Reforming Paradoxes of Economic Development
Chapter 7: Application to institutional economics
The social capital debate permitted an examination of epistemic constraints when the Bank was confronted with theories from outside the epistemic domain of economics. The Banks’ experience with institutional economics permits the examination of epistemic constraints when Bank economists take on an intra-disciplinary contender. The rise of “institutions” as a significant contender in international development came from the convergence of many different strands of economic thinking. Contemporary institutional understandings as applied to development are typically built on the foundations of the work of people like Ronald Coase, Douglass North, and Oliver Williamson. In 1994, Williamson was invited to present a paper at the World Bank’s 1994 Conference on Development Economics, exploring the implications of his institution- based theories. Around the same time, institutional economic theories started making their way into Bank publications, such as the 1995 publication Bureaucrats in Business. Finally, institutional economics were central components in the 1997 and 2002 World Development Reports, The State in a Changing World and Building Institutions for Markets. What do these developments tell us about the World Bank and its capacity for reform? For those who would like to see the “institutional turn” lead to substantial changes in the Bank’s fundamental approach to economic development, the Bank’s early work is disappointing. Howard Stein persuasively illustrates how documents such as Bureaucrats in Business and even the 1997 WRD often flatten institutional concepts, applying them in an unduly narrow and sometimes misguided manner. For example, Williamson’s Bank paper outlines the stock approach of “comparative institutional analysis,”
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