Comparative Economic Systems and the New Comparative Economics

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Abstract

The field of comparative economic systems has been recently enriched by the arrival of the new comparative economics. This approach is in the line of the law and finance tradition and presents an important contribution under different perspectives. In the paper I present the most important propositions of this new approach and I evaluate them in the light of the problems that the comparative study of economic systems traditionally considers. The conclusion is that this new approach can give important contributions to the development of the discipline in particular fields, but falls short of its pretended general validity.

JEL Classification: P10, P50, P51

Keywords: Comparative Economic Systems, Comparative Economics, New Comparative Economics

1. Introduction

The changes that took place since late Eighties, particularly globalisation and transition, have had profound consequences for economics. These consequences were particularly dramatic for fields that have traditionally dealt with economic systems that have disappeared or have been deeply changed. Comparative economic systems is certainly among the first in the list of affected fields.

This situation has prompted many, particularly in the academic world, to raise the crucial question: "is comparative economic systems (comparative economics) dead?" (2) The most recent answer given to this question has been advanced by a group of well-known authors, mostly based in Harvard and at the World Bank, (3) who are usually in the line of the rapidly growing field of law and finance. These authors have applied their peculiar approach to analysing an extensive database having mostly to do with such important institutions as ownership, finance, law, government, and regulation "around the world".

The answer that these authors give to the above question is a straightforward one: NO. This simple answer in itself makes this line of research particularly interesting and important for the scholars in the more traditional field of comparative economic systems (CES). The motivation that the above authors give to their answer is presented as follows:

"Traditional comparative economics has evolved into a new field. This field shares with its predecessor the notion that by comparing alternative economic systems, we can understand better what makes each of them work. But it sees the key comparisons as being those of alternative capitalist models that prevail in different countries. Each capitalist economy has many public and private institutions. These institutions function to choose political leaders, to secure property rights, to redistribute wealth, to resolve disputes, to govern firms, to allocate credit, and so on. Political economy over the last two centuries, as well as recent empirical research, demonstrate that these institutions differ tremendously and systematically among countries, with significant consequences for economic performance. The analysis of these differences is the subject of the new comparative economics." (Djankov et al. 2003a., p. 1)

This quotation offers some food for thought. That CES has to evolve, and possibly refocus, few in the field would doubt. Is the new comparative economics (NCE) the good and correct answer? Are the topics it examines, the methods it uses and the analysis it performs really contributing new ideas and new solutions to the field? And if so, in which sense? Which are these ideas, methods and solutions? In which sense do they differ from more traditional ones? Are they compatible or are they antagonistic with those more deeply established in the discipline?

There are at least three other reasons beyond its novelty and aim why careful attention should be paid to this contribution. First, law and economics is part of the broad field of institutional economics and therefore comparative economists should devote particular attention to it, since institutional economics is akin CES both methodologically and in the field of study. …