Paths to Property: Approaches to Institutional Change in International Development Paperback – 9 Jan 2008

I recollect that at the time of the collapse of the Berlin Wall, the triumphalists proclaimed the victory of freedom over socialism and looked forward to the so-called “End of History” Jeffrey Sachs was anointed as the architect of the new capitalist Russia which would soon sit in the councils of the capitalist nations of the west.

The momentous historic events were brought to mind as I read through this Hobart Paper from the London based Institute of Economic Affairs.

Following North and Ostrom, the authors utilize an institutionalist framework to examine economic development in Africa, although there are significant implications for countries across the globe. They clearly prefer the enablement of individual freedom and enterprise to bring about economic development and argue the crucial need for a process of property rights establishment based on individual circumstances and taking into account local law, rules and customs, as opposed to the legislative and constitutionalst measures taken by government.

An interesting aside is that this seems to be a research programme currently favoured by some free marketers in contrast to the work of institutionalists and evolutionsists as exemplified by Hodgson for instance and as competioin is generally a good thing, hopefully both will have productive and useful outcomes.

By takinga point of view of somewhat economic anthropologists, the authors seek to show, using a few case studies, how the development of property rights from local laws and customs can bring about change which is self-sustaining and which can provide greater benefits, such as harmony and co-existance as well as general wellbeing throught the establishment of free exchange.

They caution against top down measures introduced by government using grandiose policies which have less than optimum results.

Essentially this boils down to dealing with uncertainty. If one assumes that each person seeks to reduce the uncertainty in their lives, they do so with interaction with other, primarily through exchange in order to achieve that. In doing so they create unintended consequences for other and these have ripple effects which can be dealt with in a number of ways including the creation of customary rules.

Governments are social constructions who try to introduce laws and frameworks to try and achieve certain effects, economic and others, and although they may attempt to cover all eventualities by the legislation they inact, they too create unintended consequences which can have advese effects. Here Russia would be a substantial example.

Each set of unintended consequences can and will have effects on the rules that gave rise to their creation and thus create positive and negative feedback effects and thus alter the outcomes which may result.

For me this paper suggests that small scale change through careful attention to the existing corpus of rules and customers will be generally of greater benefit in the longer term. It implies that the nature of large scale projects funded by International institutions will, on balance, cause more harm than good.

Interesting ideas that require development (pardon the pun).