Communities and Markets in Economic Development

Communities and Markets in Economic Development

Communities and Markets in Economic Development

Communities and Markets in Economic Development

Synopsis

This book explores the role of community in facilitating the transition to market relationships in economic development, and in controlling and sustaining local public goods such as irrigation, forests, grazing land, and fishing grounds. Previously it was customary to classify economic systems in terms of varying combinations of state and market control of resource allocation. In contrast, this book recognizes community as the third major element of economicsystems. This new approach also departs from the conventional view that markets and community norms should be treated as mutually exclusive means of organizing economic activity, instead clarifying the situations in which they may become complementary. Further discussion focuses on the conditions underwhich management of local commons can, and should, be delegated to local communities rather than subjected to the control of central government. These and other issues are investigated by twenty-one leading scholars from economic history, development economics, agricultural economics, and institutional economics. The resulting volume is the latest in a set of four books about East Asian developmental experiences, co-sponsored by the Economic Institute of the World Bankand the Stanford Institute of Economic Policy Research. It will appeal to economists and other social scientists with an interest in economic development, history, comparative systems, and institutional economics.

Excerpt

Masahiko Aoki and Yujiro Hayami

There is an increasing awareness among economists that the ways in which economic systems are organized in developing economies make a difference for their developmental performance and potential. We conceptualize an economic system as a comprehensive coherent arrangement of institutions through which competition among, and expectations of, people are coordinated for the use of resources. in the past it was customary to classify economic systems in terms of varying combinations of the state and the market in their control of resource allocation. At one end of the spectrum we find the central planning system in the Soviet model characterized by the dominant role of the state over markets and, at the other end, we find the liberal market system in the tradition of Adam Smith, with the so-called 'developmental state,' 'welfare state,' 'corporatist state,' etc. somewhere in between. Our advocacy in this book is to recognize the community as the third major element constituting an economic system. Further, we depart from the conventional view that markets and community norms are to be treated as two alternative ways of organizing economic activity, and that economic development is to be viewed as movement away from community norms to markets and contracts. We argue that markets and community norms may sometimes be complementary rather than substitutes, in that the presence of the latter may facilitate the development of markets, just as the state may sometimes enhance the ability of the private sector to coordinate through markets. We also ask, under what conditions does this occur? in our definition a 'community' is a group of people characterized by intense social interactions among themselves. the common usage can encompass the range of communities from the family to the 'national community' and even further to the 'international community.' However, the communities with which this book is concerned are limited to those characterized by personal relationships among mutually identifiable agents. in developing economies they are typically observed as tribes and villages characterized by non-voluntary membership based on kinship or territoriality. However, in developed economies also, community relationships, which are formed in various spheres, such as the workplace, alma mater, church, sport and other hobby clubs, have significant influences on business transactions and political activities (Hayami 1997 : 241-2; Putnam 1993 ; Ellickson 1991).

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