Institutional variety and the future of economics

Economics depends heavily on assumptions made about the phenomenon of institutional variety and its implications for technological capabilities in economic development. This article contributes to new ways of thinking of institutional variety in order to advance scientific argument within the broad tradition of evolutionary political economy (EPE). First, it draws on the Nyāya (Hindu) systems of logic and reasoning about inference and judgement which can potentially reveal inter-and intra-paradigmatic differences for EPE and economics. Second, it uses four brief illustrative cases from the author’s development research on technological learning and innovation to argue for more explicit and systematic treatment of inference and judgement about institutional variety. Implications for the future of economics are briefly discussed

Industry policy, technological change, and the state

Industrial policy and innovation policies need to be strongly revitalized and focused on LDC development. Given the concentration of several LDCs in forestry, fisheries, mining, agricultural commodities, and oil, the task of these revitalized industrial policies is to support locally relevant development. Although much has been written about institutions and economic growth and development to date, the question is what aspects industrial policies should focus on in these economies. For several LDCs, even where growth is rapid, this trade-related growth has occurred without the benefits of diversification and structural change, private sector capital has been shy, and ODA continues to be a major source of financing but not necessarily directed at building productive capacities (UNCTAD, 2007; 2008). Of course, with changes in transportation or other costs, the extent of trade might diminish in the future. Nevertheless, many LDCs while enjoying elements of current growth rates of commodity exports, remain distinctly vulnerable as well. Directed industrial policies can therefore be a core instrument for developing economies that must build productive capabilities to compete in what is now a highly traded world economy (Rodrik, 2004, Haque 2007). Perhaps more importantly, industrial policies combined with ODA and social spending concerns, can form the basis of important new social compacts to improve domestic conditions. This paper attempts to lay out both a conceptual and practical approach to how these policies can be revitalized

Institutional Variety and Ayres-Veblen “Lag”: Implications for Selection and Development

Firms and nations attempt to build their technological capabilities amidst co-existing systems of knowledge and a variety of institutions. This variety might in principle result in fragmented knowledge and learning systems with no easy adaptation, clear social connection, or shared idea of progress. High institutional variety environments may be innovative but offer an uncertain future environment in which individuals and firms act, and which can paralyze the search and learning process. This paper discusses the Ayres-Veblenian concept of institutional ‘lag’ and its links to institutional variety. Industrial policy is routinely used conceptually and administratively as a selection device to cull such institutional variety, for example, re-steering the health industry’s knowledge and production context or integrating informality in social policy design. Policy selection can thus offer valuable framing contexts to build inference and judgments about evolutionary systems and technology products. Once an evolutionary and institutional perspective is employed however, ‘lag’ and ‘progress’ are technologically contingent. The paper concludes that both industrial analysis and economics’ philosophical foundations may benefit from co-evolutionary and combinatorial approaches, and insights from a non-Western perspective

Urban labour markets in the 21st century: dualism, regulation and the role(s) of the State

This paper is concerned with two questions: When and how does society at large (through State, intermediary organisations, labor unions, etc.) institute a set of supports to minimize schisms in the labor market?; How exactly do these schisms evolve in response to changing technical standards in industrial production and services many of which are increasingly globally regulated? This paper attempts to sketch some phenomenological features of urban employment in India to address these questions. First, it discusses dualism of the labor market to understand how the division of labor institutionalizes certain rules for economy-wide use. Second, it contends that the State is torn between multiple goals and cannot be treated monolithically. Third, it explores how dualism within the labor market is affected by changing global technical standards and the newer forms of industrial relations that emerge. The argument is that for institutions to embrace both efficiency and equity a shared understanding of goals and procedural language is required between actors and a close attention to the everyday work process of organisations and individuals. Technical regulations and standards permeate industry in diverse ways and exacerbate existing tensions between varied State priorities and make more unclear the costs and context for distributing uncertainty and ensuring cooperation around issues such as training and insurance. The paper lists some salient features of the construction sector in Bangalore, India. Finally, it briefly discusses the relevance of this approach of dualism and institutionalization in the face of technical standards for the Millennium Development Goals and Decent Work agendas

Cost, risk, and labor markets: the state and sticky institutions in global production networks

This article posits that there is no a priori reason that industrial upgrading and market expansion leads to greater social protections or better regulation. I ask three questions and attempt a conceptual framework for institutions and their broader spatial evolution. A firm’s regional risk ecology ties in insightful ways for primary-secondary workers, insider-outsiders, and to the emergence of social protections. I propose a typology of place, work, and work-place institutions that mitigate risks and mediate costs. Industrial upgrading is a work-place based process; evolution of “informality”, wider social protections, and labour regulations can be assessed accordingly

Heuristics and the microeconomics of innovation and development

Researchers have long recognized multiple ways of innovating. However, the expositions fail to connect the microeconomics of production sets to the real-world institutional variety required to build technological capabilities and innovate. This paper argues for explicit attention to institutional variety in the heuristics used in innovation policy and practice, and analyses three such heuristics. While some types of social challenges can be addressed through formal science and industrial R&D, the most common proxies for innovation, most industrializing contexts will require changes in institutions and organizations to frame and solve local development problems. The analysis thus bridges the traditional microeconomics of production sets with innovation and development priorities

Cost, risk, and labor markets: the state and sticky institutions in global production networks

This article posits that there is no a priori reason that industrial upgrading and market expansion leads to greater social protections or better regulation. I ask three questions and attempt a conceptual framework for institutions and their broader spatial evolution. A firm’s regional risk ecology ties in insightful ways for primary-secondary workers, insider-outsiders, and to the emergence of social protections. I propose a typology of place, work, and work-place institutions that mitigate risks and mediate costs. Industrial upgrading is a work-place based process; evolution of “informality”, wider social protections, and labour regulations can be assessed accordingly

When is industry ‘sustainable’? The economics of institutional variety in a pandemic

Industrialising economies today are characterised by a multi-level heterogeneity of customs, norms, guidelines, standards, regulations and other laws that provide the broad scaffolding and the technical context for industrial activity. This institutional variety (IV) leads to combinatorial challenges about which institutions are mixed and matched as technologies and sectors evolve. Gaps in evolutionary political economy and evolutionary institutional methods should explain when variety is ‘better’ for industrial development. Two health industry cases, oxygen production and Ayurveda, have come into the pandemic spotlight under high demand and high uncertainty, by patients, state, firms, experts and other stakeholders. Both cases reflect markedly different types of institutional variety with implications for manufacturing and services. A debate of sustainable industrial policies (SIPs) thus requires attention to institutional variety (IV) and a future agenda on healthcare

Technological learning and the evolution of the Indian pharmaceutical and biopharmaceutical sectors

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, 2004.Includes bibliographical references (p. 216-227).The Indian pharmaceutical and biopharmaceutical sectors have been characterised by three features considered analogous to technological stagnation: low R&D investments, "copying" on-patent drugs (legal in India if a novel process is found) and manufacturing off-patent, generic drugs. Yet, some firms are innovating in drug discovery and development and the total number of firms is among the most numerous and export-oriented in the developing world. This dissertation looks at patterns of technological capabilities using sector-wide indicators and firm-level cases in synthetic and biological pharmaceuticals. Common explanations for the sectoral capabilities are the country's process patent regime. However, a more detailed analysis shows this cannot be the sole cause. Although the patent regime was critical in helping firms develop skills early on, their process capabilities were honed by a variety of selection environments, of which the patent regime was one type. There were at least three distinct selection environments and at least three broad types of associated learning. The findings of external environmental influence and selection do not weaken the importance of national policy, far from it. However, studies that assign explanatory power for the sectors' advance entirely to national patent policies or rational firms miss the significance of the Indian story to date. The research also shows that there is scope for broadening debates on public health medicines to address technological learning opportunities in developing countries.by Smita Srinivas.Ph.D

Industrial welfare and the state: nation and city reconsidered

Industrial welfare history presents important challenges to developmental state theories in “late” industrialization. This article expands the debate by examining how nation-states create statutory welfare by addressing institutional variety beyond markets. It is simplistic to argue linear growth of national welfare or of states autonomously regulating markets to achieve risk-mitigation. I contend that welfare institutions emerge from the state’s essential conflict and collaboration with various alternate institutions in cities and regions. Using histories of Europe, India, and Karnataka, I propose a place-based, work-based, and work-place based welfare typology evolving at differential rates. Although economic imperatives exist to expand local risk-pools, it is precisely the alternate institutional diversity that makes late industrial nation-states unable or unwilling to do so. This results in institutionally “thin,” top-down industrial welfare. Ultimately, theories that overly depend on histories of small nations, homogenous nations, or city-states, provide weak tests of the economics of industrial welfare