Abstract
Development economics seems to stand at a crossroads. On the one hand, development economists have hitherto been heavily dependent on the neoclassical framework of rational choice with all its auxiliary assumptions about actors’ utilities, expectations and preferences. Even the contributions from institutional theory and early studies in behavioural economics that allow accounting for the consequences of imperfect information, positive transaction costs or limited information processing capabilities remain within the framework of rational choice theory. And with this framework, also its methodological foundations have been maintained, above all the deductive method of research and the precept of methodological individualism.
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Notes
- 1.
It is a matter of an open debate whether the contemporary relevance of the methods and concepts of the Historical School holds beyond their application for the study of developing countries. The view that the contributions by the “older” and “younger” Historical Schools indeed qualify as a full-fledged alternative to the neoclassical framework in general is taken by “The Other Canon” project initiated by Erik Reinert. It aspires for “the study of the economy as a real object, not defined in terms of the adoption of core assumptions and techniques. A production-based economic theory where economic development is an intrinsically uneven process” (www.othercanon.org, accessed on 15 July 2008).
- 2.
A related reason for such differences in the nature of research findings stems from the often conjoint use of the deductive method with partial analytic research in which an understanding of the whole economic system is sought by breaking it down in to pieces and studying each individual element and its behaviour individually while holding all other influences constant. This contrasts with the conception in contextual economics of the economy as a dynamic and open system that evolves in interrelation with the social, cultural and political spheres of societal life.
- 3.
See Denzau and North (1994), North (2005) and Sect. 8.2.
- 4.
The rationalist philosophy of Gottfried Wilhelm Leibniz (1646–1716), as that of his disciple Christian Wolff (1679–1754), had much influence on the German Historical School. This relates, in particular, to the legal tradition of Natural Law (Naturrecht), on which German economics was based in the eighteenth century. It maintains that Man has moral obligations, the origins of which are to be found in nature. While representing the law regardless of creed, the Natural Law tradition recognises every human being as the creation of God, and derives from this that every human being himself has the pleasurable duty to be creative and to invent (Reinert 2005).
- 5.
Note that the German Historical School’s evolutionary notion of development is quite akin to Schumpeter’s emphasis on the correspondence of economic and socio-cultural evolution. See, for instance, Ebner (2000) for an attempt to prove the consistency of Schumpeterian economics with the Schmollerian approach.
- 6.
The role of the market (and of the price mechanism) in inducing rational behaviour is an old theme in economics. Hayek (1945) was strongly convinced about the indispensability of the price system for any rational calculation, which he justified by “the unavoidable imperfection of man’s knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired” (Ibid, p. 530).
- 7.
The importance of learning for the formation of economic behaviour may further be elucidated by understanding that choices are the observable manifestation of individual preferences. Preferences can be understood as social constructs that result from a learning process. For instance, the relationship between the attributes of a good and one’s preference for it are established in transactions that involve that good. It can generally be said that the more experience a consumer has with a certain type of good, the more accurately defined will his preferences concerning that good be, and the more rational can his choice behaviour be expected to be. For a discussion of the theoretical implications of the assumption of endogenous preferences, see, for instance, Bowles (1998).
- 8.
For a treatise in the sociology of knowledge, see Berger and Luckmann (1966). Of relevance here is also the sociological concept of “system rationality”, which maintains that economic rationality is not universal, but determined by the specific values and mental models of a given cultural system (Luhmann 1968). More recently, the question of how mental models and cultural beliefs evolve and how they shape economic behaviour and choices has also been restated in the New Institutional Economics literature (see, for instance, Denzau and North 1994; North 2005), even though they had also already clearly been formulated in the evolutionary economics of the “old” Institutional School (see Sect. 12.4).
- 9.
See also Sect. 13.2.1 for a further discussion of Polanyi’s work.
- 10.
Spiethoff originally used the notion of the economic style in two different ways, namely, for a system of elements and institutional patterns held together by interaction, and for the conceptual models that are designed to analyse this institutional set-up.
- 11.
See, for instance, Harrison and Huntington (2000); Rao and Walton (2004); Knack and Keefer (1997b); or Licht et al. (2007).
- 12.
See, for instance, North (2005) and Leipold (2006), as well as Sect. 8.2.2.
- 13.
For the recent literature in economic sociology that adopts a cognitive approach to culture, see, for instance, DiMaggio (1997) or Hofstede (1991). For a detailed definition of the cognitive and alternative views on culture, see Leipold (2006, Chap. 2).
- 14.
The study compares institutional forms that have emerged to support economic activity in two pre-modern societies, the Maghribi traders, which were part of the Muslim world in the eleventh century, and the Genoese traders, which were part of the Latin world in the twelfth century. For further discussion of this and related studies, see Sect. 4.2.3.
- 15.
I am grateful to Erik Reinert for bringing the conceptual kinship of Karl Polanyi’s work to the style-theoretic approach to my attention. Of particular relevance in this context are Polanyi ([1944] 2001), Polanyi et al. (1957) and Dalton (1968).
- 16.
This warning has never been more topical than in the context of contemporary globalisation, as well as in the present global financial crisis, and makes Polanyi required reading far beyond studies in economic sociology and anthropology.
- 17.
It is important to note that nothing in Polanyi’s theory implies that the three forms or integration replace or follow each other in the course of history. Polanyi–Levitt (2005, p. 165) later emphasised that “Polanyi’s approach was comparative. There was, in his work, no suggestion of progress or any implication that modern societies are more advanced or more developed than those of the past”.
- 18.
Equally interesting insight can also be gained from ontological studies of other cultural areas. For instance, the Islamic culture features many discrete institutional forms and structures that could allow for the identification of an Islamic economic style. For a comprehensive study of the interacting economic and cultural characteristics of Islamic countries, see Leipold (2001).
- 19.
The fact that Africans are often flatly denounce as “tardy”, or as to “idly wasting their time” is an unintended consequence of the ignorance for the concept of time that people in a traditional African context have internalised and which is hence part of their normal course of life.
- 20.
Limited possibilities for capital accumulation and long-term investments are also often claimed as reasons for the widespread practice of subsistence production in many parts of Africa. Beyond this explanation, an analysis of the cultural determinants of the subsistence economy can furthermore reveal the deep causes for the persistence of this type of production. Accordingly, subsistence farming has primarily to be seen as a consequence of the cultural belief that man is entitled to take from nature what is necessary to satisfy his wants, while these wants are in the first place those of the community. Moreover, as land is, on the same cultural grounds, considered as communal property, it cannot by used by the individual farmer as collateral for a loan from a formal bank.
- 21.
For evidence on the actual time preferences in low-income countries, see Poulos and Whittington (1999). On the time discounting methods used in the development project appraisals, see Sect. 7.3.3. On the implications of different culture-specific concepts and perceptions of time for development cooperation, see GTZ et al. (2005). Implications of similar significance also arise from the multitude of concepts of progress that prevail across different cultures (see GTZ et al. 2004 Donner, 2004).
- 22.
Culturally sensitive approaches that emphasise the role of local actors in “pulling in” a reform are encouraged by the German Development Cooperation since the 1990s (GTZ 1990). Principles for working with, and from within, communities and faith-based organisations in areas such as human rights, reproductive health, women’s empowerment, adolescents and youth, humanitarian assistance and HIV/AIDS have since recently also been explored by the United Nations Population Fund (UNFPA 2004,2008). However, these attempts mostly aim at fostering sensitivity towards local cultures and habits in the course of international development cooperation, rather than being derived from a qualitative understanding of the interdependencies between cultural and economic elements of societal life in a given context, and their influence on economic change.
- 23.
See also Reinert and Reinert (2005).
- 24.
See Goldschmidt and Zweynert (2006) for an analysis of the process of institutional transplantation in the course of Central and Eastern Europe’s economic and political transition.
- 25.
Whether these ties are exploitative or mutually beneficial depends on the design of their underlyingforms of long-term contracting. In this respect, an issue of particular importance is the application of global norms and standards as basis of these privately governed relationships.
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Altmann, M.P. (2011). The Relevance of the Historical School for the Study of Low-Income Countries. In: Contextual Development Economics. The European Heritage in Economics and the Social Sciences, vol 8. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-7231-6_13
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