The Institutional Economics of Karl Polanyi

Economists tend to see the market as a default option for social order and a role for government only when markets fail. Developing a convincing analysis of the role of government in economic processes, however, needs to start by considering government failure in its own terms. Drawing on insights from institutional economics, law and economics and the philosophy of law, emphasizing the necessity of rules for the economy, this paper develops the concept of government failure. The paper identifies and develops four different types of government failure. Government can set rules for economic processes and actors that are (1) too specific, (2) too broad, (3) that are arbitrary, or (4) that conflict with other rules it has set out to address other, related issues (possibly primarily non-economic). Government failure is illustrated in the context of Intellectual Property Right (IPR) law as it relates to Anti-Trust law.     

The Costs of Inflation Revisited

Neoclassical treatments of inflation understate the costs associated with inflation, even at very low levels. A comparative institutions perspective that recognizes the epistemological properties of prices and the institutional process by which inflation takes place, reveals the costs of inflation to be both larger and more widespread than standard treatments suggest. This paper makes use of insights from Austrian economics, public choice theory, and the new institutional economics to argue that inflation imposes costs by undermining the coordinative properties of the price system. Not only are there the direct costs of increased economic error, but actors also divert resources away from direct want-satisfaction into attempts to either prevent or cope with the increased degree of uncertainty inflation imposes. These resource costs are best understood from a comparative institutions perspective, as traditional measures of economic well-being, such as GDP, cannot distinguish between exchanges that directly satisfy wants, and exchanges that are attempts to correct or prevent utility-diminishing activities. The analogy between these coping costs and rent-seeking behavior is explored. In addition, inflation imposes costs by undermining the coordinative properties of markets and inducing actors to, on the margin, prefer to seek wealth or allocate resources through the political process.     

Rent Seeking Behavior in Transition Countries: The Case of Romania

This paper points out, in the changing institutional setting of transition in Romania, Some relevant factors influencing economic actors to behave in a way that pushes them to devote resources to unproductive goals, rather than to embark on activities that add economic and social value. The theoretical insights offered in the literature of rent seeking are applied to the issues of transition. A mathematical model of a rent seeking economy is presented, analyzing the influence of interest groups activity on the overall income of the economy. Some examples of rent seeking behavior that severely hamper the economic efficiency are illustrated for the case of Romania. The conclusion is that, in appreciating the progress in transition, the reduction in rent seeking is an important factor to be taken into consideration.     

社会结构与政治行动者之间的张力——方法论视野中的民主转型研究

当代民主转型理论的发展与方法论创新密切相关。结构分析从经济发展的视角考察民主化的动力,关注政治转型的社会约束条件。行动者分析认为,精英人物的策略选择决定民主转型的进程,强调政治过程的自主性。在宏观结构分析与微观行动者分析的融合中,民主转型被视为结构约束与行动者选择共同作用的结果。民主制度建立在社会条件的基础上,社会结构在限定行动者选择的同时,在变迁过程中提供制度发展的机会空间,为行动者发挥建构作用创造条件。     

Financial Liberalization as a Process of Flawed Institutional Change

I argue that the financial liberalization of the last decades, which resulted in a worldwide crisis, relied on an institutional change that ill-shaped actors’ behavior so as to let them enter into unsustainable speculative activities at the expense of macro-stability. To support such an assertion, I draw upon a specific Veblen-Minsky approach to a credit-money economy and its endogenous fragilities. I also maintain that, when financial markets are liberalized and private-interestsrelated self-regulation replaces public macro-prudential supervision, the financial system undergoes institutional deadlock and the ensuing confusion is transformed into a market gridlock. Markets then become unable to recover without public rescue operations of banks. The subsequent negative economic and social consequences are beyond the limits of any acceptable liberal ideology and scientific understanding. Therefore, systemic stability calls for a tighter macro-regulatory framework to remove the domination of speculative finance over economic decisions and activities.     

Property and Economic Power as Issues in Institutional Economics

In the first part of this two-part paper, I presented an "irenic" reconciliation of the three apparently contradictory definitions of "institution" within original institutional economics (OIE), employing the methodology of critical institutionalism. The critical institutionalist reconciliation of these definitions conceptualizes institutions as an emergent process by which the internal and necessary relations of social structure as collective action, mediated through agency, results in the control, expansion, and liberation of the individual action of social actors in transactions. In short, an institution is the emergent process of social structure actualized in transactions (social action). Institutions, therefore, not only have a structural existence, but also an actual existence as they are the process of the emergence of the actual (in transactions) from the structural. Institutions are multi-level processes and cannot be reduced to structures, actions, behaviors, or patterns of behaviors. In this part, I demonstrate the significance of this reconciliation in two areas. The first is its ability to further differentiate the institutional definition of economics as "the science of social provisioning" from the mainstream definition of economics as "a relationship between ends and scarce means" by decomposing the institutional definition into its productive and distributive processes. The second is its usefulness in modeling the interaction of non-economic social institutions with economic institutions at varying levels of detail. I also introduce critical institutional analysis, and use as a method, for model-building and use it to build models of communal, feudal, and industrial capitalist economies.     

Eco-Frontier and Place-Making: The Unexpected Transformation of a Sustainable Settlement Project in the Amazon

An important issue today is the compatibility of agricultural frontiers, which are driven by economic objectives, with conservationist views. In the Amazon, family farmers are concerned with this issue since they are at the same time actors of the agricultural frontier and considered as potential actors of the preservation of the forest. Through the study of a highly symbolic settlement project in the State of Pará, this paper focuses on the role that family farmers can play in meeting sustainability goals. The central argument which is developed in this paper is that this objective may be achieved when projects do not presuppose social and spatial relationships; rather, it advocates an approach which is attentive to place-making processes.     

Against the digital revolution? Institutional maintenance and artefacts within the French recorded music industry

Institutional maintenance is particularly intriguing when it occurs in the case of technological shifts, with both changes in technologies but persistence in fundamental ways of thinking. In such a case, artefacts may play a significant role, since they are impacted by new technologies but may remain associated with old values. This raises a core question: What work is carried out on the cognitive dimension of artefacts by actors engaged in institutional maintenance? We answer this question through a study of players' endeavors to maintain the institution of intellectual property rights in the French music industry from 2004 to 2008. We interviewed 26 actors and compiled a base of secondary data over an extended period of time. Our results underline that some artefacts convey institutional maintenance, even in the case of technological shifts. More specifically, we show that actors engaged in institutional maintenance target their efforts towards the manipulation of values infused into artefacts. We also shed light on their efforts to design global devices, akin to the idea of “dispositif”. Embedded in these global devices, some artefacts become nodal points forcing actors in the field to comply with the institution that is defended.     

2006年我国产业组织研究前沿综述

2006年我国的产业组织研究具有3个特点：一是经济管制中开始关注制度互补、产业链以及公众参与的影响；二是在政府管制领域．环境管制研究更加受到重视。三是对企业创新行为的研究仍然表现出极高的关注度。这些研究就其取向而言，可分为对策研究和理论研究两大类。前者的贡献是对政策制订提供了一定支撑．后者的贡献则体现在为相关理论的证实或证伪提供了新资料。理论的原创性不足、对潜在的理论热点研究不足仍然是我国产业组织研究中的基本局限。     

Narrating Crisis,Constructing Policy: Economic Ideas and Institutional Change in Syria

During crises, ideas play a decisive role in shaping radical paradigm shifts in economic governance. However, not all crises immediately produce such ‘great transformations’. Why do some ideas result in incremental rather than abrupt change after crisis? To identify mechanisms potentially explaining this variation, I conduct an exploratory process tracing of an understudied case of incremental institutional change: post-independence Syria. Competing political actors in Syria converged on identical policy responses to crisis despite their very different interpretations of its causes. Although power oscillated between these increasingly bitter rivals in the early 1950s, their ideational consensus on economic issues nevertheless led to a decade of steady institutional change that transformed previously fragile government institutions into powerful vehicles of statism. I derive from this analysis the potential causal significance of two new variables – crisis narrative and crisis response – and hypothesise that their configuration can explain variation in post-crisis patterns of institutional change. Ideas can explain not only the new direction of economic governance after crisis, but also the speed and scale of its movement.     

Transborder Regional Alliances in Europe: Chances for Ethnic Euroregions?

This contribution deals with obstacles to development of ethnic transborder regional alliances in Europe. It includes some theoretical considerations as well as case studies of three European border zones with so-called ‘interface minorities’. These are the Belgian–German border zone, the Basque Country and the former Habsburg Kronland of Tyrol. From a perspective that European integration and regionalism are phenomena related to state decline, the dynamics of transborder regional alliances or ‘euroregions’ can be considered to take place relatively independent of the confines and institutional structures of the states. However, critical evaluations of the phenomena of regionalism indicate that we should be careful not to assume that regional actors in a border zone with interface minorities are self-evidently inclined and able to create an ethnic euroregion. Instead, it is more realistic to assume a more complex situation with a heterogeneous field of actors and constraining conditions emanating from the structural and social institutionalisation of the states. In all cases the different positions of regional populations in the different state contexts have brought about asymmetries in the complex of elements that constitute ethnoregional dynamics. The cases seem to confirm that the principle obstacles to the formation of ethnic euroregions are related with institutional differences between the states and heterogeneity of actors.     

A Guide to Paradigmatic Self-Marginalization: Lessons for Post-Keynesian Economists

While many heterodox economists hope that the recent financial crisis will lead to paradigmatic change in economics, we argue that path-dependent processes and institutional factors within the economic community hinder such a change. Focusing on the citation behavior of economists in heterodox journals in general and in Post-Keynesian journals in particular, we discuss structural reasons—connected to positive feedback mechanisms within the institutional framework of the economics discipline—for the marginalization of heterodox economic thought.     

Quantitative Easing Forever? Financialisation and the Institutional Legitimacy of the Federal Reserve’s Unconventional Monetary Policy

Scholars of financialisation have argued that the emergence of finance-led grow regimes requires new instruments for effective conduct of economic policy. In this scholarship, central banks have been seen as the most promising actors to utilise one of the most synergetic policies, the maintenance of high and stable prices of financial assets. Since the financial crisis of 2007–8, central banks of the developed world have adopted various unconventional monetary policy measures that serve this function. But will these unconventional measures become institutionally legitimate and institutionalised as conventional practice, as suggested necessary by scholars of financialisation? In this paper, we answer to this question by studying the institutional legitimation of the Federal Reserve’s Quantiative Easing (QE) programmes. We argue that the QE programmes have been legitimated successfully but with institutional legitimation strategies, which cause institutional pressures that question the potential of QE from becoming a regular policy instrument and practice.     

Evolvability and progress in evolutionary economics

This paper develops an account of evolutionary progress for use in the field of evolutionary economics. Previous work is surveyed and a new account set out, based on the idea of evolvability as it has been used recently in evolutionary developmental biology. The biological underpinnings of this idea are explained using examples of a series of phenomena that influence the evolvability of biological systems. It is further argued that biological and economic selection pressures and developmental processes are sufficiently similar to make this biological concept useful in economics. The new account is defended against a number of common objections to the notion of progress in evolving systems, including the claim that all stipulated measures of evolutionary progress are essentially arbitrary and the idea that economic evolutionary progress might not accord with the preferences of economic actors. It is argued that progress, understood as an increase in evolvability over time, is both philosophically well-justified and provides useful predictive and explanatory resources to those seeking to understand and manipulate evolving economic systems.     

Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics

Simplistic aggregation in idealized “markets” versus structural emergence in complex and path-dependent processes have always marked a “continental divide” between neoclassical mainstream economics and all kinds of evolutionary and institutional social economics. This paper deals with institutional, or structural, emergence and argues that the meso level (to be specific) is the proper aggregate level for social economic analyses of complex systems and processes. Also, neo-Schumpeterian economists have stressed recently the issue of an “institutional trajectory” taking place on the meso economic level. This paper argues that the creative ideas of a Schumpeterian entrepreneur are not a sufficient explanation in this case. Using an evolutionary interpretation of a simple game-theoretic formalism (the Folk Theorem), the paper strives to demonstrate that the meso level, as the proper level of institutional emergence, must and can be endogenously explained from a process of interactive problem-solving of interdependent agents, in their struggle for coordination under strong uncertainty. It will be illustrated that a meso-sized socio-economic group co-evolves, and is constituted, together with the institution that in turn serves as the solution to the coordination problem. The practical and policy implications of the argument are discussed.

Understanding Agro-Holdings in Russia: A Commonsian Analysis

Agro-holdings in Russia are large-scale vertically integrated farms within the food processing industry which emerged in the economic, political, and social context inherited from the Soviet era and the post-Soviet market transition. Several economic researchers consider agro-holdings either as a transitory phenomenon or as a major innovation that enables economies of scale and scope. However, their sustainability does not support the idea of a transitory organizational form. Meanwhile, important aspects of their activity, as with the financing of social infrastructures and the partnership with public institutions, cannot be explained by the aim of productive efficiency. I argue that applying John R. Commons’ concepts of strategic transactions, going concerns, and futurity offers an insight enabling the understanding of agro-holdings in Russia as the result of actors’ capacity to form new working rules and compromises, reflected in going concerns that incorporate both the productive and distributive dimensions of their activity.     

The shading and distancing of commerce: When internalization is not enough

A political economy of degradation and of sustainability should account not only for the full range of production costs but the sources of those costs. It should consider how the pursuit of wealth can, deliberately or not, lead to uncounted costs and unaccountable actors. This article explores the conditions of cost generation and externalization, especially those that are largely unintended and inadvertent. It shows how the pursuit of wealth, the expansion of markets, the mobility of capital, and the entanglements of production processes can lead to the unwitting generation and displacement of costs. It analyzes competitive business strategy and patterns of production and consumption for their contribution to such costs. Business strategy and state policy tend to create a never-ending search for frontiers, however simulated and however unecological they may be. The costs generated in those frontiers are a function of shading, that is, obscuring of costs, and distancing, the separation of production and consumption decisions, both of which impede ecological and social feedback and create cognitive, institutional, and ethical lags between initial benefits and eventual full costs. As distance increases along dimensions of geography, culture, bargaining power, or agency, negative feedback loops are severed, stakeholders expand while decision making contracts, environmental problems are displaced, and shading and cost externalization increase. The likelihood of sustainable resource use increases as distance is lowered, as institutions locate decision authority in those who receive negative ecological feedback and who have the capacity and incentives to act on that feedback, and as the burden of proof for economic interventions shifts to the interveners.     

Where are we in the political economy of reform?

We review the experiences of developing countries with market-oriented reforms, using the tools of modern political economy. We impose intellectual discipline by requiring that actors behave rationally using available information and that basic economic relationships such as budget constraints be accounted for. We attempt to integrate two approaches, one based on dynamic games played by interest groups, with one that focus on limited information and the dynamics of learning.

We describe the “starting point” as the set of “old” policies and we attempt to explain the dynamics (political, economic and informational) that lead to reform (section II). We analyze strategies for reformers subject to political constraints (section Ш). We evaluate the aggregate and distributional costs of reforms, emphasizing the importance of looking at the right counterfactuals (section IV).

We conclude by pointing to the challenges ahead: the second-stage institutional reforms necessary to take off from underdevelopment.