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#5 from 2014: Politics in Development? Meet the New Institutional Economics

Kate Henvey DeMoss's picture

Our Top Ten blog posts by readership in 2014.
This post was originally posted on January 29, 2014

Around the end December of every year, the pundits start coming out with their forecasts for 2014. This past December, the World Bank pundits predicted everything from girls outperforming boys in developing countries (girl power!) to the staggering idea that for Europe, 2014 will be a better year.

This year though, the World Bank’s Future Development Forecasts blog, included a prediction that caught these two political scientists by surprise— “as more and more economists point to the primary [sic] of politics in development, political scientists will wake up and wonder why they have been left out of the discussion.”

Joel Hellman, the World Bank’s Director of the Center on Conflict, Security and Development in Nairobi (OPSFN), predicted there will be a new movement of “political contextualists.” Meaning: we as development practitioners have to take a look at the broader institutional framework influencing the performance of the economy, and on development in particular. This is particularly relevant with regard to governance reform and strengthening institutions and service delivery in countries.

Politics in development, hear, hear! The World Bank’s People, Spaces and Deliberation blog has been making this case for years. Nevertheless, neither economists nor political scientists have really introduced a convincing framework for how this political contextualization would play out in development: how it influences development and how it helps us understand strategies that promote development effectiveness and the efficiency of development interventions.

Well, here’s a suggestion: introduce yourselves to New Institutional Economics (See North and Weingast & Williamson). NIE considers both the regulative and normative influence of institutions on the economy. Within this framework one could analyze a range of influences on development from the normative influence of international transparency initiatives to the regulative impact of business regulations on the economy, poverty and inequality.

NIE is not that new. Early economic works on institutional transaction costs established that any economic aspect is always nested in and influenced by a broader institutional framework. For example, the price for water is always part of a larger reality that includes water access and scarcity, the state of water infrastructure, market competition, etc. Political aspects – including the nature of the political system, dominant political interest, coalitions, and more – play a huge role in influencing the economic reality of water supply.

Very few development practitioners probably still believe that poverty is a purely economic phenomenon. However, the variation of development perspectives and approaches in the field do not show any systematic or consistent approach to accounting for the multi-faceted causes of poverty, including politics. A robust analysis of the relevant political issues, as Hellman suggests it, requires a framework that uses cases to illustrate theoretical formulations, including cases which challenge the theorist’s own theoretical position.

As we move forward in 2014, one thing is clear. We have a big challenge before us: ending extreme poverty and promoting shared prosperity, taking a bold leadership role in the development of fragile and conflict-affected states, a sweeping institutional change within the World Bank, and many others. These challenges aren’t easy, and you can bet your hat they’re about politics. So maybe 2014 just is the year to introduce yourself to NIE.

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