Fast-Moving and Slow-Moving Institutions

Understanding the conditions for successful economic growth and development is becoming an increasingly central question in economics. It is the same question that Adam Smith was asking in 1776 when he founded the discipline. For many decades, the central question in economics concerned the comparison of markets and hierarchies in the allocation of resources, and was the focus of the entire general equilibrium programme, but its importance in economics receded with the collapse of central planning. More recently, the very diverse performances of various developing countries and countries in the process of transition from socialism to capitalism have revived the ‘Adam Smith question’. For example, why has the growth performance of Russia been so dismal in its first decade of transition, whereas China has been growing at over 8 per cent per year throughout its two decades of transition? Why has the Argentine economy, one of the richest in the world in the early twentieth century, more or less collapsed? Why have the ‘Asian tigers’ experienced a successful economic take-off, whereas the economies of most African countries have been decimated by misery, war, and disease?