In today’s Business Day, I have a column reflecting on the institutional trap that we are stuck in:
FINANCE Minister Nhlanhla Nene quipped recently that we might be suffering from three deficits: the fiscal deficit, the trade deficit, and the trust deficit between government and business.
Our current institutional malaise extends beyond this. Indeed, a subgenre of journalism has developed for reporting spats between and within government institutions. There is also the growing schism between business and society. Consumers’ faith in business is tested by stories of anticompetitive behaviour, stratospheric executive compensation and white-collar crime.
Until recently, almost all of this would not have mattered to economists. The economy, according to the standard neoclassical view, was assumed to be made up of rational participants, with access to perfect information, seeking to maximise self-interest. The messy reality of interest groups, norms, beliefs and organisations did not figure in this equation.
For his efforts in developing the institutionalist perspective, Douglass North was awarded the Nobel prize in economics in 1993. In his acceptance speech, North emphasised the importance of understanding not just how markets operate, but also how they develop. This would enable the economic sciences to make better policy prescriptions.
For the rest of the article go here
For Douglass North’s Nobel Prize acceptance speech (Economic Performance Through Time) go here