Table of Contents

Economic Welfare, International Business and Global Institutional Change

Economic Welfare, International Business and Global Institutional Change

The Locke Institute series

Edited by Ram Mudambi, Pietro Maria Navarra and Giuseppe Sobbrio

The distinguished authors in this volume address the fundamental causes for such heterogeneous international experiences, placing particular emphasis on the role of institutions. They demonstrate how the study of economic development is increasingly linked to the development of institutions, which allow for more complex exchanges to occur in markets and societies. Institutions can be understood as rules or constraints that channel individuals' actions in specific directions, and can be formal or informal depending on their genesis. The book highlights the connection between institutions and economic welfare by examining countries at different stages of development. Although the authors' study material effects, they also look at individual well-being which is more strongly influenced by the non-material products of institutions such as opportunity, freedom and relationships. They move on to highlight the role of institutions in global business, in terms of innovation, entrepreneurship and foreign direct investment. In the concluding chapters they focus on the actual process of transition from one institutional framework to another. Amongst other examples, they examine reforms to international financial institutions and constitutional adjustments in transition countries.

Chapter 2: Competition of Political–Economic Systems and Ideological Neutrality as Conditions for Viable Economic Development

Peter Bernholz

Subjects: business and management, international business, economics and finance, public choice theory, politics and public policy, public choice

Extract

Peter Bernholz 1. WESTERN CIVILIZATION AND CAPITALISM Present Western civilization has developed out of a medieval society strongly characterized by the supreme values of Christianity and by some influences stemming from Greek–Roman antiquity. It is not without reason that several crusades against Muslims and Slavs and persecutions of heretics like the Cathars took place during this period. Emperor Henry IV had to bow to Pope Gregory VII with bare feet in the snow at Canossa in 1077 after he had lost his power because of excommunication. However, there existed one important characteristic of Western Europe which set it apart during the Middle Ages: secular and spiritual power were never combined and there existed strong military and foreign policy competition among many more or less independent princes and (free) cities. And this seems to have made a decisive difference. We know now that secure property rights, a reliable and enforceable contract law, generally the rule of law, not too high taxes, not too many regulations and stable money are preconditions for efficiency, innovation and economic growth. But how did it happen that these conditions were introduced in Europe? Why should the ruling elite in an autocracy agree to strong and secure property rights, to minimal state intervention, to a strong limitation of taxes, and thus of its own powers to command and to take away goods at their own discretion? It seems that the ‘New Economic Historians’ have tried with a certain success to answer these questions (North and Thomas,...

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