as a basis for development policy' [Higgins, 1968: 265-66],

Simon Kuznets agreed that modern economic growth is not possible without a decisive social and cultural breakthrough, yet, contrary to Higgins, he believed that such a break with the old order is bound to be traumatic. As a matter of fact, the changes needed to enter the era of modern economic growth 'do not occur in a vacuum; they are made in societies that usually have a long tradition of the premodern economic organization and social structure, and they must be directed by agents with the power to overcome resistance and incur necessary costs. If agriculture must be changed to permit greater productivity and release labor for other pursuits, the immediate task is to break through the old organizational patterns, to change the relations of man to land (...). It is this dislocation and break with the old order that constitutes the major cost of the transition to modern economic growth' [Kuznets, 1968: 106-7].

As for Henry Bruton, after having pinpointed a series of major cultural obstacles to growth, he concluded that a decisive break is needed to get out of a traditionalistic approach to life: 'This attitude [that it is impossible to exercise control over nature] may be explained by an appeal to religious convictions or a fatalistic philosophy, but perhaps the most satisfactory explanation is simply the mere lack of precedent. Growth has not occurred over such a long interval of time that prevailing opinion has accepted the view that it is impossible. To overcome this pessimistic point of view, obviously the precedent must be broken. To create an attitude that growth is possible, growth must occur. It would appear as simple—and as difficult—as that' [Bruton, 1965: 113].

Other contemporary development economists, however, envisioned institutional and sociocultural change in societies as a much less radical step. Interestingly, their most notable works appeared in the 1950s, such as those of Arthur Lewis (1955)—no doubt, the author who discussed at greatest length the role of cultural (and other institutional) factors in economic development—, Gerald Meier and Robert Baldwin (1957), Peter Bauer and B.S. Yamey (1957), and Alfred Hirschman (1958). In stark contrast to Higgins, for example, Meier and Baldwin adopted a resolutely gradual approach to socio-cultural change: 'Not only must economic organization be transformed, but social organization ... must also be modified so that the basic complex of values and motivations may be more favourable for development (...) To avoid human discontent, [however], changes should be introduced in ways that will disrupt the existing culture as little as possible: the cultural change should be selective (...) more rapid progress will come by utilizing as much as possible existing attitudes and institutions rather than by attempting a frontal breakdown of the culture' [Meier and Baldwin, 1957: 356, 359].

In addition, they explicitly warned against the danger of ethnocentrism in discussions of sociocultural problems: 'In considering the social and cultural requirements for development, a Western student should not make the mistake of ethnocentrism, that is, assuming that, because the West is developed, Western values and institutions are therefore necessary for development ... [ibidem: 355], Yet, in spite of these cautious statements, they did not hesitate to make a rather radical policy recommendation: according to them, indeed, to promote cultural change, investment should be directed to 'projects that break up village life by drawing people to centers of employment away from the village because, by preventing impersonal relations, village life is a major source of opposition to change' [ibidem: 357].

Bauer and Yamey recognized that 'Certain social institutions which are appropriate to a subsistence or near-subsistence economy may impede economic growth directly by reducing the rewards of individuals who take advantage of the opportunities presented by wider markets (...) The extended family, sometimes known as the joint family, is an example of an institution which has many advantages in one stage of economic achievement but which may later become a drag on economic development' [Bauer and Yamey, 1957; 64], Regarding the pace of change, like Meier and Baldwin, they rejected any idea of big pushes or dramatic disruptions: 'Generally, a slow but steady development is likely to create fewer political, social and economic tensions; and it is likely that an attempt to force the pace too strenuously may also be economically wasteful because the social and personal changes may not take place which are necessary to enable individuals or the society to profit from the development and to sustain it' [ibidem: 71]. In fact, they did not seem to believe that traditional culture ought to be seriously undermined before growth may become possible. Revealingly, they pointed out that 'the economic history of Japan demonstrates the compatibility of rapid economic change and growth with the preservation of traditional attitudes and social relationships, recast or reemphasized as these may be to suit the needs of a new economic order' [ibidem: 68].

As for Arthur Lewis, he certainly shared the view that traditional values, attitudes and institutions may act as a drag on economic development. Nowhere is this more apparent than in the passage where, commenting upon the historical failure of Spain to exploit the economic opportunities presented by the discovery of the New World, he concluded that 'It is possible for a nation to stifle its economic growth by adopting passionately and intolerantly religious doctrines of a kind which are incompatible with growth' [Lewis, 1955: 107]. On the other hand, he was inclined to think that religious beliefs, for example, may evolve and be reinterpreted depending on the economic environment confronting societies. In Lewis's framework, the two views are actually reconciled in the following way: traditional values and attitudes, whenever they are hostile to economic advancement, will eventually adapt themselves to new economic opportunities, yet as this adaptation process may take time, traditional culture is likely to slow down the rate of change and also distort its effects [ibidem: 106].

Lastly, in an important section (entitled 'The Idea of Change as an Obstacle to Change') of the first chapter of his book The Strategy of Economic Development (1958), Alfred Hirschman argued that there are essentially two types of traditional (purportedly static) societies depending upon whether their members share a 'group-focused' (in corporate or closely integrated societies, such as Indian communities in Latin America) or an 'ego-focused' image of change (in highly differentiated societies, such as ladino or mestizo societies in the same continent). Both images are inimical to economic development, the former because it strongly discourages exceptional individual performances on the grounds that they can only take place 'at the expense of other members and of the cohesiveness of the group', and the latter because it is harmful to 'the cooperative component of entrepreneurship' (the ability to engineer agreement among all interested parties, to bring and hold together an able staff, to delegate authority, to inspire loyalty, etc.). For Hirschman, the world image congenial to genuine economic development is the so-called 'group- and ego-focused idea of change', that is, the idea that 'the individual can advance at his own speed within an expanding economy' without obstructing the progress of other people. This modern ideology cannot be imposed ex abrupto and it 'is likely to be adopted only after a considerable span of experience has convincingly shown the possibility of such a development' characterized by all-round growth and mutual benefits [Hirschman, 1958: 23-24]. In other words, traditional images of change will remain a critical bottleneck of constructive action for economic development until experience modifies them in the appropriate direction.

Two important and obviously interrelated questions emerge from the above discussion: are traditional values, attitudes, and institutions incompatible with modern economic growth and, if yes, how are they to be transformed so as to make such growth possible? Clearly, regarding the latter question, two different views tended to prevail among the above-surveyed authors. On the one side, there are those, like Rostow, Kuznets, Higgins, Enke, Bruton, Meier and Baldwin, who believed that development has to be engineered by an outside (central) agency lest the necessary transformation of institutions, norms and values should not take place. A vicious circle created by the strong compatibility of traditional institutions with low growth performances has to be broken in order to allow rapid growth to occur. On the other side, we find authors like Lewis, Hirschman, Bauer and Yamey, who were more inclined to think that, as the experience of expanding economic opportunities unfolds itself, the traditional social and cultural fabric unavoidably evolves to give way to institutions, rules and values more congenial to modern economic growth. The adjustment process may take time owing to the unavoidable sluggishness of institutional and cultural change, yet the fact that no dramatic break with the old order is necessary to promote growth is good news since such a break involves considerable risks.

Karl Marx, who wrote much earlier than all the authors considered above, marked off an important step in the history of what has become known as the New Institutional Economics: he was indeed the first to raise in an articulated manner the questions which are today at the heart of this new discipline, and he proposed a theory of history which gives pride of place to the material determinants of production relations in society. As shall be seen below, his analysis of the way precapitalist societies move forward partly anticipates the thinking of Ester Boserup who was to make a critical contribution to our understanding of the processes of technical and institutional evolution in the agricultural sector. In the next two sections, therefore, attention will be successively drawn to the contributions of Marx and Boserup and to the research programme of the New Institutional Economics.

1.2 Marx and Boserup: Institutional Development as an Induced Mechanism

In Marx's theory of history, such as is set forth in the 1859 Preface (to A Contribution to the Critique of Political Economy) and elsewhere, the movement of historical progress is caused by the dialectical interplay of two sets of factors, namely the productive forces and the production relations. The former factor—which includes capital goods, raw materials, and labour power with its various attributes such as skill, strength and knowledge—has the primary role since it is the continuous, autonomous expansion of productive forces through technological progress and capital accumulation that drives societies ahead by forcing production relations to eventually adapt so as to make such expansion possible. Foremost among production relations stand property arrangements that are best seen as the legal expression of these relations. And precisely because of their proximity to production relations, property arrangements are the institutional component most heavily influenced by the level of productive forces. It is therefore not surprising that, in Marx's materialistic theory of history (materialist because he ascribes primacy to the capacity of material production as determined by technology and available resources), the core institution is the property right assignment on a key production factor in each stage of economic development—such as slaves in the ancient classical world, land in medieval feudalism, and capital in modern capitalism [Hayami, 1997: 14-16].

A basic tenet in Marx's theory of the rise and fall of modes of production is that, within each mode, the relations of production first 'correspond' to the productive forces, and then enter into a 'contradiction' with them.¹ In Marx's words:

'At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or—what is but a legal expression for the same thing—, with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution. With the change of the economic foundations the entire immense superstructure is more or less rapidly transformed' [Marx, 1859, Preface—cited after McLellan, 1977: 389].

In Marx's view, institutional adjustment is not a smooth process. Such adjustment takes time because it is strongly resisted by the dominant class which opposes any change liable to reduce the social and economic advantages it derives from existing property arrangements. As a result, even though institutions were originally suited to best exploit the productive potential of a society located at a particular stage of its economic development, they tend to be maintained while they have ceased to be consistent with changing material production conditions. The gap thereby created between the institutional setup of a society and its productive potential determined by its level of capital accumulation and rate of technological progress is bound to cause growing tensions and contradictions. These will be ultimately resolved through a political revolution against the economic elite and its vested interests.

When the revolution succeeds, a new set of production relations is established that again 'corresponds' to the level of the productive forces until the latter will have sufficiently expanded to break this 'correspondence' and set off a new chain of tensions and changes. Moreover, changes in the productive forces and the associated production relations (what Marx sometimes calls the infrastructure) are bound to entail changes in the realm of political institutions, ideas, symbolic representations, and values of a society (the superstructure). In brief, the mode of production of material life determines the general character of the legal, political, cultural and ritual components of social life. Marx's materialistic credo is fully evident from the following excerpt of the Preface:

'In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material productive forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the social, political, and intellectual lif...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Acknowledgments
• Introduction
• 1 The Subject Put into Perspective
• 2 Resource Endowments and Agricultural Development
• 3 Property Rights in Land—Part I: Dividing the Commons
• 4 Property Rights in Land—Part II: Individualization of Land Tenure
• 5 Egalitarian Norms and Economic Growth
• 6 Endogeneity in the Rise of Market Order
• 7 Market Order, the Rule of Law and Moral Norms
• 8 No Easy Answer
• References
• Index