Institutional and Ecological Economics: The Role of Technology and Institutions in Economic Development

By Greenwood, Daphne T.; Holt, Richard P. F. | Journal of Economic Issues, June 2008 | Go to article overview

Institutional and Ecological Economics: The Role of Technology and Institutions in Economic Development


Greenwood, Daphne T., Holt, Richard P. F., Journal of Economic Issues


In this paper, we discuss parallel and competing ideas in ecological and institutional economics about economic growth and development by focusing on the roles that technology and institutions play in each of their approaches. Both are critical of mechanistic, deterministic models used in neoclassical economics, of over reliance on market solutions, and of "value free" economics. Both use biological metaphors to describe the operation of economies. But, there are important differences in how ecological and institutional economists have approached growth and development. Many of these stem from the different views of technology and institutions, which we explore here. Some of these are reconciled in the work of Kenneth Boulding who was both an ecological and an evolutionary economist. We believe a continued cross-pollination and synthesis between these schools can lead to a more comprehensive approach to economic growth and development than is found in neoclassical economics.

The institutionalism of Clarence Ayres, Gunnar Myrdal and John Kenneth Galbraith pioneered the idea that economic development is more than economic growth. Economic development occurs when there is a broadly based increase in the standard of living (or quality of life). While many aspects of the institutionalist view have permeated neoclassical thinking about development (Brinkman 1995; Jameson 2006) this differentiation between growth and development has not, but it has been accepted by many ecological economists (Daly 1996). However, in addition to being broad-based and contributing to a better quality of life, ecological economists argue that true economic development needs to be sustainable over time. Their most important contributions have been to recognize first, that there are life-giving, nonrenewable resources for which there are no substitutes, and second, that population growth combined with a rising standard of living will create waste, which may exceed the capacity of the biosphere. We believe these insights along with the important contributions of institutionalism can help develop a richer and more pluralistic approach to economic development that we touch on at the end of this paper. We begin first with key points from institutionalism.

Economic Development from the Institutionalist Perspective

Beginning with Thorstein Veblen, institutional economists in the United States have disagreed with the classical and neoclassical focus on accumulation of capital as the driving force behind economic growth and development. Institutionalists identify technology and its relationship to cultural habits and institutions as the key to growth (Veblen 1908). Development is more than growth. It describes an ongoing (evolutionary) process that will continue to raise standards of living for a broad spectrum of the population over time. Development is related to the new "states of mind" that come with changing knowledge and its implementation through technology.

In institutionalism, technology represents positive forces enhancing human capabilities and expanding resources. Lower (1987) contrasts the conventional view of technology as "gadgetry" or "individual creativity" (1150-2) with Veblen's concept of "habits of thought" (1908; [1914] 1922). This describes the broadly accepted knowledge within a culture that Veblen terms an "intangible asset" belonging to the community and which serves as the basis for cumulative economic change. Technology is not the latest in high tech weapons or power plants but the generalized knowledge of a people about how the world operates. This leads not only to invention by a few but appropriate uses of tools by the many. Veblen's "instinct of workmanship" ([1914] 1922) is the basis for curiosity and trial and error experimentation. It leads to innovation and the implementation of new ways of doing things in tools and processes (Ayres [1944] 1962).

While neoclassical economics treats technology as exogenous, (1) institutionalism sees technology (knowledge) as not only the creator of physical capital but a determinant of what is a resource (DeGregori 1987). …

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