Social science knowledge and economic development an institutional design perspective
Social Science Knowledge and Economic Development
Economics, Cognition, and Society
This series provides a forum for theoretical and empirical investigations of social phenomena. It promotes works that focus on the interactions among cognitive processes, individual behavior, and social outcomes. It is especially open to interdisciplinary books that are genuinely integrative. Editor: Timur Kuran Editorial Board: Tyler Cowen Avner Greif Diego Gambetta Viktor Vanberg Titles in the Series
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Explaining Process and Change: Approaches to Evolutionary
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Vernon W. Ruttan.
Social Science Knowledge and Economic Development: An
Institutional Design Perspective
Social Science Knowledge and Economic Development An Institutional Design Perspective
Vernon W. Ruttan
UN I V E R SI TY
MI C HI G AN P R E S S
To the social scientists who serve on the staffs of the national and international development agencies. They have become increasingly effective in bringing social science knowledge to bear on the design and implementation of development policies and programs.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher. A elP catalog recordfor this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Ruttan, Vernon W. Social science knowledge and economic development / Vernon W. Ruttan. p. cm. - (Economics, cognition, and society) Includes bibliographical references and index. ISBN 0-472-1 1355-0 (Cloth: alk. paper) I. Economic development. 2. Applied sociology. 3. Technological innovations-Economic aspects-Developing countries. 4. Organizational change-Economic aspects-Developing countries. I. Title. II. Series. HD75 .R87 2004 2003012783 338.9--d c21
We contract the boundaries of our subjects, and of our sub-subjects, to make them more manageable; and we are enabled to do this because our academic specialization is in fact happening in the Ilreal world." But it is not all that is happening in the world. -Sir John Hicks
List of Figures List of Tables List of Boxes Preface
Xl XUI Xlll
PART I CHAPTER I
Induced Institutional Innovation What Is Institutional Innovation? Demandfor Institutional Innovation The Supply of Institutional Innovation Toward a More Complete Model of Induced Innovation
3 4 9
PART II CHAPTER 2
Cultural Endowments and Economic Development Cultural Endowments in Development Economics Why Anthropology? Deconstructing Development Constructing Culture Perspective
3 The Sociology of Development and Underdevelopment Why Sociology? What Happened to Modernization Theory? Alternative Sociologies Rational Choice, Social Norms, and Development Perspective
33 33 42 52 59
68 69 71 79
4 What Happened to Political Development? Political Development in Development Economics Political Science and Political Development The Political Basis of Economic Development The Economic Foundations of Political Development Political Power and Political Development Institutional Design Perspective
100 101 106 112 117 119 125 131
5 Growth Economics and Development Economics Classical and Schumpeterian Growth Modern Growth Theory Dialogue with Data Growth Economics as Development Economics A More Comprehensive Growth Economics? Perspective A Postscript on Method
135 136 139 1 50 154 163 165 167
PART III CHAPTER
6 Technology Adoption, Diffusion, and Transfer The Convergence of Traditions The Diffusion of Diffusion Research International Technology Transfer Resistance to Technology The Divergence of Traditions
171 171 184 190 193 197
7 Social Capital and Institutional Renovation The Kombi-Naam Cultural Endowment Understanding the Kombi-Naam Renovating the Kombi-Naam as a Development Organization Groupements Naam and Technical Innovation The Continuity and Replicability of the Groupements Naam Conclusions
200 202 203
8 Religion, Culture, and Nation Fundamentalist Religion and Economic Development Culture and Development Nationalism and Nation Building Perspective
205 207 209 213 215 215 226 240 248
Why Foreign Economic Assistance? Donor Self-Interest Ethical Considerations Lessons from Experience A Foreign Economic Assistance Future? In Conclusion
251 252 255 260 266 268
Appendix: Definitions of Culture Bibliography Indexes
273 277 327
PART IV CHAPTER
2.2. 3.1. 5.1. 6.1. 6.2. 6·3· 6·4·
Interrelationships between changes in resource endowments, cultural endowments, technology, and institutions Macro- and micro level propositions: effects of religious doctrine on economic organization A Marxist model. The forces o f prod�ction and the relations of production together make up the economic base or mode of production. The cultural materialism model Linear and interactive models o f the relations between advances in scientific and technical knowledge Real per capita gross domestic product i n the United States, 1 870-1994 The epidemic model Cumulative number o f diffusion research publications by year Number of diffusion publications by rural sociologists by year Number of horses and cars in the United States, 1850-2000
46 47 86 152 1 76 178 179 188
Factor Shares o f Rice Output per Hectare, 1976 Wet Season 1 . 2 . Comparison between the Imputed Value of Harvesters' Share and Imputed Cost of Gamma Labor 6 . 1 . Major Diffusion Research Traditions 1.1.
2.1. 3.1. 4. 1 5.1. 5.2. 5.3.
Postmodernism Rational Choice Institutional Design Principles The Keynesian (Harrod-Domar) Model The Neoclassical (Solow-Swan) Growth Model Endogenous Growth Theory (Romer-Lucas)
54 88 127 140 142 145
In the first several decades after World War II there was a dramatic increase in interest in the development of non-Western societies in all of the social sciences. Prior to World War II interest in non-Western societies by social scientists was dominated by ethnographic studies of primitive isolates or studies of native cultures by applied anthropolo gists in the service of colonial administration. The emergence of new states committed to rapid economic growth contributed to the rapid emergence of a new field of inquiry into the process of development in each of the social sciences. In the literature of the I950S there was a presumption that economic growth would be strongly influenced by cultural endowments and institutional development. This resulted in the rapid emergence of dis ciplinary subfields such as development sociology, political develop ment, and development administration. Historians, geographers, legal scholars, and historians also began to explore the contribution that their particular disciplinary skills and insights might offer to the under standing of development process or development practice. The early expectation that these several streams of inquiry might merge to enrich each other has only recently begun to materialize. In some fields, such as political development, early enthusiasm was replaced by serious doubt about the viability of the political develop ment research agenda. In other fields, interest in development studies faded along with the decline of financial support by foundations and official development assistance agencies as the Cold War wound down. Interest by economists in the contribution of other social science disci plines declined as economic approaches to policy analysis and plan ning became more formalized. The rapid pace of economic development in a number of developing countries during the I960s and I970S seemed to confirm the perspective that economic development could be left to the economists. During the I980s, however, much of the optimism about the pace of development in both Western and non-Western economies eroded. By the early
1 990S institutional and cultural explanations for stagnation or dis torted development again emerged as important themes in both popu lar and professional literature. My own earlier work on the role of institutional innovation in eco nomic development (and with colleagues Yujiro Hayami and Hans Binswanger) largely involved the extension of neoclassical microeco nomics in attempts to understand (I) how changes in resource endow ments and technical change induced institutional innovations and (2) how institutional change induced changes in resource endowment and technology. My work departed from the mainstream "new institu tional economics" in that it drew more heavily on the work of Theodore W. Schultz and Leonid Hurwicz than on that of Ronald Coase for its inspiration. In this book I go beyond my earlier concerns to explore what development economists can (or should) learn from other social scientists, and from macroeconomic growth theory, in their attempts to design more effective development policies and insti tutions. A consistent theme in this book is that advances in social sci ence knowledge represent a powerful source of economic development. Theoretical inquiry carried on apart from a continuing dialogue with data is arid. This book originated in a program of summer reading that began in the mid-1980s. The initial result was a series of articles published mainly in the 1 990s. In the spring of 2000 I was able to interest the University of Michigan Press in publishing a book, drawing on these earlier articles, under the title Social Science Knowledge and Economic Development. The Press informed me, however, that they were not interested in simply publishing a collection of my oId articles. But they would be interested in a revised, updated, and integrated treat ment. The title of the book was chosen very deliberately. It is about the contribution of social science knowledge to the project of eco nomic development. I would like to thank Professor Henry J. Bruton, the University of Michigan Press reviewer, for his helpful comments on the proposed book. He has continued to offer useful comments and suggestions on subsequent drafts. Christopher Clague, Greta Friedemann-Sanchez, Robert T. Holt, Timur Kuran, Douglass C. North, and Stephen Gude man have read and made recommendations on earlier drafts of the manuscript. Heidi Van Schooten has typed, retyped, and edited por tions of the manuscript.
I have used earlier drafts of these chapters in an interdisciplinary graduate seminar offered by the MacArthur Program at the University of Minnesota. The book has benefited from my students' comments. I anticipate that the book may be of interest to behavioral economists and to other'social scientists. It should also be of interest to social sci ence professionals in development assistance agencies.
Induced Institutional Innovation
The central premise of this book is that the demand for social science knowledge is derived from the demand for institutional change. I If this view is correct then any claim by the social science disciplines and related professions for substantial public support depends on a credi ble promise that advances in social science knowledge represent an efficient source of institutional innovation. Another way of articulat ing the same point is that advances in social science knowledge reduce the cost of institutional change. I employ the term cost in its broadest sense, to include the psychological, the social, and the political as well as the economic costs of institutional change. The interpretation of technical and institutional change as endoge nous rather than exogenous to the economic system is a relatively new development in economic thought. In work published in the 1 970S Yujiro Hayami, Hans Binswanger, and I extended the theory of induced technical change and tested it against the history of agricul tural development in the United States and Japan (Hayami and Ruttan 1971; Binswanger and Ruttan 1978). It is now generally accepted that the theory of induced technical change provides very substantial insight into the process of agricultural development for a wide range of developed and developing countries. Industrial economists and eco nomic historians have drawn extensively on the theory of induced tech nical change in attempting to interpret differential patterns of produc tivity growth among firms, industries, and countries and over time (Thirtle and Ruttan 1987, 68-72). In the late 1980s growth theory was revitalized by the introduction of new models of endogenous economic growth (Romer 1986; Lucas 1988; chap. 5, this vol.). I. In this chapter I draw heavily on Ruttan and Hayami (1984). I am indebted to Henry J. Bruton, James F. Oemke, and Christopher K. Clague for comments on an earlier draft of this chapter. 3
Social Science Knowledge and Economic Development
The demonstration that technical change can be treated as largely endogenous to the development process does not imply that the progress of either agricultural or industrial technology can be left to an "invisible hand" that drives technology along an "efficient" path deter mined by relative resource endowments. The capacity to advance knowledge in science and technology is itself a product of institutional innovation-"the great invention of the nineteenth century was the invention of the method of invention" (Whitehead 1925, 96). In the case of agriculture, for example, in both the United States and Japan, much of the technical change that has led to growth of output per hectare was, until very recently, produced by public sector institu tions. These institutions-state (or prefectoral) and federal (or national) agricultural experiment stations-obtained their resources in the political marketplace and allocated their resources through bureaucratic mechanisms (Hayami and Ruttan 1985, 206-52; Ruttan 2001b, 1 79-234). The success of the theory of induced technical change gives rise, therefore, to the need for a more careful consideration of the sources of institutional innovation and design. In this chapter I elaborate a theory of institutional innovation in which shifts in the demand for institutional innovation are induced by changes in relative resource endowments and by technical change. I also consider the impact of advances in social science knowledge and of cultural endowments on the supply of institutional change. After examining the forces that act to shift the supply and demand of insti tutional innovation, the elements of a more general model of institu tional change are presented. What Is Institutio n a l I n novation ?
There is considerable disagreement regarding the concept of institu tion. Institutions are commonly defined as the organizations and rules of a society that facilitate coordination among people by helping them form expectations that each person can reasonably hold in dealing with others. They reflect the conventions and ideologies that have evolved in different societies regarding the behavior of individuals and groups relative to their own behavior and the behavior of others. In the area of economic relations they have a crucial role in establishing expectations about the rights to use resources in economic activities and about the partitioning of the income streams resulting from eco nomic activity: "institutions provide assurance respecting the actions
Induced Institutional Innovation
of others, and give order and stability to expectations in the complex and uncertain world of economic relations. " 2 In my work I find that an inclusive definition that includes organiza tions is most useful, which is consistent with the view expressed by both Commons (1950, 24) and Knight (1952, 51). The more inclusive definition is employed in order to be able to consider changes in the rules or conventions that govern behavior (I) within economic units such as firms and bureaucracies, (2) among economic units as in the cases of the rules that govern market relationships, and (3) between eco nomic units and their environment, as in the case of the relationship between a firm and a regulatory agency. It includes policy, mechanism, and system innovations.3 The distinction that I make between institu tions and cultural endowments is that institutions are the formal rules and arrangements that govern behavior among and within organiza tions, while cultural endowments are the informal codes and norms that influence individual and group behavior. The state is a useful example. It is an organization. It is also a source of formal rules and relationships within itself and between itself and private agents (Aoki 2001, 151-79). In order to perform the essential role of forming reasonable expec tations in dealings among people, institutions must be stable for an extended time period. But institutions, like technology, must also change if development is to occur. Anticipation of the latent gains to be realized by overcoming the disequilibria resulting from changes in factor endowments, product demand, and technical change represents powerful inducements to institutional innovation (North and Thomas 1970; Schultz 1975; Binswanger and Deininger 1997). Institutions that have been efficient in generating growth in the past may, over time, come to protect the vested interests of some of their members in main taining the status quo and thus become obstacles to further economic development.4 The growing disequilibrium in resource allocation due 2. See Runge (1981b, xv). Formal analysis of the role of institutions in providing assurance of stability in economic relationships emerged from dissatisfaction with the implications of the assumption of strict dominance of individual strategy in modern welfare economics (Sen 1967; Runge 198Ia). North argues that shared ideological and ethical perspectives provide assurance that is lacking in models built on the dominance of individual strategies (1981, 45-58). 3. In his more recent work, North employs a definition of institution that is similar to anthropologists' use of the term culture (1991, 1 994) and to my use of the term cultural endow ment (fig. 1 . 1). For the evolution of the term culture see the appendix. 4. The role of special interest "distributional coalitions" in slowing society's capacity to adopt new technology and reallocate resources in response to changing conditions is a cen tral theme in Olson (1982, 74).
Social Science Knowledge and Economic Development
to institutional constraints generated by economic growth creates incentives for political entrepreneurs or leaders to organize collective action to bring about institutional change. This perspective on the sources of demand for institutional change is similar, in some respects, to the traditional Marxist view.5 Marx con sidered technological change to be the primary source of institutional change. The induced innovation perspective is somewhat more com plex in that it considers that changes in cultural endowments, factor endowments, and product demand are also important sources of insti tutional change. The definition of institutional change employed in this book is not limited to the dramatic or revolutionary changes of the type anticipated by Marx. Institutions such as property rights and markets are more typically altered through the accumulation of sec ondary or incremental institutional changes such as modifications in contractual relations or shifts in the boundaries between market and nonmarket activities (Davis and North 1971, 9) . There is a supply dimension as well as a demand dimension in insti tutional change. Advances in social science knowledge represent an increasingly important source of shifts in the supply of institutional innovations. Collective action leading to the implementation of insti tutional innovations involves struggles among various vested interest groups. Clearly, the process is much more complex than the clear-cut, two-class conflict between property owners and the property-less as assumed by Marx. The supply of institutional innovations is strongly influenced by the cost of achieving social consensus (or of suppressing opposition). The cost of implementing an institutional innovation depends on the distribution of both economic and political resources. It also depends critically on cultural tradition and ideology (such as nationalism) that make certain institutional arrangements more easily accepted than others. Advances in knowledge in the social sciences (and in related profes sions such as law, administration, planning, and social service) can reduce the cost of institutional change in a manner somewhat similar 5. "At a certain stage of their development, the material forces of production in society come in conflict with existing relations of production, or-what is but a legal expression for the same thing-with the property relations within which they had been at work before. From forms of development of the forces of production these relations turn into their fetters. Then comes the period of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed" (Marx 1913, 11-12). For a discussion of the role of technology in Marxian thought see Rosenberg (1982, 34-54).