Tuesday, October 18, 2011

Understanding the Process of Economic Change - Douglass C. North

I wrote my undergraduate thesis on Kant's perpetual peace and institutionalism in International Relations -institutions understood as "the formal and informal set of rules accepted by States", per Robert O. Keohane. One of the topics I was interested in was institutional change, specifically how do institutions change in the international arena? What kind of process made the belief in sovereignty as an unalienable right to give place to responsibility to protect, just to mention one example

I eventually found that international institutionalism did not offer an answer to this kind of questions, which are very basic when you think about it (I ignore if IR theory has evolved on this matter since I finished my thesis*). As I advanced on my thesis, I also discovered that IR does not really produce any theoretical work: in the best case scenario, it adapts the work done by "serious" social sciences to international affairs. Realism is nothing else but an adaptation of Hobbes; Robert Jervis does nothing else but mixing Freud with Hello!. Likewise, IR institutionalism does nothing else but taking the Douglass C. North's New Institutional Economics and use it as an analytical framework.

In order to finish my thesis, I thought it might be a good idea to look at North's work for answers on institutional change. That was to no avail. North considered institutions to be efficient, hence unchangeable. The fact that North, the father of New Institutional Economics hadn't thought about institution change came as a surprise. I later thought that, since IR theory scholars only copy what other disciplines do, I should have hinted that, since they had not copied any argument on how institutions change, such an argument did not exist.

Eventually, I changed the focus of my thesis and finished it. I also moved into economics, where I have found North more often than not; after all, the man is a Nobel Prize on Economics (his autobiography here, and his Nobel speech here). I have recently discovered his book Understanding the Process of Economic Change, where he deals with the issue of institutional change in economics (the book was published in 2005, so IR scholars have probably heard about it by now). North does mention how institutions change initially, but he later acknowledges that, since institutions are dynamic -and hence endogenous- it is not possible to come up with a general theory of institutional change. An extensive knowledge about culture, and the institutional matrix of a society are conditions sufficient but not necessary to understand its institutions and how they can change or improve.

North is a Marxist.** Hence, he believes in political economy, does not take rationality for granted, and attaches a great weight to power relations within societies. This is probably the right way to see life; the problem is that reality becomes too complex to be analyzed and to come up with policy conclusions or recommendations. I guess that the lesson of this book is that policymakers need humility and not to rely extensively on their neoclassical economics knowledge.

And IR theory should disappear as a discipline.

*To be completely fair, constructivists did offer an answer, but it was, like the entire constructivist argument, insufficient and tautological: since international relations are what states want it to be, institutions change because states want them to change. Constructivism is also, by and large, unintelligible.

**From a theoretical perspective. Don't forget that Marxism can be seen as an ideology, an analytical framework, and an economic theory at the same time.

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