The State and the Economy: Opinion Formation and Collaboration as Facets of Economic Management

Publication Date01 December 1999
AuthorIan Marsh
Date01 December 1999
The State and the Economy:
Opinion Formation and Collaboration
as Facets of Economic Management
University of New South Wales
This paper seeks to extend discussion of the areas of state activity thatare relevant to
economic performance. It does this by linking several literatures that are now usually
considered in isolation from each other. These are institutionalist theory, develop-
mental state theory, and comparative and historical institutionalism. The paper
focuses particularly on the experience of the east Asian developmental states. The
paper suggests a new rolefor the state as catalyst in the formation of ideas, choice sets
and motives concerning economic performance. It can play this role at national and
policy community levels and in relation to desired overall outcomes, export or cluster
development and innovation. The notion that economic globalization will inexorably
drive convergence between states is discounted. On the contrary, this is as likely to
nourish miscomprehension or incomprehension between citizens of dierent states.
This is an additional reason for attending to the quality of opinion formation by
New institutional economics, at least in that version associated with North,
holds that the formation of ideas, choice sets and motives is a function of
institutions.1Evolutionary economics holds that bounded rationality and
genuine uncertainty make the price mechanism de®cient as a medium for
disseminating information.2One common thread in these approaches is a
reframing of assumptions concerning the availability of knowledge, the struc-
ture of mental processing and the agent's motives in this activity.3Institutional
and evolutionary economics also suggest circumstances in which collaboration
may be a superior foundation to price mediated relationships for economic
action. Further, transaction costs are held to be not less important than
production costs in determining economic activity. Finally, partly because of
#Political Studies Association 1999. Published by Blackwell Publishers, 108 CowleyRoad, Oxford OX4 1JF, UK and 350 Main
Street, Malden, MA 02148, USA.
Political Studies (1999), XLVII, 837±856
* I thank John Ravenhill, Tim Devinney and three reviewers for comments on earlier drafts.
1D. North, Institutions, Institutional Change and Economic Performance (Cambridge, Cambridge
University Press, 1992). Institutions are de®ned as `the humanly devised constraints imposed on
human interaction. They consist of formal rules, informal constraints (norms of behaviour,
conventions, and self-imposed codes of conduct), and their enforcement characteristics. They
consist of the structure that humans impose on their dealings with each other.' (`Towards a theory
of institutional change', Quarterly Review of Economics and Business, 31, 4 (Winter 1991), 3±11.)
2M. Kelm, Evolutionary and New Institutional Economics: Some Implications for Industrial
Policy, ESRC Centre for Business Research, University of Cambridge, Working Paper 46
(December 1996); also Economic Growth as an Evolutionary Process, ESRC Centre for Business
Research, University of Cambridge, Working Paper No. 17 (September 1995).
3D. North, `Shared mental models: ideologies and institutions', Kyklos, 47 (1994), 3±31.
de®ciencies in price information, and partly because of issues associated with
the generation and dissemination of knowledge, innovation is acknowledged to
be an especially problematic process.
In these perspectives, the generation and propagation of appropriate ideas,
choice sets and motives and the establishment and mediation of appropriate
forms of social collaboration is the greatest single in¯uence on the longer term
economic performance of states. The practical signi®cance of these ®ndings for
contemporary political systems seems insuciently recognized. The notion that
ideas, choice sets and motives might be determined by institutions, that prices
have speci®c limitations as transmitters of information, that transaction costs
are pervasive and of equal importance to transformation costs, and that market
forces are de®cient mediators of innovation: all attack the foundations of neo-
classical theories and thereby undermine conventional wisdom about the role of
the state in the economy.
At a substantive level, the synoptic character of new institutional economics
suggests how causal relationships between institutions and organizations might
be ordered and highlights facets of institutions that are especially critical. In
turn, empirical or inductive investigations might describe speci®c modes of
institutional operation thus suggesting a repertoire through which formal
categories can be operationalized. Developments on the formal plane might
thus be linked to empirical studies.
Methodological dierences constrain what can be claimed from such
linkages. Overlap and complementarity between scholarly literatures is not in
any sense proof ± the diering logics preclude this. The coincidenc e of focus
and categories is however mutually reinforcing. On the one hand, institution-
alist and evolutionary theory is a rigorous buttress for the focus and scope
of historical and comparative investigations; on the other, the empirical
literatures illustrate institutional and ideational repertoires within these
categories. Their coincidence perhaps reinforces the generalizability of com-
parative and historical analysis. One purpose of this paper is to explore this
possibility. In the process, conceptions of possible economic roles for the state
might be ampli®ed.
A second purpose of the paper is to consider these formal and comparative
analyses in the context of economic globalization. Many claim that this will
drive convergence among states. Others see expanding economic interdepen-
dence as contributing to understanding. Is economic globalization likely to
nourish convergence and understanding between states, or divergence,
miscomprehension and incomprehension?
In exploring the link between formal theory and empirical investigations a
synoptic framework is needed. North's norm of adaptive eciency provides
such a framework. This is the pivotal concept in his theory of longer run
economic growth and contrasts with other norms of eciency (e.g. allocative or
productive eciency). Adaptive eciency is created by institutions. It embodies
`the willingness of a society to acquire knowledge and learning, to induce
innovation, to undertake risk and creative activity of all sorts, as well as resolve
problems and bottlenecks of the society through time'.4Adaptive eciency
implies that there are at least three broad categories through which economic
governance might contribute to economic performance: ®rst, actions that
4North, Institutions, Institutional Change and Economic Performance, p. 80.
838 The State and the Economy
#Political Studies Association, 1999

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