Coo, Naw Hser and Mar, Theh

Section 1
IS 104 Theories of Development
2nd Semester, SY 2008-2009
Ms Lorna Q. Israel
3 March 2009

THE ROLE OF INSTITUTION AND ECONOMIC DEVELOPMENT

Introduction

It is undeniable to say that economic development plays a significant role in individual,

national and international level. However, in the real world, everyone and every single country

are impossible to achieve due to different historical, political, economics, social and geographical

background. Because of this, first world countries achieve economic development while third

world countries cannot. Therefore, we think aside from the backgrounds, is there any other factor

such as the role of institutions that can contribute to have economics change and development?

Then, we pick three authors, Irma Adelman and Ha-Joon Chang and his co writer Peter Evans, to

answer the question that we raise from our curiosity.

Among the first two authors, Irma Adelman was born in Rumania on 14 March 1930 and

got Ph.D. in Economics at University of California, Berkeley in 1955. She was a professor in her

university from 1955 to 1994 and wrote so many books and articles which were mainly focusing

on economics and development. (Adelman, online, 2009) The second author is Ha-Joon Chang, a

Korean, educated at the Seoul National University and is Assistant Director of Development

Studies in the Faculty of Economics and Politics, University of Cambridge. He wrote books

include Kicking Away the Ladder: Development Strategy in Historical Perspective (Anthem,

2002), and Globalization, Economic Development, and the Role of the State (Zed, 2003).

(Change, online, 2009)

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 Generally, three of them discussed about the role of institutions and economic

development which are mainly emphasized on local institution such as government and its

policies and global institution such as International Monetary Fund (IMF) and World Trade

Organizations (WTO). Moreover, they give comparisons and contracts among different countries

like Korea, Taiwan, Latin American, Japan, India and so forth. Aside from the similarities, there

are some differences: while Adelman provides by sketching the history and characteristics of the

post-Bretton Woods global system, Chang and Evans depict major changes in the global political

economy and the process of constructing and maintaining institutions from the changes.

The three writers’ writing styles are different to some extent. While Adelman is short and

understandable explanation, Chang and Evans are long and a bit complicated justification for us.

Personally, it may have a hard time to understand the reading if one does not have the basic

concept of economic development. We feel they are passionate about what they have written as

they exert enough effort to convince their readers by providing as much as evidence as they can

such as relevant illustrations and historical events. Furthermore, they not only simply provide us

with explanation but also make us think beyond the reading such as the crucial role of different

institutions to have economic development, the weak and strong policies of the institutions, the

interdependent relationship among political, economics, and social-cultural institutions.

The rise of curiosity based on our readings

Before starting third readings, we understand that political institution such as domestic

government is a responsible one to implement and lead a country to become a developmental

state. However, we did not think the other institutions such as economics and social-cultural play

a significant role in economic development. Moreover, we fail to notice the weakness and

strength of the institutions that give a path for economic change and development. And, we never

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dig our thoughts to the deepest part of government who controls and create effective policies to

promote dynamic comparative advantages. After reading, we broaden our perspective on

institutions and economic development. Therefore, in this paper, we would like to mainly discuss

the significant role of domestic political institutions, and global economic institutions with

relevant illustrations.

Domestic Political Institutions

A government of one’s country has the crucial role to play in economic change or

economic development because economic performance is influenced by polities since they

define and enforce the economic rules. The role of government is the economy is not merely to

tax and spend part of economy’s income but the government maintains institutions that are very

important for the economic growth. Protection of property rights, police protection, and judicial

system to administer justice and enforce contract, national defense and bank regulation are some

of the beneficial of the government activities (Clague,1997).

Although in this capitalist world, the role of government is minimized as people are

clamoring for free trade policies, global economy and property rights, government policies are

still important to encourage individuals, engage in productive activities, and prevent the

economic crisis and inflation in the country. In other words, the market system cannot function

properly without the government institutions. For the economy to progress, the government

should enforce effective economic policies, invest in human capital and better technology, and

should stabilize the macroeconomic by providing full employment to its citizens. Therefore, the

better institutions and economic policies of the state government can bring large increase in

standards of living in the country.

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 In the case study of Myanmar/Burma, in the year following the Independence in 1948, it

was one of the economically wealthiest countries in Southeast Asia country. The period between

1950 and 1962 was the Golden Age of the Post War era for Burma. Then in 1962, “Burmese way

of Socialism” began, which marked the economy collapse of the nation when the military

government began to nationalizing all the economic activities. At the same time, the regime

isolated the country from outside world and moved back to the anti-modernization that stagnate

the economy growth (Hauff, 2007). Nowadays, the central government spends half of the

economy income for its military use rather than spending for social welfare and economy

investment. Therefore, inadequate capabilities, severe corruption, political instability and weak

economic policies lead the country in the economic regress and economic crisis.

To sum up, the domestic government is the key player in leading the country to economic

progress or economic backwardness. Moreover, whatever the form of government, economic

progress tends to occur in societies in which there are clear incentives to produce, invest, and

engage in mutually advantageous trade.

Global Economic Institutions

As the world became more and more globalized, the need for International institution

became prominent in making and enforcing the economic policies in global economy. The power

of state government in defining economic policy has been challenged by the construction of the

global economic institution unlike a century ago.

The global economic institutions such as the World Trade Organization (WTO),

International Monetary Fund (IMF) and World Bank which were established shortly after the end

of WWII mainly aim to help the developing world countries in catching up with the developed

countries in economic growth and to prevent. The main goal of these institutions is to promote

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the free market as the leading countries are from the capitalist countries. While WTO is engaged

in the task of eliminating all barriers to global free trade, the World Bank and the IMF look after

the liberalization of domestic capital accounts and privatization of the national economies in the

developing countries (Narlikar, 2005). Although these global economic institutions are calling

for the fair trade that in theoretically would mutually benefit for both rich and poor countries, in

practically their policies somehow cause more disparities in economic growth of the developing

countries.

It is inescapable to say that the global economic institution is needed because the

industrial economies have grown beyond their original boundaries and the world leaders are

needed to make the decision in the time when there is a world economic crisis. Many of the

world organizations commit its member states to a variety of noble objectives such as improved

standard of living, full employment, expanded productions of trade in goods in service,

sustainable development and an enhanced share of developing countries in world trade. The

world organization such as the WTO, IMF and the World Bank have helped to expand the

industrial and export agricultural sectors of poor countries, provide loans to their governments

for development schemes and technology methods for the third world countries that can be

advantageous for their economic growth.

However, many of the economic policies imposed by these world organizations only

beneficial for the industrialized countries while make the third world to be more suffered. For

instance, the policies of free trade by reducing the trade barrier imposed by General Agreement

on Tariffs and Trade (GATT) and WTO have caused the developing countries to be suffered

because the developing nations can’t compete with the industrialized countries in the global

market in term of goods and service quality, technology advancement and government subsidies.

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Also, in the trade between the developed and developing nations, wages rates persistently

different. The poor countries exported agricultural products that are large quantities of cheap

labor and imported industrial products that are small amount of expensive labor. This led to

terms of trade favoring the higher cost products of the center, while devaluing the lower cost

exports of the agricultural countries. Besides, the Structural Adjustment Program that is imposed

the IMFs, which have three measures; expenditure reduction aimed to balance of trade in import

and export, expenditure swifting aimed as decreasing consumption and increasing saving and

institutional reforms centered on market liberalization make the poor countries have caused the

third world countries to be left more behind the economic development (Peet and Elain, 1999)

In short, the economic or global institutions can either support or thwart the development.

The policies made by these institutions can influence the economic behaviors of its membership

countries. As the global economy has became more important, the power of the state

governments became more challenged but these government also should maintain their roles and

protect its domestic economy to be controlled by the more powerful country.

Conclusion

We see the authors’ arguments and points lead logically to the next. For example, first,

both of them introduced what they are going to describe. Next, they followed their introduction

in main portrait with respective illustrations that they have set. Then they have a helpful

introduction and conclusion which covered all so that even though if we cannot get every

specific meaning, the introduction and conclusion guide us to have a better understanding on the

basic concepts of the readings.

Personally, we do agree not only Adelman’s ideas but also Chang and Evans’

perspectives on the role of institution in economic changes, and global institutions and economic

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development. They argue leadership commitment of economic development, development policy

relevant for globalization, and the financial architecture of global institutions. We believe that

these are essentially important because to have a strong economic, the leadership skills of

government must be effective, and tangible to protect its country from external power and

financial crisis while competing with global economic market.

There is not any weakness from Adelman’s arguments as we notice she convinces us with

strong arguments by designing Bretton Woods System which stressed trade liberalization but

explicitly encouraged barriers to international short- and long-term capital flow. In the system,

government can choose its autonomy for macroeconomic such as domestic unemployment,

inflation, interest rates, and wage and welfare policies. One of her strong arguments is as follow:

My personal list of advisable reforms is motivated by a desire to restore global conditions

analogous to the Bretton Woods System, while maintaining some of the virtues of the liberalized

trading and investment climate introduced by more recent globalization. The Bretton Woods

system supported the Golden Age of development for developing countries and unprecedentedly

high, stable growth for developed ones. It would therefore seem desirable to approximate it as

closely as possible. (Adelman, 2003, p 42)

We think the authors fail to discuss about the financial crisis started in Thailand in 1997

which was substantially shaking through Southeast Asia’s economy. They left out those

important issues because they only paying attention on Korean, Taiwan, Latin American, and

Russia rather than explained specific issue on the crisis in 1997. Probably, they are not interested

to argue because they might think the crisis in Thailand is less important than Korean and

Taiwan. We think they should talk about the issue because we are from Southeast Asia (SEA)

countries and we must know things happened in SEA so that we can prepare for our financial

security for the future financial crisis.

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 All in all, Adelman is the best author for us to answer our question because she discusses

the significant role of both domestic and global institutions with relevant illustrations such as

Bretton Woods System, and eight lessons that direct implications that are good for national

development of developing countries. She is explaining not only the system but also the

institutions are one of the most responsibilities ones for economic changes and development.

They have full authorizations to create rule, regulations, policies, actions and limitations for the

betterment for countries. Without the institutions interventions and transformations in country’s

economy, it is hard to achieve economic development. Next, as we are basic leaners of

development, her elaboration makes us a simple thought by having well organized writing

structure with respective headings.

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References:

Books

Clague, Christopher. (1997). Institutions and Economic Development. London:

The John Hopkins University Press.
Narlikar, Amarita. (2005).The world Trade Organization: A Very Short Introduction. New
York. Oxford University Press.
Peet, Richard and Elain Hatwick. (1999). Theories of Development. New York/London: the
Guilford Press.
Adelman, Irma. (2003). Global Institutions and Economic Development: What have we
learned? M. Andersson, and C. Gunnarsson, eds. Development and Structural Change in
Asia Pacific: Globalizing Miracles or End of a Model? London/New York:
RoutledgeCurzon.

Online articles
Hauff, Micheal. (2007). Economic Studies on Asia: Economic and Social Development in
Myanmar/Burma. Available at http://www-vwl2.wiwi.uni-kl.de/aktuell/Economic-and-
Social-Development-in-Burma-Myanmar.pdf, accessed on February 27, 2009.
Adelman, Irma. Curriculum Vitae. Available at http://are.berkeley.edu/~adelman/AdelmanC.pdf,
accessed on March 1, 2009.
Chang, Ha-Joon. Policy Innovations. Available at
http://www.policyinnovations.org/innovators/people/data/06812, accessed on March 1,
2009.