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PotentialDriversofEconomicDevelopmentinthe21stCentury
ShermanRobinsonDepartmentofEconomicsandInstituteofDevelopmentStudies
UniversityofSussexNovember2006
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DriversofGrowthandDevelopment
ModernEconomicGrowth:History Distinguishinggrowthanddevelopment
Economicsociologyandnewinstitutionaleconomics
Theoriesofgrowthanddevelopment PostWWIIdevelopmentstrategies Developmentstrategiesforthe21stcentury
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EconomicEpochs
Longperiodcharacterizedbytheworkingoutofanepochalinnovation SimonKuznets,ModernEconomicGrowth
Commercialage:15001800 Epochalinnovation:transportandcommunications
Driver:developmentofefficient(economic)longdistancesailingship
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Kuznets:ModernEconomicGrowth
1800tothepresent,andstillrunning Epochalinnovation:theapplicationofsciencetotheproblemsofproduction. Noteemphasisonapplication.Engineeringisasimportantasscience.
Interactionbetweeneconomicrewardsandinducedtechnologicalchange
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ModernEconomicGrowth
Developmentofbasicscience Inventionandcommercialdevelopmentofnewmethodsofproduction:innovation
Developmentofinexpensivesourcesofenergyandtheirapplicationtoproduction Coal,petroleum,electricity
Creationofcapitalgoodsthatembodynewtechnologyandenergy
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ModernEconomicGrowth
Economiesofscalethroughspecializationanddivisionoflabour Smithianproductivitygains Forwardandbackwardlinkages
Marketintegration,nationalandinternational Divisionoflabourislimitedbytheextentofthemarket
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ModernEconomicGrowth
Structuralchangesinproduction Industrialisation:riseofindustryandrelativedeclineofagriculture
Rapidtechnicalchangeinbothagricultureandindustry Technicalchangeinagricultureisessential
Institutionalchangesinorganizationofproduction:factories,corporations,etc.
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ModernEconomicGrowth
Demographicchanges Rapidpopulationgrowth Urbanisation
Labourforce Ruralurbanmigration Educationandtraining Roleofwomen
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ModernEconomicGrowth
Massproductionofcommodities Makinggoodscheaperessentiallydefinestheprocess
Overemphasisontermsoftradeismisplaced Agriculture,energy,metals,chemicals,machinery,electronics Fromluxuriestomassproducedcommodities
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TheoriesofEconomicGrowth
Necessaryandsufficientconditions Eleganttheory,buthistoryisnoisy Substitutionamongnecessaryconditions
Minimumsetofsufficientconditions Conditionssuchthatifsomethingismissing,moderneconomicgrowthisnotachieved
Analytichistory:seektounderstandcausalchains
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Schumpeter:RoleofInnovation
Introductionofanewgood Introductionofanewmethodofproduction Openingofanewmarket Conquestofanewsourceofsupplyofrawmaterials
Carryingoutofneworganizationofanyindustry
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NecessaryConditions
Profitableopportunitiesmustexist Individualsorgroupswhowishtoexploittheprofitableopportunitiesmustexist Information:ignoranceandrisk Motivation:desiretoexploitopportunities
Investmentcapability Mustbeabletodivertadequateresourcestoexploitthepotentialprofitableopportunity
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DriversofGrowth Classificationofsocietalstructures,forces,andtrendsintermsoflinkstogrowth: Facilitators Inhibitors Concomitants
Identifynecessaryfacilitators Identifysufficientorkillerinhibitors Mixesofsufficientfacilitators/inhibitors
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NecessaryFacilitators
Kuznets:epochalinnovation Increasedinvestment
Infrastructuretofacilitatemarketintegration Physicalandhumancapital
Institutionalinnovations Privatepropertyandcommerciallegalsystem Financialsystem Roleofgovernment:developmentalstate
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InhibitorstoGrowth
Incompletemarkets:stifleprofitableopportunities
Poverty:viciouscirclespreventinvestment InappropriateCulture:lackofmotivation
Weberthesisonroleofreformation InappropriateInstitutions:stifleinnovation
Failedstates,Communiststates,kleptocracy
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ConcomitantstoGrowth
Demographicchanges Facilitators,concomitant,and/orinhibitor
Genderroles Importantroleofwomeninthelabourforce
Initiallyafacilitator Genderequalitywasaconcomitant,
Eventuallyinequalityisaninhibitor
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GrowthversusDevelopment
ModernEconomicislinkedtoprofoundchangesininstitutionalstructures. Economic,political,legal,social,andculturalsystems
Defineeconomicdevelopmentasmoderneconomicgrowthplusothersocietalchanges.
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ParsonsSmelser:EconomicSociology
Theoryofsocialsystemsandeconomicinstitutions. Economicdriversofsocietalchange.
DouglassNorth:Roleofinstitutions Newbook:Understandingtheprocessofeconomicchange.
MancurOlson
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StructureofSociety
Social Structures
Personality Structures
Institutional Structures
Economic Structures
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PersonalityStructures
Educationandtastes Humancapital
Culture Attitudes
Worldview:whatispossible Societalperformancecriteria
Marketdemand:preferencestructures
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SocialStructures
Societalnormsandstandards Politicalrights Economicrights:incomedistribution Propertyrights
Rolesofindividualsversusauthority Genderroles Culturalvalues
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InstitutionalStructures Government:democraticversusauthoritarian
RolesofcivilsocietyandpoliticalinstitutionsReachofgovernment:policyspaceAbilitytomeetsocietalperformancecriteria
Legalsystem:SecurityandpublicsafetyPoliticalrightsCommerciallaw:propertyrightsandmarkets
Religiousinstitutions Educationalsystem:humancapitalformation
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EconomicStructures
Economicsystems(isms):capitalism,socialism,nationalsocialism(fascism)Policyenvironment:developmentalstate
Markets:mixedsystemsRegulationandpropertyrights Industrialorganization:corporations,etc.
Capitalstock:human,industrial,infrastructure Resourcebase Technology:stockandgrowth
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DouglassNorth:NewInstitutionalEconomics
Canviewevolutionofeconomicinstitutionsasresultingfromtensionbetweenwhatwaspossible,givennewtechnology,andwhatwasfeasible,givenexistinginstitutions. Newinstitutionsevolvedtotakeadvantageofnewopportunities.
Historymatters:institutionalinertia.
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Growth:TensionandResolution
Tension:Presentperceivedpotentialprofitarisingeitherwithinthepresenteconomicstructureorthatstructurechangedinwaysthatareperceivedtobefeasible. Perceptionisimportant:ignoranceandrisk Potentialprofitsarisingfromchangesininstitutionsisasourceoftension.ExtendsSchumpeter
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Growth:TensionandResolution
Growthistheresultofthesuccessfulresolutionoftension. Actorsrespondtothetensionbyinvesting,changinginstitutions,orengaginginSchumpeterianinnovation.
Theprocessismessy Schumpeter:creativedestruction Errorsandfailuresarecommon
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InstitutionalChanges:Examples
Creationofinsuranceindustryinresponsetoneedsoftradersinageofsail.
Creationoflimitedliabilitycompaniestoinsulateownersfromrisk.
Creationofjointstockcompaniestoraiseneededcapitalforlargescaleinvestment.
Creationoffinancialinstitutionstoorganizeexchangeandinvestment.
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ProcessofDevelopment
Dynamicchangesineconomicandsocietalstructures: Winnersandlosers Highadjustmentcostswithcomplexincidence
Developmentisamysteriousprocess Muchthatwedonotunderstand Bothrobustanddelicate
Analogytomedicine
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EarlyModernEconomicGrowth
ByWorldWarI,capitalistsystemwasindeeptroublePeriodicfinancialcrisesBoomdepressioncyclesClasswarfare:incomedistribution
Economic,political,andsocialcrisis.TwoworldwarsGreatdepressionCollapseofinternationaltradingsystem
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20thCentury:Clashofisms
ResolutionoftheMarxiancrisis ChangesinParsoniansocietalsystems
Competingeconomicsystems Reformedcapitalism(socialdemocracy) Fascism Communism/statesocialism(Lenin)
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ResolutionoftheMarxianCrisis
PostWWII,societiesdevelopedasetofperformancecriteriaforeconomicandpoliticalsystems
Thesecriteriareflect: Emergingsocietalvaluesandnorms Knowledgeofwhatmoderneconomiescandelivertotheirpopulations
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SocietalPerformanceCriteria Continuedmoderneconomicgrowthbasedontechnologicalchangeandeconomicinnovation Economicmanagement:macrostability
Significantdegreeofeconomicandpoliticalfreedom
Significantdegreeofeconomicandsocialmobility
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SocietalPerformanceCriteria Acceptabledistributionaloutcomes
Levelofpoverty Adequatesocialsafetynetforthepoor Relativewealthandincomedistribution
Managementofrisk Incidenceandinsurance
FormalizedintheUN MillenniumDevelopmentGoals HumanDevelopmentIndicators
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SustainableDevelopment
Meetingperformancecriteria Governmentinvolvement
Shockabsorbers: Ameliorateimpactofsocietalchanges
SafetynetsRiskmanagement
FacilitatorsthatsmooththeprocessSubsidizefactormobilityManageincidenceoftransitioncosts
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CountryTypologies
Postindustrialmatureeconomies Industrializingcountriesintheprocessofmoderneconomicgrowth(MEG)
PreMEGcountriesintheprocessofachievingimportantfacilitatorsandeliminatinginhibitors
CountriesthatarefailingtoachieveMEGbecauseofkillerinhibitorsorlackofabilitytoencouragefacilitators
RentiereconomiesthatwillnotevolvetoMEG
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DevelopmentStrategies Developmentstrategyisanintegratedpackageofpoliciesaimedatachievingdevelopmentinanevolvingglobaleconomy
Moderneconomicgrowthiscentral Productivitygrowth:
TechnologyandinvestmentSpeci