Tipping Points: Managing Complex Systems for Economic Development Success

Abstract

In the paper, I argue that different management approaches in International Financial Institutions (IFIs) are receptive to different economic and theoretical paradigms, which in turn lead decision makers to different design of investment, and such differences in design and investment lead to significant differences in development success. Successful development efforts lead an economy to the point where it achieves a critical mass of structural transformation and tips to the side of a sustained growth process. The paper characterizes International Financial Institutions (IFIs, also known as MFIs or Multilateral development Finance Institutions) as planning oriented and politically dominated by their governance set-up. Developing economies are complex systems. The paper outlines the complex systems development paradigm. Designing investment interventions for complex systems requires decentralized, flexible and networked institutions equipped to explore a variety of development outcomes. Experimentation, trial and error, quick replication of successful prototype investment projects, exploration of alternatives when rapid feedback shows unsatisfactory results in the field, are the hallmarks of managing a complex system. The traditional approach by IFIs to managing development is likely to lead to inferior development outcomes, as the paper demonstrates with investment examples. One path to better development investment design is the institutional establishment of management tools in the form of evolutionary, complex systems models of economies that can inform realistic and rigorous decision making, and flanked by human resource incentives that stimulate competition for ideas and success.

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Correspondence to Hans-Peter Brunner.

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The author is solely responsible for the final content and does not speak for his institutional affiliate. The author thanks Richard Nelson, William Easterly, and an anonymous reviewer of this paper. The author also thanks the participants of the 2007 Kyoto conference of the Japan Association for Evolutionary Economics, especially Kiichiro Yagi, for their suggestions.

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Brunner, HP. Tipping Points: Managing Complex Systems for Economic Development Success. Evolut Inst Econ Rev 5, 163–187 (2008). https://doi.org/10.14441/eier.5.163

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JEL

  • B52
  • F35
  • O19