Fadda tridico (eds ) institutions and development after the financial crisis (2014)

Wright, Jnr 20 The Active Consumer Novelty and surprise in consumer choice Edited by Marina Bianchi 21 Subjectivism and Economic Analysis Essays in memory of Ludwig Lachmann Edited

Institutions and Development After

the Financial Crisis

The financial crash of 2007–2008 and the subsequent global economic crisis have raised questions about the viability of capitalism and the desirability of alternative types of economic system In this context, Keynesian and Marxist ideas in particular have become more popular These two approaches, along with some other heterodox perspectives, agree on the need for institutional analysis and for better institutions and governance in order to promote economic development

This volume poses fundamental institutional, evolutionary and ontological questions relating to the emergence of a new mode of governance after the finan-cial crisis The book argues that, contrary to the recent austerity policies imple-mented in the EU in particular, a new level of government involvement is required in order to keep aggregate demand stable, make full employment pos-sible, and create a transparent financial sector, serving the real economy and encouraging productive investments

This book will be of interest to students, researchers and policy makers working in the areas of finance, institutional economics, development economics and international political economy

Sebastiano Fadda is Professor of Labour Economics and Economic Growth at

the University Roma Tre, Italy He is also Director of the ASTRIL Research Centre at the University Roma Tre

Pasquale Tridico is Professor of Labour Economics at the University Roma

Tre, Italy, and Research Associate at Trinity College Dublin, Ireland He is rently General Secretary of the European Association for Evolutionary Political Economy

Malvern after ten years

Edited by Steven Pressman

4 The End of Economics

Michael Perelman

5 Probability in Economics

Omar F Hamouda and Robin Rowley

6 Capital Controversy, Post

Keynesian Economics and the History of Economics

Essays in honour of Geoff Harcourt, volume one

Edited by Philip Arestis, Gabriel Palma and Malcolm Sawyer

7 Markets, Unemployment and Economic Policy

Essays in honour of Geoff Harcourt, volume two

Edited by Philip Arestis, Gabriel Palma and Malcolm Sawyer

Edited by Roy J Rotheim

10 The Representative Agent in

Macroeconomics

James E Hartley

11 Borderlands of Economics

Essays in honour of Daniel R Fusfeld

Edited by Nahid Aslanbeigui and Young Back Choi

12 Value, Distribution and Capital

Essays in honour of Pierangelo Garegnani

Edited by Gary Mongiovi and Fabio Petri

13 The Economics of Science

Methodology and epistemology

as if economics really mattered

James R Wible

14 Competitiveness, Localised

Learning and Regional

Development

Specialisation and prosperity in

small open economies

Peter Maskell, Heikki Eskelinen,

Jill Rubery, Mark Smith,

Colette Fagan and

19 The Political Economy of

Middle East Peace

The impact of competing trade

agendas

Edited by J.W Wright, Jnr

20 The Active Consumer

Novelty and surprise in consumer

choice

Edited by Marina Bianchi

21 Subjectivism and Economic

Analysis

Essays in memory of Ludwig Lachmann

Edited by Roger Koppl and Gary Mongiovi

22 Themes in Post- Keynesian

Economics

Essays in honour of Geoff Harcourt, volume three

Edited by Claudio Sardoni and Peter Kriesler

23 The Dynamics of Technological

Knowledge

Cristiano Antonelli

24 The Political Economy of Diet,

Health and Food Policy

Ben J Fine

25 The End of Finance

Capital market inflation, financial derivatives and pension fund capitalism

Edited by Charlie Dannreuther

29 Hahn and Economic

Methodology

Edited by Thomas Boylan and Paschal F O’Gorman

The miracle economies of the postwar years

David Kucera

31 Normative Political Economy

Subjective freedom, the market and the state

David Levine

32 Economist with a Public Purpose

Essays in honour of John Kenneth Galbraith

Edited by Michael Keaney

36 Power in Business and the State

An historical analysis of its concentration

Frank Bealey

37 Editing Economics

Essays in honour of Mark Perlman

Edited by Hank Lim, Ungsuh K Park and Geoff Harcourt

38 Money, Macroeconomics and

40 Market Drive and Governance

Reexamining the rules for economic and commercial contest

Ralf Boscheck

41 The Value of Marx

Political economy for contemporary capitalism

Alfredo Saad- Filho

42 Issues in Positive Political

Economy

S Mansoob Murshed

43 The Enigma of Globalisation

A journey to a new stage of capitalism

Robert Went

44 The Market

Equilibrium, stability, mythology

S.N Afriat

45 The Political Economy of Rule

Evasion and Policy Reform

49 Social Foundations of Markets,

Money and Credit

52 Kalecki’s Economics Today

Edited by Zdzislaw L Sadowski

and Adam Szeworski

53 Fiscal Policy from Reagan to

Blair

The left veers right

Ravi K Roy and

Arthur T Denzau

54 The Cognitive Mechanics of

Economic Development and

57 Global Political Economy and

the Wealth of Nations

Performance, institutions,

problems and policies

Edited by Phillip Anthony

O’Hara

58 Structural Economics

Thijs ten Raa

59 Macroeconomic Theory and

Economic Policy

Essays in honour of Jean- Paul Fitoussi

Edited by K Vela Velupillai

60 The Struggle over Work

The “end of work” and employment alternatives in post- industrial societies

Shaun Wilson

61 The Political Economy of

Global Sporting Organisations

John Forster and Nigel Pope

62 The Flawed Foundations of

General Equilibrium Theory

Critical essays on economic theory

Frank Ackerman and Alejandro Nadal

63 Uncertainty in Economic

Theory

Essays in honor of David Schmeidler’s 65th birthday

Edited by Itzhak Gilboa

64 The New Institutional

Economics of Corruption

Edited by Johann Graf Lambsdorff, Markus Taube and Matthias Schramm

65 The Price Index and its

Extension

A chapter in economic measurement

S.N Afriat

Game Theory in Marxian Economics

73 Marx for the 21st Century

Edited by Hiroshi Uchida

74 Growth and Development in

the Global Political Economy

Social structures of accumulation and modes of regulation

Phillip Anthony O’Hara

75 The New Economy and

Macroeconomic Stability

A neo- modern perspective drawing on the complexity approach and Keynesian economics

Teodoro Dario Togati

Policy

Women, work and a citizens’ basic income

Ailsa McKay

77 Clinton and Blair

The political economy of the third way

79 The Core Theory in Economics

Problems and solutions

Edited by Wolfram Elsner, Pietro Frigato and Paolo Ramazzotti

82 Globalization and the Myths of

Scope and limits

Edited by Valeria Mosini

84 Globalization

State of the art and perspectives

Edited by Stefan A Schirm

85 Neoliberalism

National and regional

experiments with global ideas

Edited by Ravi K Roy,

Arthur T Denzau and

Thomas D Willett

86 Post- Keynesian

Macroeconomics

Essays in honour of Ingrid Rima

Edited by Mathew Forstater,

Gary Mongiovi and

Steven Pressman

87 Consumer Capitalism

Anastasios S Korkotsides

88 Remapping Gender in the

New Global Order

Edited by Marjorie Griffin Cohen

and Janine Brodie

89 Hayek and Natural Law

Eric Angner

90 Race and Economic

Opportunity in the

Twenty- First Century

Edited by Marlene Kim

91 Renaissance in Behavioural

Economics

Harvey Leibenstein’s impact on

contemporary economic analysis

Edited by Roger Frantz

92 Human Ecology Economics

A new framework for global

Carmel Ullman Chiswick

97 Critical Political Economy

Party governments, central banks and the fiscal–monetary policy mix

Takayuki Sakamoto

and Concentration Measures

Edited by Gianni Betti and Achille Lemmi

103 Economic Representations

Academic and everyday

Edited by David F Ruccio

104 Mathematical Economics and

the Dynamics of Capitalism

Goodwin’s legacy continued

Edited by Peter Flaschel and Michael Landesmann

105 The Keynesian Multiplier

Edited by Claude Gnos and Louis- Philippe Rochon

106 Money, Enterprise and Income

Distribution

Towards a macroeconomic theory of capitalism

John Smithin

107 Fiscal Decentralization and

Local Public Finance in Japan

Nobuki Mochida

108 The ‘Uncertain’ Foundations

of Post- Keynesian Economics

Essays in exploration

Stephen P Dunn

109 Karl Marx’s Grundrisse

Foundations of the critique of political economy 150 years later

Edited by Marcello Musto

110 Economics and the Price

Index

S.N Afriat and Carlo Milana

On the intersection of art and economics

Edited by Jack Amariglio, Joseph W Childers and Stephen E Cullenberg

112 Popper, Hayek and the Open Society

Manuel Couret Branco

118 Hayek Versus Marx and Today’s Challenges

Eric Aarons

119 Work Time Regulation as Sustainable Full Employment Policy

Robert LaJeunesse

120 Equilibrium, Welfare and Uncertainty

Mukul Majumdar

121 Capitalism, Institutions and

123 Dialectics of Class Struggle in

the Global Economy

Clark Everling

124 Political Economy and

Globalization

Richard Westra

125 Full- Spectrum Economics

Toward an inclusive and

emancipatory social science

Toichiro Asada, Carl Chiarella,

Peter Flaschel and Reiner Franke

128 Rationality and Explanation in

Problems and revisions

Hasse Ekstedt and Angelo Fusari

132 The Practices of Happiness

Political economy, religion and wellbeing

Edited by John Atherton, Elaine Graham and Ian Steedman

133 The Measurement of Individual Well- Being and Group Inequalities

Oren M Levin- Waldman

135 The Political Economy of Bureaucracy

Hansjörg Herr and Milka Kazandziska

138 The Political Economy of the Environment

Edited by Simon Dietz, Jonathan Michie and Christine Oughton

Austrian Tradition in Economics

Hardy Bouillon

140 Inequality and Power

The economics of class

Eric A Schutz

141 Capital as a Social Kind

Definitions and transformations

in the critique of political economy

144 The Global Economic Crisis

New perspectives on the critique

of economic theory and policy

Edited by Emiliano Brancaccio and Giuseppe Fontana

145 Economics and Diversity

Carlo D’Ippoliti

146 Political Economy of Human

Rights

Rights, realities and realization

Bas de Gaay Fortman

147 Robinson Crusoe’s Economic

Man

A construction and deconstruction

Edited by Ulla Grapard and Gillian Hewitson

Economic Thought and Philosophy

From clash to reconciliation

Edited by Ragip Ege and Herrade Igersheim

149 Political Economy After Economics

David Laibman

150 Reconstructing Keynesian Macroeconomics Volume 1

Edited by Young Back Choi

152 Capitalist Diversity and Diversity within Capitalism

Edited by Geoffrey T Wood and Christel Lane

153 The Consumer, Credit and Neoliberalism

Governing the modern economy

Christopher Payne

154 Order and Control in American Socio- Economic Thought

U.S social scientists and progressive- era reform

Charles McCann

155 The Irreconcilable Inconsistencies of Neoclassical Macroeconomics

A false paradigm

John Weeks

156 The Political Economy of

158 Economic Growth and the

High Wage Economy

Choices, constraints and

opportunities in the market

economy

Morris Altman

159 Social Costs Today

Institutional analyses of the

present crises

Edited by Wolfram Elsner,

Pietro Frigato and

Carl Chiarella, Peter Flaschel

and Willi Semmler

164 Architectures of Economic Subjectivity

The philosophical foundations of the subject in the history of economic thought

Sonya Marie Scott

165 Support- Bargaining, Economics and Society

Gunnar Heinsohn and Otto Steiger; translated and edited with comments and additions by Frank Decker

169 Urban and Regional Development Trajectories in Contemporary Capitalism

Edited by Flavia Martinelli, Frank Moulaert and Andreas Novy

170 Social Fairness and Economics

Economic essays in the spirit of Duncan Foley

Edited by Lance Taylor, Armon Rezai and Thomas Michl

Markets and Institutions

Edited by Sebastiano Fadda and Pasquale Tridico

172 Marx and Living Labour

174 Against Utility- Based

Economics of the Person

Jérôme Ballet, Damien Bazin, Jean- Luc Dubois and François-Régis Mahieu

177 Reality and Accounting

Ontological explorations in the economic and social sciences

Richard Matterssich

178 Profitability and the Great Recession

The role of accumulation trends

in the financial crisis

Ascension Mejorado and Manuel Roman

179 Institutions and Development After the Financial Crisis

Edited by Sebastiano Fadda and Pasquale Tridico

Institutions and Development After the Financial Crisis

Edited by Sebastiano Fadda and

Pasquale Tridico

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

and by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2014 selection and editorial material, Sebastiano Fadda and Pasquale Tridico; individual chapters, the contributors

The right of the editors to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted

in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or

registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Institutions and development after the financial crisis / edited by

Sebastiano Fadda and Pasquale Tridico

pages cm

Includes bibliographical references and index

1 Economic development 2 Economic policy 3 Finance, Public

I Fadda, Sebastiano II Tridico, Pasquale, 1975–

HD82.I3467 2013

338.9–dc23

2013017039 ISBN: 978-0-415-84437-6 (hbk)

ISBN: 978-0-203-75346-0 (ebk)

Typeset in Times

by Wearset Ltd, Boldon, Tyne and Wear

3 Which way for economics after the crisis? Marxism versus

G E O F F R E Y M H O D G S O N

4 Finance- dominated accumulation and post- democratic

B O B J E S S O P

5 The great depression in a long- run perspective: a postscript

U G O P A G A N O

9 Creative Commons licences: an alternative lever to collect

M A S S I M I L I A N O G A M B A R D E L L A

7.4 China and other emerging economies’ current account surpluses

7.A3 Ration between managers’ compensation and average wages of

7.A1 Political economy issues and trade- offs: recovery plans and fiscal

Editors

Sebastiano Fadda is Professor of Labour Economics and Economic Growth at

the University Roma Tre (Italy), where he teaches Advanced Labour nomics, and also Economic Growth He is director of a two- year Master’s degree course (Labour Market, Industrial Relations and Welfare Systems) He has worked extensively on institutions, economic development and labour economics issues He is author of many journal articles and books on these

Eco-subjects, including an edited book with Pasquale Tridico, Financial Crisis,

Labour Markets and Institutions (Routledge, 2013).

Pasquale Tridico is Professor of Labour Economics at the University Roma Tre

(Italy), where he also teaches Economic Development and Institutions He is General Secretary of the European Association for Evolutionary Political Economy (EAEPE) In the academic year 2010–2011, he was a Fulbright Research Scholar at New York University He is author of several articles on institutional economics, labour markets, varieties of capitalism and financial

crisis, including an edited book with Sebastiano Fadda, Financial Crisis,

Labour Markets and Institutions (Routledge, 2013) He is also author of the

book Institutions, Human Development and Economic Growth in Transition

Economies” (Palgrave, 2011).

Contributors

Massimiliano Gambardella is Lecturer at EconomiX, University Paris Ouest

Nanterre La Défense

Hardy Hanappi is Jean Monnet Chair for the Political Economy of European

Integration, Institute for Mathematical Methods in Economics, Vienna versity of Technology

Uni-Geoffrey M Hodgson is Research Professor at the University of Hertfordshire,

UK

Bob Jessop is Distinguished Professor of Sociology and Co- Director of the

Cul-tural Political Economy Research Centre at Lancaster University, and a Senior Fellow at the Rosa Luxemburg Stiftung (Berlin)

Dany Lang is Associate Professor, Centre of Economics of Paris North (UMR

CNRS 7234), University of Paris 13, Sorbonne Paris Cité

Ugo Pagano teaches at the University of Siena and at the Central European

Uni-versity

Salvatore Monni teaches Economic Development at the University Roma Tre,

Italy

Pasquale De Muro teaches Human Development Economics at the University

Roma Tre, Italy

of the COST Action IS0902 (“Systemic Risks, Financial Crises and Credit – The Roots, Dynamics and Consequences of the Subprime Crisis”) for the organiza-tion of the summer school, and the support of the Department of Economics at the University Roma Tre.

Institutions and development

Sebastiano Fadda and Pasquale Tridico

1 Book objectives and economic background

The financial crash of 2007–2008 and the subsequent global economic crisis have raised questions about the viability of capitalism and the desirability of alternative economic systems In this context, Keynesian and Marxist ideas have become more popular These two approaches, along with other heterodox approaches – cultural political economy, Schumpeterian and evolutionary approaches, for example – share a common basis and similar perspective on eco-nomic issues, that is, the need for institutional analysis and for providing better institutions and governance in the post- crisis era, with the aim of promoting eco-nomic development

This book, borrowing from several heterodox approaches, poses fundamental institutional, evolutionary and ontological questions that are crucially important for the emergence of new governance after the financial crisis The recovery from the current economic crisis requires a new policy paradigm and new global governance, as well as a new institutional analysis On one side, we argue that, contrary to the recent austerity policies implemented in the EU in particular, a higher level of government involvement is required in order to sustain aggregate demand, make full employment possible, and create a transparent financial sector, serving the real economy and encouraging productive investments On the other side, we argue that institutions and policies need to follow a different theoretical paradigm

We know that countries vary with regard to the character and depth of the ancial sector crisis, as well as to the impacts of the financial crisis on the real sector of the economy Presumably, the most financially open and deregulated economies, and the economies that are most financialized, are also those most directly affected by the collapse of the financial bubble and the property boom These economies would be defined as liberal market economies In contrast, coordinated market economies seem to have coped with the crisis better In both groups of countries, the subsequent variations with respect to real economic impacts are influenced by national institutional complementarities and specific policy choices Such variations pose interesting questions and suggest interesting possibilities for solving the current crisis

At global level, more democratic governance is needed, along with a radical change in the leading role of the main economic organizations and institutions dealing with global economic affairs At the European Union level, there are several challenges and pressures which need to be addressed: a new institu-tional framework able to satisfy the needs of the periphery (South and East) and

of the core of Europe; a common policy in the fields of innovation and trial development; and the old dilemma between EU enlargement and policy deepening However, the main issue is still the debate around the euro – its main institutions, the rules, the relationship between surplus and deficit coun-tries – and this will be explored in the book More specifically, with reference

indus-to the economic policy measures taken at the European level indus-to cope with the sovereign debt crisis, their inadequacy is due, in addition to some incorrect views about the working of the economic system, to the inadequacy of Euro-pean economic governance, which makes the decisions dependent on the inter-ests of some of the most influential and powerful member states on the one hand, and on the financial and bank establishment on the other And this, in

turn, is due to the fact that the European Monetary Union is a kind of hybrid:

neither a federal state nor an international organization of states Such an issue needs to be solved, we propose, through the progressive building of a new EU project, more comprehensive, based more on democratic and representative principles, more socially oriented and inclined to treat national imbalances with solidarity, as an internal EU issue rather than as the issue of a single member state

2 Institutions and policies during the neoliberal revolution: a

brief overview

By the end of the 1970s and during the 1980s, heterodox theories – new tionalism (evolutionary economics, regulation theory), the capability approach, etc – began to make progress However, the policy paradigm followed the so- called “Reaganomics”, that is, policies and (structural) reforms introduced by

institu-US President Reagan during his two presidential administrations (1982–1990)

These policies mainly consisted of the implementation of monetarist policies

–monetary strength, anti- inflation, minimal deficit policy, the privatization of state assets and the complete liberalization of prices – hence the official end of post- Keynesian policies Reaganomics also involved the state’s withdrawal from strategic industries, such as coal, steel, telecommunication, and energy, as hap-pened in the United Kingdom during Margaret Thatcher’s administration, and as happened in other European countries at the beginning of the 1990s

The aims of those policies were basically twofold: anti- inflation and domestic debt reduction, because high debt and inflation rates would curb economic per-formance Soft monetary policies, such as credit, monetary expansion and exchange rate devaluation, would allow for an inflation spiral Moreover, annual deficits, caused by an inefficient bureaucracy, state interventionism, too gener-ous welfare and demand subsidies would increase the total debt and decrease the

Introduction 3

credibility of the economy, with a negative effect on foreign direct investment (FDI), the business environment and trust Hence, the targets became macro-economic stabilization (reduction of inflation and debt) and structural adjust-ment, through a liberalization of prices and sectors, privatization of state assets and deregulation, i.e the state’s withdrawal from the economy

These policies became a standard paradigm, implemented in order to “adjust, stabilize and privatize” the economies through a “structural adjustment” program, often uncritically implemented as a universal receipt applicable in all market economies, including transition economies and less developed eco-nomies (Stiglitz 1998) This set of policies became known as the “Washington Consensus”, in a phrase originally coined by John Williamson in 1989 The phrase referred to a decalogue of policies propounded by Washington- based international financial institutions.1 The policies became a synonym of neolib-eral policies supported by North American and West European economists.2 We

call this paradigm the “new” neoclassical synthesis, in which new institutional

economics and old orthodoxy attempt to save the neoclassical paradigm, through transaction costs, reinforcement of property rights and hyperliberaliza-tion (see Chapter 1 of this book) After fifteen years, “this consensus has by now largely dissipated” (Rodrik 2004: 1)

Since the mid- 1990s, recurrent economic crises in countries such as Mexico, Russia and later Argentina, champion of the IMF programme, have demon-strated the poor economic performance yielded by orthodox Washington Con-sensus policies.3 The reforms of the 1980s and 1990s produced disappointing results (Rodrik 2004) Moreover, the consensus among economists on those pol-icies dissipated Finally, civil society became more critical, and organized

Table I.1 Washington Consensus and Augmented Washington Consensus

Washington Consensus (1989) Augmented Washington Consensus (2000)

16) “Prudent” capital account opening 17) Non-intermediate exchange rate regime

18) Independent central banks/inflation targeting

19) Social safety nets 20) Targeted poverty reduction

Source: Williamson 1990; Rodrik 2004.

against the consequences of neoliberal policies, i.e globalization and no state intervention International financial institutions recognized some failures (Stiglitz 1998), and as a result the so- called “Augmented Washington Consensus” was proposed The new programme proposed an additional set of policy prescriptions circulating, along with the original policies, within the “renewed” Washington- based international financial institutions, at the end of the 1990s.

The theoretical justification of the Augmented Washington Consensus seems

to be tautological because it claims that the poor results of the 1989 policies are due to compromised effectiveness (Rodrik 2004) Hence, the condition for development is the establishment of important state institutions.4 Although it

involves some important innovations, this approach seems nạve and fails to

con-sider crucial elements, such as national specificity, the variety of policies able and the fact that there are different ways to reach similar objectives Moreover, the apparent importance that the Augmented Washington Consensus gives to the role of institutions is based on a general precept of “the more the better”, rather than on a deep institutional analysis of the country where these policies will be implemented In this approach to the explanation of policy fail-ures, no importance is given to economic complexity and social dynamics Instead, policy failures are explained in terms of a country’s insufficient capacity

avail-to implement and effect Washingavail-ton Consensus policies

3 Institution and economic development

Empirical evidence shows that during the 1980s and the 1990s the countries that were most successful in terms of growth followed heterodox policies (Rodrik 2004; Kolodko and Nuti 1997) China, India and Vietnam in particular – but also the “new Asian Tigers”, i.e Indonesia, Malaysia and Thailand, along with the

“old four Asian Tigers” (South Korea, Singapore, Taiwan and Hong Kong) – adopted heterodox policies or did not follow Washington Consensus orthodoxy completely In those countries one can simultaneously observe mixed policies including: trade protectionism with FDI openness; state interventionism with the strong protection of property rights and enforcement of contracts; family capit-alism and international investors; planned economy sectors and market- oriented zones; a government- controlled banking and financial system within the inter-national competition system; and so forth On the contrary, Latin American, Sub- Saharan and former Soviet Republic countries, where IMF- based pro-grammes were more strictly implemented, had much worse economic perform-ance (Bosworth, Barry and Collins 2003)

Rodrik (2004) claims that there are some limited common objectives that can

be considered common or similar for the majority of these countries less, the means by which these aims are reached may be heterogeneous These common objectives may be: (1) macroeconomic stability; (2) integration in the world economy; (3) property rights and contract enforcement As regards the first objective, macroeconomic instability comes not only from inflation and debt but also from an excessively deregulated financial system, uncontrolled FDI

Neverthe-Introduction 5

flows, trade liberalization, etc Hence, macroeconomic stability must be reached

by different means, with these problems also taken into consideration The tion must be context dependent The second objective refers to integration in the world economy International openness does not lead to economic development per se Domestic and heterogeneous institutions are necessary for the manage-ment of social conflicts, the protectection of weak economies and to assist with management Finally, property rights and the contract enforcement system should be clear, with efficient incentives and a transparent rule of law However, institutional arrangements should decide what type of property rights is most appropriate in each context, i.e private, public or cooperative, and what type of sanction or enforceable system be used, what type or degree of state interven-tionism, what type of legal regime, and so forth

In general, specific objectives are needed for specific aims; this is the rule, with particular attention to social cohesion, management of conflicts, solidarity and political stability (Summers 2003) Hence, institutions and institutional building remain crucial, their existence being a condition for development and a prerequisite of economic growth

The linkage between institutions and economic development is one of the most debated themes within both institutional and economic growth literature (Ostrom 2007) Institutional economics criticizes both endogenous and exoge-nous growth theories as unable to explain the growth process in developing countries in particular, as well as the divergent and convergent forces occurring between those countries and the developed economies Some developing coun-tries are able to grow at a very high rate, much higher than other developing or developed economies, while others have never started a true process of growth

(Olson 1996; Olson et al 1998).

Some of the modern institutional theories attribute much of the difference

in rates of growth to the quality of institutions, governance abilities, the cific advantages of a particular territory, social capital, trust and other “non-material factors” (Scott 1987; Bellandi 2003; Becattini 2000; Knack and Keefer 1995) Trust is a resource that does not involve a cost It is based on a fundamental but personal assumption, perception and experience Trust and other norms – such as loyalty, a positive attitude towards cooperation between economic agents, consolidated relationships between agents, certain property rights, social opportunities and rights, the respect for contracts, management of social conflict, social cohesion and so on – shape the “social infrastructure” of

spe-a country; it is this infrspe-astructure thspe-at is essentispe-al for the stspe-art of spe-a development

process in a developing country (Kornai et al 2004; Raiser Haerpfer et al

2001; Sabatini 2008) All the social values and norms that impose respect – the common observance of rules and principles, mutual trust, respect for agreed contracts – increase exchanges and stimulate cooperation processes, including the sharing of technologies, knowledge and information Uncertainties in eco-nomic relationships and information asymmetries diminish and the costs of transaction decrease to the great advantage of productivity and economic growth

Now, in this time of crisis, trust emerges as a crucial variable for recovery, investment and growth Lack of trust leads to a lack of investment, drains liquidity from financial markets and squeezes credit paid by banks to firms Along with trust, another crucial factor during the crisis appears to be governance Some economists have focused their attention on national governance abilities, and

more so on international governance In particular, Olson et al (1998) elaborate a

model which they use to explain how good governance and institutional quality,

as captured by some institutional indexes,5 increase economic growth and mine the main differences in output between countries The same idea was developed by Acemouglu, Johnson and Robinson (2001), who, however, take economic development back to its distant origins, as found in the basis of the historical institutions of every country.6 Jones and Hall (1999) show that differ-ences in output between countries are mainly explained by differences in “social infrastructure”, that is, the gap that results from variations in the economic insti-tutions The differences in social infrastructure are the most important in explain-ing the different magnitudes of “residual growth”, which in turn is the main factor

deter-in deter-income differences Fdeter-inally, Rodrik (1999) expladeter-ins countries’ improved nomic performance following the Second World War in terms of the presence of more appropriate social institutions, which were able to mitigate social conflicts and external shocks Furthermore, the work of Rodrik (1999) suggests that, in a global economy, external shock, crisis and unstable financial markets can be better governed only if there is appropriate and widely accepted governance This should go beyond the current IMF framework, which is based on institu-tions designed in North America and Western Europe This framework ensures that wealthy countries (mainly the G7) also possess more power, including more vetoes and votes, than others A good starting point for change could be the broadening of these privileges to the G20 or other wider organization (see Stiglitz 2010)

Hence, economic development is a complex issue because it is an outcome of the interaction of several factors, institutions and policies Serious predictions of economic growth cannot assume that a single specific factor makes some coun-tries richer than others Many exceptions, for instance, can be raised against the idea that human capital is the main factor that contributes to growth; for example, countries such as Poland, Russia and Egypt have education levels that are very close to those in the richest economies, yet their GDP per capita is much lower Another problem with human capital is the possibility of reverse causality between growth and education, and it is important to understand which comes first Human capital is definitely an important factor for economic growth (Barro and Sala- i-Martin 1995; Barro 1998), but it has also been shown that differences

in human capital alone can explain no more than one- fifth of the difference in living standards (Olson 1996)

A similar argument can be put forward with regard to the relation between nology and growth Richer countries can afford high levels of research and devel-opment (R&D) expenditure, and they can enjoy positive returns and spill- over from that Investment in technology is definitely correlated, both theoretically and

tech-Introduction 7

empirically, with economic growth, but the root of the problem seems to be how countries can afford high levels of investment in technology and, consecutively, how some nations have more advanced technology than others (Yeager 2004) Another factor that is often considered very important for economic growth is the possession of natural resources (Shaban 1987; Walker and Ryan 1990) The United States, Norway, Germany and other wealthy countries possess abundant natural resources, such as oil, coal, land, etc However, many other better- endowed or equally well- endowed countries – such as Russia, Brazil, Nigeria, Venezuela and Saudi Arabia – are less wealthy, while some poorly endowed countries – such as Japan, Singapore, Taiwan and Hong Kong – are much wealthier

The same exceptions can be found when considering trade and population density In the first case, together with the success of some export- led countries such as Ireland and the “Asian Tigers”, the history of economies also records cases of successful inward- oriented countries, such as France and other old European member states after the Second World War Even the Asian Tigers, before entering the global economy, created a strong “infant industry” and pro-moted import- substitutions policies From a theoretical point of view, similar contradictions can be traced between some economists, who support the idea of

a strong correlation between trade and growth (Bhagwati 2004; Galor and Mountford 2003), and others, who minimize the impact of trade on growth (Krevise 2000), arguing that in some cases negative effects, such as inequality, wage discrimination and inequality between the skilled and unskilled, seem to prevail (Nayyar 2000) With regard to population density, today we cannot say that poverty is always associated with high density, as some economists, follow-ing Malthusian predictions, initially believed Switzerland, Germany (particu-larly the former West Germany) and newly industrialized Asian countries have a high population density and this has not been an obstacle to their economic development In contrast, many Latin American countries, such as Brazil and Mexico, have a low population density, but this has not encouraged development

Hence, a comparative analysis reveals many problems and many sial aspects related to development Economic growth does not seem to be asso-ciated with one particular factor that can bring about development No single mentioned factor is able to explain economic differences between countries Moreover, the failure of the Washington Consensus during 1990s in several countries, such as Mexico, Argentina and Russia (Stiglitz 1998; Rodrik 2004), also showed that there is no single recipe for economic policy that is suitable for all countries, while the interaction between variables, national institutions and path dependency can better explain the recent economic success of many coun-tries in Asia or the economic boom of some European countries after the Second World War (Rodrik, 1999)

In China, for instance, and a few other emerging economies where heterodox policies have been implemented, the Washington Consensus was not imple-mented Yet China’s economic growth is defined as “phenomenal” and its

economic success is real (McMillan and Naughton 1992) China’s success occurred without complete liberalization, without privatization and without democratization (Qian 2003) In 1988, China’s GDP was half of Russia’s; in

1998, Russia’s GDP was half of China’s Market incentives occurred without liberalization and secure private property rights

China was poor, overpopulated, short of human capital and natural resources and constrained by an ideology that was hostile towards markets Nevertheless, GDP growth took place, and was, under such initial conditions, really surprising (Qian 2003) GDP in China has already overtaken that of the largest European economies (Italy, France, the United Kingdom, Germany) and today it is even bigger than that of Japan, which had been the second- largest economy after the

USA (The Economist 2010) China has benefited from a consistent and coherent

set of rules and programme of governance over the last 30 years, and this has allowed impressive growth to take place

Under such governance, the Chinese economy has not been threatened by the current crisis The country did not suffer financial instability, and economic growth appears to be very solid still, above 8 per cent annually

4 Institutions for development after the crisis

Institutions shape collective actions and therefore determine public choices, icies and organization (Olson 1982), both in capitalist economies and socialist economies Institutions emerge as an important guide for investments, for beha-viour in financial markets, for expectations and reactions of economic agents (Tridico 2007) They limit what is right and what is wrong, what is appropriate and what is useless They determine strategies and trajectories of change This is particularly important in countries experiencing deep transformations and affected not only by formal institutional change but also by informal rules

As Sen has emphasized,

a broad approach of this kind permits simultaneous appreciation of the vital roles, in the process of development, of many different institutions, includ-ing markets and market- related organizations, governments and local authorities, political parties and other civic institutions, educational arrange-ments and opportunities of open dialogue and debate (including the role of the media and other means of communication)

(Sen 1999: 9) Formal and informal institutions implicitly include trust, respect for agree-ments and for agreed rules, financial regulations, mutual confidence among the parties to an economic transaction, exchange of information and circulation of

knowledge, all of which lead to a higher level of social capital (Raiser 1999; Kornai et al 2004; etc) Increasingly, economists now focus on the relationship

between social capital and economic growth In fact, relationships of trust, loyalty, behavioural norms, cooperation, respect, certainty in economic relations

The “nonmaterial factors” also encompass the dimension of “social capital”, which impacts significantly and positively on economic performance In fact, these factors eliminate or reduce problems that arise due to the phenomena of adverse selection and moral hazard, lack of information, uncertainty, rent- seeking and free- riding (or opportunism) A higher level of trust may result in an increase in investment, an improvement in economic relations (Arrow 1975), the overcoming of risk (Olson 1982), the promotion of social interactions and, there-fore, the creation of networks that allow for the flow of knowledge, the exchange

of information, cooperation between agents and the creation of increasing fits for all

Each society may have its own rules, formal and informal, but what is important is that they provide a consistent institutional framework for a good business environment, reduce uncertainty and implement appropriate and effective institutions and policies A consistent part of economic growth comes from the “residual” or “black box”, which is not explained by traditional vari-ables such as capital and labour (Solow 1956) This residual, which is generally associated with technological progress, can be explained by better endowment of certain variables, such as (formal and informal) institutions, organization, human capital, infrastructure and – most importantly – social capital (Knack and Keefer

1995; Olson et al 1998; Jones and Hall 1999).

The crisis of the Eurozone is one that involves, first and foremost, the trust around the sustainability of the euro Since the Eurozone has no central govern-ment, the euro is guaranteed by the member states’ individual economies Lack

of trust in the fundamentals of those economies causes lack of trust in the euro Moreover, the lack of a proper Central Bank, which would guarantee, similarly

to the US’s Federal Reserve, the national debts of member states, weakens the euro’s institutional framework further In the context of the Eurozone, the sustainability of the euro relies on the support of individual politicians in power and member states’ governments As long as governments support the euro, it will survive It follows that uncertainty prevails at each election within a Euro-zone member state In the absence of appropriate institutions, such as a Eurozone central government or a Eurozone central bank with real power and functional-ity, the euro is liable to be threatened and weakened, particularly during times of crisis, which worsen the economic profiles of member states and increase scepti-cism for the Eurozone Institutions such as a central government or bank would survive the elections, and would therefore better guarantee the euro’s sustainability

At the global level, as De Long (2010) and Arestis and Pelagidis (2010) and many others have emphasized, surplus countries, such as Germany and Japan, need to implement expansionary policies rather than austerity measures, spend-ing more and taxing less In Europe, the European Central Bank should lower the interest rate to the Federal Reserve level (which is near zero) and should have an ambitious programme for buying national bonds The proposal to issue European Union bonds should also be accepted, in order to create a proper Euro-zone central bank with a collateral European debt agency (EDA).7 In this context each Eurozone member could issue European bonds up to at least 40 per cent of GDP This would create, over time, a sovereign bond market of similar size to the US one Initially, the EDA would finance 50 per cent of member states’ debt issues – but this could be raised to 100 per cent during crises A mechanism to switch between national and European bonds at a discount rate should be allowed as well, for countries in trouble This would avoid the problem that sec-ondary markets in many EU sovereign bonds are not sufficiently liquid during crises The European Financial Stability Facility (EFSF ),8 which is today endowed with a fund of €700 billion, should become a permanent agency and should continue to buy the government bonds of countries in crisis A strong institution working as a lender of last resort should be created for the EU, or at least for the Eurozone The biggest European economies, such as Germany, the United Kingdom and France, should expand aggregate demand to allow for more imports from Mediterranean economies (Spain, Portugal, Greece and Italy), in order to allow the latter to reduce their deficits Current account deficit is in fact dangerously financed by German, British and French banks, which buy national bonds from Mediterranean economies If those Southern economies cannot repay their debts, correlation default will follow, in turn, in North European banks Since “institutions matter”, it is important to implement institutional policies Hence, the question is how to change institutions, how to implement a new insti-tutional deal that will bring about economic development Sophisticated and institutionally aware economists define development as an economic growth and (or plus) institutional change (Toye 1995) But since institutionally aware econo-mists define institutions as “standardized behaviour patterns”, it follows that in order to change institutions we need to change those patterns Hence the right definition seems to be: “development as growth through institutional change” (Fadda 2003: 15) In other words, the development process involves breaking with previous institutions, routines and “standardized behaviour patterns” that have not allowed for economic growth (Kuznets 1965).9

Institutional change depends on specific factors, such as country’s history, values and traditions, which in turn give its context specific features Therefore, institutions’ evolutionary paths can be very different across different countries, since these paths are not only determined on the basis of formal rules and consti-tutions (North 1990) Hence, the question is how institutions evolve and what determines the institutional change

The new institutional economics (NIE) approach to the theory of institutional change is based on a fundamental assumption: institutions reduce the economic

Introduction 11

cost of transacting; hence, agents will use institutions in order to diminish action costs (North 1990) The behaviour of agents will follow the direction of the relative changes of prices At the new prices and with the new methods, the old institutions will no longer be able to diminish transaction costs (North 1990); therefore, the institutions will change.10

On the contrary, the old institutional paradigm stipulates that institutions are

composed of two important factors: (1) available technologies; (2) power tions between different groups Hence, institutions will change not only when formal institutions are introduced by design, but also when informal rules and values change

A parallel approach to institutional change is the one put forward by

evolu-tionary economics According to this approach, institutions evolve by adapting

their behaviour to new circumstances because human habits – in which tions originate – are constrained by a sort of natural selection (Hodgson 1995) Institutional evolution is similar to Darwinian evolution (Veblen 1898) There-fore, institutions evolve with the natural survival and evolution of economic system and of the state Hence, economic institutions face natural selection During this selection, in interacting with the external world, amidst mutual func-tionality, interdependence and complexity of relations, automatic mechanisms are excluded (Freeman 1995).11 Well- adapted and stronger institutions survive, while weak institutions cease to exist Moreover, a crucial role in this process is played by innovation (Lundvall 1988) According to this approach, the change in institutions is strictly endogenous Socio- economic evolution is considered to be the transformation of a system through endogenously generated change and tech-nical innovation (Dosi 1988)

For institutional economists, the link between institutions and development is very clear: formal and informal rules define a system of penalties and prizes that determine a set of standardized behavioural patterns These patterns in turn shape both individual and collective action, affecting economic performance and development Hence, development policies should promote institutional change, i.e a change in the values and rules that inhibit growth, and not only a change in formal rules or the implementation of reforms (i.e structural adjustment), which

in social terms may be very costly

At this point, it is important to stress the connection between Sen’s notion of

“capability” and the definition of institutions: both are crucial for economic development As Fadda (2003) puts it, “choices are determined to a large extent

by what we want to do, and this is determined by capabilities, as elements of institutions, and capabilities should not be taken as given” Hence, we can re- elaborate the definition of development given above, and think of it as economic growth through institutional change led by the evolution of capabilities (Fadda 2003: 7)

Institutional policies affect the institutional path of development However, some policies are appropriate in some regions or countries but not in others (Rodrik 1999) In general, the majority of these policies are to be considered as specific to the context of the country or, to be more precise, to the context of the

region Hence, local governance has an important role to play in policy- making The dimension of space becomes a crucial proxy, giving effectiveness to pol-icies Local institutions provide for these policies (see Becattini 1979, 2000).

In contrast to the Washington Consensus approach, an institutional approach takes into consideration the whole institutional framework, with its values, its formal and informal rules and not only a few institutions to reform or to force onto a country Moreover, this approach does not have a standard and general recipe for development; rather, it offers a wider analysis according to which policy makers can design context- specific policies that are tailored to the par-ticular situation of the country or of the region

Economic development and institutional development can be considered as two sides of the same coin Institutional policies and development policies will come together with the aim to make development less uneven, to anchor eco-nomics more in the real world and to improve living standards As Coase puts it,

“In the real world, to influence economic policy we work through institutions The choice in economic policy is a choice of institutions And what matters is the effects that a modification in these institutions will actually make in the real world” (Coase 1984: 1)

The structure of the book

In Part I, the book explores fundamental institutional, evolutionary and logical questions for the sustainability of a stable economic development path Recovery from the current economic crisis requires a new policy paradigm and new global governance At the global level, we argue, the main condition that has made the present crisis so explosive is the lack of proper global economic governance Both at the global and at the European level, the difficulties in finding a solution to the conflicting interests of individual states often prevent the adoption of effective regulatory decisions This occurs because the socio- economic model on which current governance is based is undemocratic and lacking in full political representation The new socio- economic paradigm, as proposed in the first part of the book, tries to overcome this dilemma

More particularly, in Chapter 1, by Pasquale De Muro, Salvatore Monni and Pasquale Tridico, the core idea is that the main determinants of development policies are institutions that are created from development theories, and that the latter – i.e the “ruling ideas” about development – are a mental product of the accumulation regime, which in turn is regulated by development policies and institutions The authors present an interesting illustration to explain this process (Figure 1.1) These relationships among development policies, institutions, theo-ries and accumulation regimes are dynamic and dialectical (circular) Therefore, they claim, historically there has been a dialectical evolution of development policies, theories and institutions In Chapter 2, Hardy Hanappi shows that evo-lutionary theory is held together by two distinct elements: on the one hand, it is the object of investigation – emerging forms of life – that defines the scope of this scientific discipline; on the other hand, the topic studied feeds back into the

Introduction 13

toolbox of methodologies, to be used by researchers in evolutionary theory There emerges an evolutionary research approach Though both elements histor-ically have evolved simultaneously and with close interplay, they may neverthe-less be described independently, at least in retrospect And these two perspectives are what this chapter aims to outline First, from a diachronic per-spective, the emergence of life forms as a sequence of alternations between rel-atively stable evolution and revolutionary changes in entities and relationships is discussed Second, from a synchronic perspective, the methodological con-sequences of historical observations are highlighted In the last and third part of the chapter, the logic of the first two parts is inverted: reviewing the given evolu-tionary toolbox of methodologies, it is asked whether this can shed light on the current, revolution- loaded state of the global economy But in evolutionary theory, understanding always implies change, simply because understanding itself is part of the evolutionary process This argument, Hanappi suggests, pro-vides the third element of evolutionary theory: it has inevitably to be a driver of actual revolutionary change in the real world The necessary practical involve-ment of this scientific discipline is particularly visible in evolutionary political economy at the current stage of world history It sets out to redesign the con-sciousness and interactions of newly emerging (aggregated) global agents

Chapter 3, by Geoffrey M Hodgson, claims that the financial crash of 2008 and the subsequent global economic crisis have raised questions about the viabil-ity of capitalism and the desirability of alternative types of economic system In this context, Marxist ideas have become more popular Some basic theoretical conceptions in Marxism are compared in this paper with alternative develop-ments from original institutionalism, particularly from its roots in the writings of Thorstein Veblen and John R Commons Marxism and this version of institu-tionalism share many ideas, including the historical specificity of capitalism But their grand views of history are different, with Veblenians rejecting the inevit-ability of socialism or any teleological developmental goal The Veblenian tradi-tion has also a very different view of human agency and its psychological underpinnings Furthermore, the Veblenian emphasis on the role of habit and tacit knowledge undermines any notion of comprehensive central planning, which was a central goal in Marxism Commons developed important insights about the role of law in the economy Together these writers, Hodgson argues, provided ideas that could help form a systematic theoretical alternative to both Marxism and mainstream economics This is described as “new- old institutionalism”

In Chapter 4, Bob Jessop revisits the argument advanced by advocates and critics of capitalism alike, if somewhat hyperbolically, that liberal democracy is the “best possible political shell for capitalism” This is contestable, theoreti-cally, historically and comparatively Indeed, the relationship between capitalism and democracy is deeply contradictory and historically contingent The connec-tion is further challenged by recent trends in national politics, such as authorit-arian populism, authoritarian statism, and “post- democracy” More doubts are raised by growing gaps between world market integration, the continuing

importance of national territorial states and forms of global governance These are producing an increasing democratic deficit, especially regarding control over the international, transnational, and supranational economic and extra- economic aspects of the emergent world market, and are reflected in the resort to techno-cratic and other forms of unelected, non- accountable executive powers linked to international regimes, and obscure parallel power networks These trends are decades old but have been strengthened by the expansion of a finance- dominated accumulation that is tied to new forms of political capitalism After reviewing some of these general issues, Jessop turns to financialization as another debilitat-ing factor in the decline of democratic governance, a factor that is largely over-looked in neoclassical, but not in libertarian, economics.

The last chapter of Part I, Chapter 5, by Ugo Pagano, hosts an interesting debate about human nature and human evolution in relation to its impact on the modern economy and the current economic crisis The paper is a postscript to

Pagano’s article published in the Journal of Bioeconomics (Pagano 2013) The

aim of this postscript is twofold The first goal is to reply to the comments

received by the Journal of Bioeconomics in response to the original article, and

to clarify the points made in the article by comparing them with alternative views of human nature and human evolution The second objective is to point out the relevance of long- term analysis, as presented in the article, to the current crisis The article considers the plausibility conditions that a thesis on the evolu-tion of human nature should satisfy, and argues that the sexual subsidy thesis considered in the article satisfies these conditions Furthermore, Pagano applies the same test to two alternative explanations advanced as alternatives to the sexual subsidy hypothesis: the lethal weapons theory and the group selection theory The author then argues that a long- term perspective is useful in examin-ing the fate of globalization and the future of the so- called knowledge economy Finally, he argues that the analysis of long- term dynamics, between the intensive use of a non- rival good such as knowledge and its private appropriation, is rel-evant for the understanding of the present great depression and can help in the selection of appropriate policy tools

In Part II of the book we explore possible alternatives and examples of ernance that would be useful to implement after the financial crisis This second part starts with Chapter 6, by Sebastiano Fadda, who shows that with globaliza-tion nation states have become unable to provide effective governance of eco-nomic activity Two problems have arisen: the inefficiency and ineffectiveness

gov-of international regulatory bodies; and their compatibility with the sovereignty

of individual nation states Both formal and informal supra- national institutions appear to lack two fundamental features of democracy: the participation of the people; and the accountability of policy makers The measures taken by the EU

to cope with the crisis are inadequate, due to incorrect views about the working

of the economy and to the lack of proper European economic governance, with decisions being dependent either on the interests of the most influential member

states or on the financial establishment In fact, the European Monetary Union is

a hybrid: neither a federal state nor an international organisation of states It is

Introduction 15

doubtful whether Europe is converging towards a federal state, and whether this

is at all possible at the present time

Pasquale Tridico’s main objective in Chapter 7 is to show that the recovery from the current economic crisis in the US and the EU requires a new policy paradigm and new global governance He argues that, contrary to the recent aus-terity policies in the EU and the US, a new level of government involvement is required in order to keep aggregate demand stable, make full employment pos-sible, and create a transparent financial sector, serving the real economy and encouraging productive investments Moreover, at the global level two main issues seem to affect the markets negatively: first, the lack of an independent international currency; and second, the instability of one of the biggest markets, the Eurozone The first problem requires a wider international solution; the second requires political responses at the EU level in order to deepen integration

Dany Lang, in Chapter 8, shows that the Treaty on Stability, Coordination and Governance (TSCG), signed in March 2012 by the Eurozone’s heads of state and government, is totally unnecessary Everything in it had already featured in European laws adopted in 2011, primarily via the reform of the Stability Pact and the boosting of economic and budgetary policy coordination, which was included under the “Six- Pack” The author criticizes this treaty, because it fails

to solve the major issues of the Eurozone In particular, it does not confront the imbalances of a capitalist system that 30 years of systematic deregulation have surrendered to erratic market forces It does not deal with the constant blackmail and recurrent crashes that the markets inflict upon EU societies It does not deal with the absurd situation that allows the European Central Bank, which is pro-hibited from funding public deficits directly, to flood private banks with over a trillion euros in very low interest- rate (1 per cent) loans, so that the banks can then lend a portion of that amount to governments at 3 per cent, 5 per cent or 10 per cent, but only at their discretion, as nothing compels them to do so It does not deal with the dramatic rise in social inequality, unemployment, insecurity and economic instability that has resulted from the growing importance of finan-cial capitalism It does not deal with the tax giveaways that boosted tax exemp-tions and emptied the public coffers, resulting in deficits and debt Finally, it does not deal with the freezing of investments that are essential to an ecological transition, without which there is a risk of creating worldwide chaos

Finally, Chapter 9, by Massimiliano Gambardella, argues that the gical shock has increased the digitization of data, completely changing the situ-ation in terms of access to knowledge New actors are now able to cross economic barriers and start new projects, creating new and innovative products Moreover, in the current time of crisis it is more difficult to obtain funding, par-ticularly for small start- ups and young artists The author explores the use of emergent Creative Commons (CC) licenses in order to involve users in the pro-duction process and then use it as an alternative source of funding and innova-tion The chapter proposes a model to explain how CC licences can be used to obtain funds and user contributions This study is useful for understanding how

technolo-intellectual property rights can be managed and alternative sources of funding found, particularly for start- up projects Moreover, this study could be helpful for legislators who want to update policies to take into account these new levers

to stimulate funding, which are harder to obtain in times of crisis, and to innovate

Notes

1 Originally these policies were addressed to Latin American countries in 1989 (see Williamson 1990) Later, most of the countries in Asia, Sub- Saharan Africa and Eastern Europe were advised by the promoters of the Washington Consensus to adopt such policies.

2 In particular, in the former communist countries, the beginning of the nationalization” of the Washington Consensus coincided with the beginning of the transition from a planned economy into a market economy As Nuti (1999) critically pointed out, that transition was considered by Washington- based inter- national financial institutions to be summed up by the following equation: transition = liberalization + privatization.

“inter-3 As well, the crisis in South Korea, and then in other Asian Countries, seemed to be caused by the sudden introduction of short- term liberalization of capital (see Nayyar 2000; Stiglitz 1998) Nevertheless, Asian countries are quite particular as regards the orthodox implementation of IMF policies Rather, policies in Japan, in South Korea and in other well- performing Asian Tigers seem anomalous, with extensive industrial trade protection, particular financial corporate governance and quite strong state interventionism.

4 As Rodrik (2004) suggests, if a developing country were to achieve the above- listed institutional aims, it would already be a developed country Hence, not only the aims, but also the means to reach those aims, are utopian dreams for developing countries: the aims are too ambitious and consciously unreachable.

5 The indexes are: the risk of expropriation; the risk of repudiation of contracts by ernments; quality of bureaucracy; level of corruption; law and order tradition; and

gov-international country risk Olson et al (1998) found that governance variables explain

around 50 per cent of growth rate changes among countries.

6 Acemouglu et al (2001) proved that different European colonization strategies

pro-vided exogenous institutions that impacted consistently on productivity and on ences in income per capita among developing countries.

differ-7 In 2011, a proposal in this direction was made by Jean- Claude Juncker, former ident of the Eurogroup, and Giulio Tremonti, former minister of finance for Italy.

pres-8 This is a temporary EU fund, which was created during the Greek crisis in the spring

of 2010, providing an initial support of €500 billion.

9 Kuznets states:

The transformation of an underdeveloped in to a developed country is not merely the mechanical addition of a stock physical capital: it is a thoroughgoing revolu- tion in the patterns of life and a cardinal change in the relative powers and posi- tion of various groups in the population [ .] The growth [ .] must overcome the resistance of a whole complex of established interest and values.

(Kuznets 1965: 30)

10 From this it clearly emerges that, for the NIE, the concept of efficient institutions refers to those institutions most able to diminish transaction costs.

11 This statement fails to take into account the fact that economies may follow the laws

of physics, such as the automatic mechanism of equilibrium.

Introduction 17

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