It's the relationships, stupid!

Societies grow through bottom-up institutions, dependent on trust, cooperation and shared aspirations.

December 18th, 2009

Throughout the 20th century, economists believed there were two root causes of poverty: insufficient capital and a lack of clever new technologies. Together, these two constraints inhibited growth in productivity and in standards of living.

But a rising tide of research on the institutional underpinnings of economic development now calls that traditional view into question. Following Nobel Laureate Douglass North of Washington University, scholars such as Daron Acemoglu at MIT, James Robinson and Dani Rodrik at Harvard, Pranab Bardhan at UC-Berkeley and Hernando de Soto of Peru's Institute for Liberty and Democracy emphasize that human interactions are the foundation of virtually all production, exchange and consumption behaviours. Because those interactions can take any number of forms, the structured rules of human interaction—North's definition of "institutions"—fundamentally shape the path society follows. This new vein of social science scholarship asserts that the main differences between rich and poor communities originate mainly in institutional variation that leads the rich to cooperative, high-return outcomes while burdening the poor with conflict, corruption and coordination failures that perpetuate poverty. The clear implication is that there exists a big payoff to getting the rules that govern society right, and a very high price for failure.

A similar message emerges from the current social science of environmental management, as recognised by the most recent Nobel Prize in economics, awarded to Lin Ostrom of Indiana University. Her work offers seminal insights as to why some, but not all, human communities degrade the natural resources on which their future depends. To paraphrase a political campaign slogan: it's the institutions, stupid! Although relatively dim-witted species understand how foolish it is to foul one's own nest, we humans do so regularly when we fail to set and enforce appropriate rules to govern our relationship with nature.

Thankfully, however, ecosystem collapse is not preordained. Ostrom and others show that societies can and do organise effectively to ensure the sustainable management of fisheries, forests, water, wildlife, soils, clean air and other essential natural resources. The stakes for getting institutions right increase as the globe warms, more species go extinct, diseases mutate and grow increasingly capable of sparking pandemics, and weapons of mass destruction proliferate.

Unfortunately, there is a huge gulf between recognising that institutions matter and identifying the specific rules most likely to advance the human condition or to protect Creation. Institutions that many social scientists have long favoured—competitive markets, democratic elections, secure private property rights, universal access to education and health care—have been on the march across the globe for a generation. But despite these institutional changes, a record number of people—more than a billion—now go to bed hungry any given night. The absolute number of people living beneath the poverty line has also grown, even in most high-income countries, and especially in the poorest nations of sub-Saharan Africa and South Asia. The benefits of institutional reforms seem to be bypassing billions. At the same time, the triumph of democracy and capitalism has failed to slow mounting ecological problems of overfishing, deforestation, global warming and pollution.

So does the unimpressive experience of the past generation undermine the social science of the same period that emphasizes the primacy of institutions? Probably not. Rather, recent experience serves as a caution against a misguided search for panaceas, such as land titling to make property rights secure, democratic elections to render governments accountable to their subjects, or resource users associations to check overexploitation. In Matthew 22:34-40, Jesus teaches us that what is important is not the specific rule in the law, but the quality of our relationships, with God and neighbour.

Current social science research frontiers similarly emphasize a more nuanced view of progress that originates from the bottom up, from social networks of trust, cooperation and shared aspirations that foster right relationships, facilitate effective coordination of incentives, expectations and behaviours, and perhaps even promote altruism and virtue. The intricate resulting relationships between individual rationality and cultural norms are not easily manipulated from above by states or from the outside by well-meaning foreigners. Furthermore, these relationships necessarily co-evolve with local natural systems and with macro-scale political and economic phenomena that biophysically and socially regulate human behavior. Hence, there is the need to think globally while acting locally, both to enable the escape from persistent poverty and to prevent ecosystem collapse.

These threads of contemporary social science should resonate with thoughtful Christians. In a fallen world, people and nature suffer. But we are rescued from our own evil and see human suffering ameliorated when we can heed the Gospel call to love and to serve, to treat all the created order and all those made in the Creator's image with the respect we owe God. The institutional arrangements of society can and must serve as a check on the excesses of sinful human self-interest if people are to enjoy and maintain higher standards of living and properly steward God's magnificent creation.

Social scientists' growing interest in institutions reflects a heightened appreciation of the complex nature of human transgression and transcendence. With the right rules and motivations, we can check our sinful excesses and even serve the greater good. Without good rules and norms, however, degradation, suffering and chaos too often prevail. The challenge we face is to discern how best to structure the rules of human interaction for a given place, time and people so as to foster right relationships. Such discernment is not merely a scholarly task; it is an individual and collective prayer.

 

Chris Barrett is the Stephen B. and Janice G. Ashley Professor of Applied Economics and Management and International Professor of Agriculture at Cornell University, where he also serves as the Cornell Center for a Sustainable Future's Associate Director for Economic Development Programs and the Director of the Cornell Institute for International Food, Agriculture and Development's initiative on Stimulating Agricultural and Rural Transformation.

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