Advertisement

Institutions and the Process of Industrialisation: Towards a Theory of Social Capability Development

  • Ha-Joon ChangEmail author
  • Antonio Andreoni
Chapter

Abstract

Institutions were at the foundation of development economics, when it was first established as a separate branch of economics. Indeed, one important impetus behind the emergence of development economics was the recognition that developing countries have socio-economic institutions that are different from the ones that exist in the industrialised countries. The chapter provides a long term analytical perspective on the theory of institutions in economic development—from old institutionalism to new institutional economies—and critically assess todays’ mainstream view on institutions and economic development. Specifically, we engage with four main analytical issues, that is, (i) the definition of institutions, (ii) the conceptualisation of the role of institutions, (iii) the theory of the relationship between institutions and economic development, and (iv) the theory of economic development. Building on this critical review, the chapter then highlights the importance of focusing on the variety of types, forms and functions that institutions have taken historically, and even more critically on their collective nature. In this respect, we build on Abramovitz’s concept of social capability understood as “tenacious societal characteristics” embedded in productive organisations, as well as a variety of political, commercial, industrial and financial institutions. The chapter develops the idea of social capability by analysing and providing historical examples of six specific types of institutions and their role—forms and functions—in the industrialisation process. The institutional taxonomy includes six types of institutions: (i) institutions of production, (ii) institutions of productive capabilities development, (iii) institutions of corporate governance, (iv) institutions of industrial financing, (v) institutions of industrial change and restructuring and (vi) institutions of macroeconomic management for industrialisation. The chapter concludes by emphasising the importance of developing productive capabilities, not just at the individual or the firm level but also at the sectoral and social level, in the process of economic development, and especially industrialisation.

Keywords

Institutions Economic development Industrialisation Social capability Institutional taxonomy 

References

  1. Abramovitz, M. (1986). Catching up, forging ahead, and falling behind. Journal of Economic History, 46, 385–406.CrossRefGoogle Scholar
  2. Abramovitz, M. (1995). The elements of social capability. In Social capability and long-term economic growth (B. H. Koo & D. H. Perkins, Trans., pp. 19–47). Basingstoke/London: Macmillan.Google Scholar
  3. Acemoglu, D., & Robinson, J. (2012). Why nations fail – The origins of power, prosperity, and poverty. London/New York: Penguin Random House.CrossRefGoogle Scholar
  4. Acemoglu, D., Johnson, S., & Robinson, J. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369–1401.CrossRefGoogle Scholar
  5. Acemoglu, D., Johnson, S., & Robinson, J. (2005). Institutions as the fundamental cause of long-run growth. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth. Amsterdam: North-Holland.Google Scholar
  6. Andreoni, A. (2014). Structural learning: Embedding discoveries and the dynamics of production. Structural Change and Economic Dynamics, 29, 58–74.CrossRefGoogle Scholar
  7. Andreoni, A. (2015). On manufacturing development under resources constraints. In M. Baranzini, C. Rotondi, & R. Scazzieri (Eds.), Resources, production and structural dynamics. Cambridge, UK: Cambridge University Press.Google Scholar
  8. Andreoni, A. (2016). Varieties of industrial policy: Models, packages and transformation cycles. In A. Noman & J. Stiglitz (Eds.), Efficiency, finance and varieties of industrial policy (pp. 245–305). New York: Columbia University Press.Google Scholar
  9. Andreoni, A. (2018). The architecture and dynamics of industrial ecosystems: Diversification and innovative industrial renewal in Emilia Romagna. Cambridge Journal of Economics, 42, 1613–1642. forthcoming.CrossRefGoogle Scholar
  10. Andreoni, A., & Chang, H-J. (2014). Agricultural policy and the role of intermediate institutions in production capabilities transformation: Fundacion Chile and Embrapa in action, to be presented at the DRUID Annual Conference, Copenhagen, Denmark.Google Scholar
  11. Andreoni, A., & Chang, H.-J. (2017). Bringing production and employment back into development. Cambridge Journal of Regions, Economy and Society, 10, 173–187.Google Scholar
  12. Andreoni, A., & Scazzieri, R. (2014). Triggers of change: Structural trajectories and production dynamics. Cambridge Journal of Economics, 38(6), 1391–1408.CrossRefGoogle Scholar
  13. Andreoni, A., Frattini, F., & Prodi, G. (2017). Structural cycles and industrial policy alignment: The private-public nexus in the Emilian packaging valley. Cambridge Journal of Economics, 41(3), 881–904.Google Scholar
  14. Andreoni, A., Chang, H.-J., & Estevez. (2019). New global rules, policy space and quality of growth in Africa. In A. Noman & J. Stiglitz (Eds.), Quality of growth in Africa. New York: Columbia University Press. forthcoming.Google Scholar
  15. Aoki, M. (2001). Toward a comparative institutional analysis. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
  16. Aoki, M., & Hayami, Y. (Eds.). (2001). Communities and markets in economic development. Oxford: Oxford University Press.Google Scholar
  17. Aron, J. (2000). Growth and institutions: A review of the evidence. The World Bank Research Observer, 15(1), 99–135.CrossRefGoogle Scholar
  18. Chang, H.-J. (2001). Intellectual property rights and economic development – Historical lessons and emerging issues. Journal of Human Development, 2(2), 287–309.CrossRefGoogle Scholar
  19. Chang, H.-J. (2002). Breaking the mould – An institutionalist political economy alternative to the neo-Liberal theory of the market and the state. Cambridge Journal of Economics, 26(5), 539–560.CrossRefGoogle Scholar
  20. Chang, H.-J. (Ed.). (2007a). Institutional change and economic development. Tokyo/London: United Nations University Press/Anthem Press.Google Scholar
  21. Chang, H.-J. (2007b). Understanding the relationship between institutions and economic development. In H.-J. Chang (Ed.), Institutional change and economic development. Tokyo/London: United Nations University Press/Anthem Press.Google Scholar
  22. Chang, H.-J. (2007c). Bad samaritans. London/New York: Random House/Bloomsbury.Google Scholar
  23. Chang, H.-J. (2010). Hamlet without the prince of Denmark: How development has disappeared from Today’s “development” discourse. In S. Khan & J. Christiansen (Eds.), Towards new developmentalism: Market as means rather than master. Abingdon: Routledge.Google Scholar
  24. Chang, H.-J. (2011). Institutions and economic development: Theory, policy, and history. Journal of Institutional Economics, 7(4), 473–498.CrossRefGoogle Scholar
  25. Chang, H.-J. (2018). The rise and fall (?) of ABP (anything but policy) discourse in development economics. In A. Ghosh Dastidar, R. Malhotra, & V. Suneja (Eds.), Economic theory and policy amidst global discontent – Essays in honour of Deepak Nayyar. Abingdon: Routledge.Google Scholar
  26. Chang, H.-J., & Evans, P. (2005). The role of institutions in economic change. In G. Dymski & S. Da Paula (Eds.), Reimagining growth. London: Zed Press.Google Scholar
  27. Chang, H-J., & Rowthorn, R. (1995). Role of the state in economic change: Entrepreneurship and conflict management (co-author: Bob Rowthorn). In H-J. Chang & B. Rowthorn (Eds.), The role of the state in economic change. Oxford: Oxford University Press.Google Scholar
  28. Cimoli, M., Dosi, G., & Stiglitz, J. (Eds.). (2009). Industrial policy and development. The political economy of capabilities accumulation. Oxford: Oxford University Press.Google Scholar
  29. Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.CrossRefGoogle Scholar
  30. Epstein, J. (2007). Central banks as agents of economic development. In H.-J. Chang (Ed.), Institutional change and economic development. Tokyo/London: United Nations University Press/Anthem Press.Google Scholar
  31. Georgescu-Roegen, N. (1976; 1st edition in 1965). Institutional aspects of peasant economies: An analytical view. In N. Georgescu-Roegen (Ed.), Energy and economic myths – Institutional and analytical economic essays. New York/Oxford: Pergamon Press.Google Scholar
  32. Gerschenkron, A. (1962). Economic backwardness in historical perspective. Cambridge, MA: Belknap Press.Google Scholar
  33. Harriss, J., Hunter, J., & Lewis, C. M. (Eds.). (1995). The new institutional economics and third world development. London: Routledge.Google Scholar
  34. Hodgson, G. (2000). Structures and institutions: Reflections on institutionalism, structuration theory and critical realism. Mimeo, The Business School, University of Hertfordshire.Google Scholar
  35. Hodgson, G. (2006). What are institutions? Journal of Economic Issues, 40(1), 1–25.CrossRefGoogle Scholar
  36. Hodgson, G. (2009). On the institutional foundation of law: The insufficiency of custom and private ordering. Journal of Economic Issues, 43(1), 143–166.CrossRefGoogle Scholar
  37. Hope, C., & Chang, H-J. (2018). The political economy of structural transformation. Mimeo, Centre of Development Studies, University of Cambridge.Google Scholar
  38. IEG (Independent Evaluation Group of the World Bank). (2010). The World Bank’s country policy and institutional assessment – An evaluation. Washington, DC: World Bank.Google Scholar
  39. Kapur, D., & Webber, R. (2000). Governance-related conditionalities of the IFIs (G-24 discussion paper series, no. 6). Geneva: UNCTAD.Google Scholar
  40. Kaufmann, D., Kraay, A., & Zoido-Lobaton, P. (1999). Governance matters (Policy research working paper no. 2196). Washington, DC: World Bank.Google Scholar
  41. Keefer, P. (2011). Institutions really don’t matter for development? A response to Chang. Journal of Institutional Economics, 7(4), 543–547.CrossRefGoogle Scholar
  42. Kitching, G. (1982). Development and underdevelopment in historical perspective: Populism. In Nationalism and industrialisation. London: Methuen.Google Scholar
  43. Kuznets, S. (1966). Modern economic growth: Rate, structure and spread. New Haven: Yale University Press.Google Scholar
  44. Kuznets, S. (1968). Towards a theory of economic growth. New York: Norton.Google Scholar
  45. La Porta, R., F Lopez de Silanes, Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52(3), 1131–1150.CrossRefGoogle Scholar
  46. La Porta, R., F Lopez de Silanes, & Shleifer, A. (2008). The economic consequences of legal origins. Journal of Economic Literature, 46(2), 285–332.CrossRefGoogle Scholar
  47. Langlois, R. (Ed.). (1986). Economics as a process. Cambridge, UK: Cambridge University Press.Google Scholar
  48. Langlois, R. (1998). Capabilities and the theory of the firm. In N. Foss & B. Loasby (Eds.), Economic organization, capabilities and coordination. London: Routledge.Google Scholar
  49. Lazonick, W. (2009). Sustainable prosperity in the new economy? Kalamazoo: UPJOHN Institute.Google Scholar
  50. Lazonick, W. (2014) Profits without prosperity, Harvard Business Review, September, 46–55.Google Scholar
  51. Maddison, A. (1989). The world economy in the 20th century. Paris: OECD.Google Scholar
  52. March, J., & Simon, H. (1958). Organizations. New York: Wiley.Google Scholar
  53. Michaels, R. (2009). Comparative law by numbers? – Legal origins thesis, Doing Business reports, and the silence of traditional comparative law. American Journal of Comparative Law, 57(4), 765–795.CrossRefGoogle Scholar
  54. North, D. (1990). Institutions, institutional change and economic performance. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
  55. North, D. (1994). Economic performance through tie. American Economic Review, 84(3), 359–367.Google Scholar
  56. North, D. (1995). The new institutional economics and third world development. In J. Harriss, J. Hunter, & C. M. Lewis (Eds.), The new institutional economics and third world development. London: Routledge.CrossRefGoogle Scholar
  57. North, D. (2005). Understanding the process of economic change. Princeton/Oxford: Princeton University Press.CrossRefGoogle Scholar
  58. Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
  59. Penrose, E. T. (1959). The theory of the growth of the firm. Oxford: Oxford University Press.Google Scholar
  60. Piore, M., & Sabel, C. (1984). The second industrial divide. New York: Basic Books.Google Scholar
  61. Richardson, G. B. (1972). The organisation of industry. Economic Journal, 82(3), 883–896.CrossRefGoogle Scholar
  62. Simon, H. (1983). Reason in human affairs. Stanford: Stanford University Press.Google Scholar
  63. Singh, A. (1971). Take-overs: Their relevance to the stock market and the theory of the firm. Cambridge, UK: Cambridge University Press.Google Scholar
  64. Singh, A. (2003). Competition, corporate governance and selection in emerging markets. Economic Journal, 113, F443–F464.CrossRefGoogle Scholar
  65. Spraos, J. (1983). Inequalising trade? Oxford: Clarendon Press.Google Scholar
  66. Stiglitz, J. (2007). Making globalization work. London: Allen Lane.Google Scholar
  67. Tassey, G. (2005). Underinvestment in public good technologies. Journal of Technology Transfer, 30, 89–113.CrossRefGoogle Scholar
  68. Van Noor, S. (2018). Checks and balances, private property rights and economic development: What the data really tells us. Mimeo, Centre of Development Studies, University of Cambridge.Google Scholar
  69. Veblen, T. B. (1899). The theory of the leisure class: An economic study in the evolution of institutions. New York: Macmillan.Google Scholar
  70. World Bank. (2002). World development report 2002. New York: Oxford University Press.Google Scholar
  71. World Bank. (2017). World development report 2017. New York: Oxford University Press.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Department of Political EconomyUniversity of CambridgeCambridgeUK
  2. 2.School of Oriental and Africa StudiesUniversity of LondonLondonUK

Personalised recommendations