Institutions and Development

Institutions and Development

Advances in New Institutional Analysis series

Mary M. Shirley

A landmark contribution to our understanding of economic development. This significant book argues that fundamental changes in deeply rooted institutions do not happen because of outsiders’ money, advice, pressures, or even physical force; which explains why foreign aid has not, and can not, improve institutions. The impetus for changing institutions must come from within a society, and the author shows how groups of local scholars contribute to institutional change and development when the political opportunity presents itself.

Chapter 1: Introduction

Mary M. Shirley

Subjects: development studies, development studies, economics and finance, development economics, institutional economics

Extract

Our first evening in Bogotá, Colombia, my husband and I happened upon two small, dirty little boys on the hard cement stoop of a shop, asleep. Very concerned for these poor little boys, we rushed home and asked our landlady to alert the police and social services. She was amazed by our attitude. “It’s useless to call.” she said, “They will just laugh. Over 50,000 such gamines live on Bogotá’s streets, robbing and begging.” Poverty is the rule, not the exception. Most of humanity lives in underdeveloped countries, vast numbers in appalling circumstances. This misery continues despite a fall in extreme poverty from one-third of the world’s population in 1981 to 18 percent in 2001 (Chen and Ravallion 2004, p. 14). This drop is welcome indeed, but it does not mean that poor countries are developed now, or will be developed any time soon. Extreme poverty is just that, extreme. The extremely poor live on less than about $1 a day adjusted for difference in the purchasing power of the dollar. If, instead of extreme poverty, we measure poverty as most middle-income countries do – incomes below about $2 a day – then the number of poor increased between 1981 and 2001 and is still 45 percent of the world’s population. China does well even on this measure. Poverty in China fell from 85 percent of the population in 1981 to 47 percent in 2001. That is an extraordinary achievement – but not the same as development. Very few people...