Institutions v. DynamicsInstitutions “The rules of the game” Pertains to that which shapes or constrains the behavior of social agentsDynamics Refers to the behavior of the agents themselves (including their relationship [s] to one another)
Conventional PerspectivesSociety-centered Focuses on the norms, agents and interactions within societyState-centered Emphasizes the ability of states to shape societal priorities
The Society-Centered ViewSociety State Policy/Result
Note...Both views, while useful, are incomplete Each views state and society as static Neither accounts for the fact that both states and societies are changed by their repeated interaction Further, there is a dynamic between state and society, within the state and within society.
Terminology States refer to concentrations of political power Elements: People, Territory, Government and Sovereignty Markets pertain to concentrations of economic powerAlthough somewhat inaccurate the fo!owingare loosely interchangeable: State = Government Market =Economy
On MarketsMarkets are generally where exchange takesplaceVolition is the primary characteristic ofmarket transactionsWe can speak of markets in two ways... ...in the abstract (“the market”) ...in precise terms (“a market”)
On the one hand...From a purely economic perspective,markets allow for the eﬃcient allocation ofresources.State intervention in markets can result ingross ineﬃciencies.Thus, states should keep their interferencein markets to a minimum.There are plenty of things government should not do vis-a-vis the market.
On the other hand...An “eﬃcient” allocation of resources is notnecessarily the “best”.The concept of a “free market” is itselfpredicated on the assumption thatgovernment opts out of the market.Markets themselves have to be designed. Governments are necessary in order for markets to function at a!.
Elements of Market DesignInformation must be allowed to ﬂowsmoothly.People can be trusted to live up theirpromises.Competition is fostered.Property rights are protected (but notoverprotected).Externalities are controlled.
When is a state’s economicintervention “eﬀective”?
Key ConceptsState Autonomy The ability of states to formulate goals/ policies independentlyState Capacity The ability of states to follow through on pre-determined goals/policies Conceivably, the two need not go together.
A Continuum of States - Autonomy/Capacity +Rent-Seeking Bureaucratic- Political incumbents - Resource redistribution is appropriate or distribute insulated from vested state resources as rents interests- Incumbents see little or - Pursuance of state goals no distinction between is seen as distinct but public and private congruent with private interests interests
A Continuum of States - Autonomy/Capacity +Rent-Seeking Bureaucratic Predatory Developmental State State
State-Society Relationships Ineﬀective Eﬀective Intervention Intervention Internal EmbeddedStructure Patrimonial Autonomy PurposiveExternal Haphazard / Public-Private Ties Unstructured Ties
Ergo...Lessening state intervention in theeconomy is not the only solution to furthereconomic development.The more autonomous states are, thegreater their capacity to foment positiveeconomic change.State autonomy is enhanced the moreprofessional the bureaucratic structure andthe more “structured” its ties with society.