1.The concept of ‘economic development’ will be used with reference to the positive evolutions that world economies record in the long-term, without there being any need, in this sense, of any scientific delimitation between economic ‘development’ and ‘growth’. There are two main reasons: on the one hand, the criteria that economists often use in order to make such a distinction are subject to relativism; on the other hand, as Murray Rothbard points out, the concept of ‘growth’ is the subject of a linguistic ‘borrowing’ from the natural sciences and suggests that positive economic evolution can and should be interpreted similar to the biological evolution (growth) of a plant.Google Scholar

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4.The development theory as regarded from Adam Smith’s perspective is possible only within a certain institutional framework. This aspect should be noted because we will observe that contemporary economists – Paul Romer, Douglass North, Oliver Williamson, Thráinn Eggertsson, Dani Rodrik and others – resume this approach and the implications that different institutional arrangements have upon economic development. But the classical approach of Adam Smith seemed much more determined to prescribe private property rights and free markets as the optimal institutional factors, both at the individual and social levels. And Smith showed they will lead to harmony and prosperity only if they are surrounded by other favourable laws and institutions.Google Scholar

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10.For instance, Japan has poor natural resources and its industrial energy to a great extent is imported. Hong Kong has practically no raw materials, very little fertile soil, and no internal energy sources. However, both are prosperous countries. On the contrary, Venezuela has one of the world’s largest oil reserves and Argentina has much fertile land and other important natural resources.Google Scholar

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13.To be consulted in this respect: Lal, D. (2002) The Poverty of ‘Development Economics’ (London: The Institute of Economic Affairs); P.T. Bauer (1981) Equality, Third World and Economic Delusion (Cambridge, MA: Harvard University); P. Johnson (2003) O istorie a lumii moderne: 1920 – 2000 (Bucureşti: Editura Humanitas); D. Bandow and I. Vasquez (2001) Perpetuating Poverty (Washington: Cato Institute). For instance, Bandow and Vasquez prove the bankrupt character of external financial aid programs in the case of India: starting with ‘the first five year plan’ from 1951 to 1990, India received the largest financial assistance of all underdeveloped countries, estimated at US$55 billion. The diversion of a great part of these resources into irrational governmental programmes generally characterised by corruption led to the ‘ossification’ of state elites. Today, after more than 50 years of planned economy, a large percentage of Indians (40%) still live below the poverty line. With the exception of a few cases when international aid achieved results – as millions of people were saved from hunger in the 1950s and then in the 1960s – external financial assistance was a total failure, encouraging corruption and socialism.Google Scholar

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15.In this historical context of trade emergence, certain commercial innovations such as bank deposits, commercial credit, insurance policies, etc, appeared in the second half of the twelfth century and in the first half of the thirteenth century. In this way, periodic fairs gradually become permanent markets, localised in certain key cities: a true interregional trade developed between the Southern Italian principalities (Venice, Genoa, Pisa) and the Northern ones (the Netherlands, where Bruges was the city characterised by the greatest commercial effervescence).Google Scholar

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19.Economic theory associates the beginnings of an exchange economy with the emergence of a property rights structure meant to support the exchange, market relations being, in fact, voluntary exchanges of property rights. Any government interference in the freely agreed exchange process is, therefore, an arbitrary reallocation of the property rights that are involved in the exchange. This certainly brings prejudice to the entire system of voluntary exchanges relations based on the manifestation of the affected property rights, because every governmental intervention is equivalent with one of the following two phenomena: on one hand, there is the establishment of a mandatory character for certain exchanges that would have not been voluntarily carried out in the absence of that intervention, the intervention not actually being needed otherwise, and, on the other hand, there is the prevention (outlawing) of performing certain exchanges that would have been voluntarily carried out in the absence of governmental intervention.Google Scholar

20.See Hodgson, G. M. (1988) Economics and Institutions. A Manifesto for a Modern Institutional Economics (Oxford: Polity Press). From a perspective which is fairly close to holistic sociology, Hodgson (p. 23) considers that an institutional economics revival implies regaining theoretical content and diminishing the empirical trap, inclusively through revaluating the Marxist methodological position and post-Keynesian analyses.Google Scholar

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22.According to Veblenian institutionalism, marginalism’s error lays in the artificial conception of human nature (derived from hedonistic psychology) incorporated in the concept of ‘homo economicus’; for Veblen, marginalism means applying Newtonian mechanics to economic theory. But the conflict between humanist rhetoric and behavioural psychology, both of which Veblen embraced, was never solved by the old institutionalist approach. And the irony was that Carl Menger, the favourite target of the American institutionalists, paved the way for a new theory of institutions by recognising the necessity of integrating institutions into the analyses of economic theory.Google Scholar

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31.According to Eggertsson, T. (1990) Economic Behavior and Institutions (Cambridge: Cambridge University Press), the optimal set of rules is that which contributes to the directing of resources towards the uses that generate maximum wealth, that is in the possession of those who (monetarily) evaluate them at the highest degree; in a complementary manner, under optimal rules, resources will be engaged in the most valuable uses.Google Scholar

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36.As Buchanan, J. M. (1975) The Limits of Liberty Between Anarchy and Leviathan (Chicago: The University of Chicago Press), shows: ‘Man adopts rules. The rule-maker explicitly and deliberately imposes constraints upon himself in order to channel his own expedient behaviour toward rationally selected norms. No one could claim that Robinson Crusoe is not “free”; yet a rational Crusoe might build and set an alarm clock, a device designed deliberately to intervene in his behavioural adjustment to changing environment’, which means that the limits of his freedom are self-imposed.Google Scholar

37.Langlois, R. (ed.) (1986) Economics as a Process. Essays in the New Institutional Economics (Cambridge: Cambridge University Press), states that ‘Menger has perhaps more claim to be the patron saint of the new institutional economics than has any of the original institutionalists.’ In the Problems of Economics and Sociology, Menger formulates the fundamental problem of the social sciences in these terms: ‘How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?’ Menger explains the formation and evolution of social institutions as unintended effects of ‘maximising’ human action.Google Scholar

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40.The problem of traffic rules, of different standard measures for distance, weight and time, the use of money and common language illustrates the transience of the evolutionary formation process of social institutions.Google Scholar

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43.Proper examples of internal institutions are customs, language, ethical norms and good manners, commercial conventions, natural law in the Anglo-Saxon tradition, rules that emerged by habit, education and repeated experiences, etc. The violation of informal institutions is informally sanctioned, through the hostile attitudes of other community members.Google Scholar

44.Interesting to note in this respect is the old Germanic concept of Volkrecht – the law that is owned by the people and only protected by the legislator. In addition, in Anglo-Saxon countries, before the invasion of the common-law system by the French administrative law system, legal institutions were the creation of judicial decisions, through the successive interpretations brought to juridical precedents by these decisions.Google Scholar

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46.Richard Epstein (1995) Simple Rules for a Complex World (Cambridge, MA: Harvard University Press) shows that, in the nineteenth century, spectacular legal reforms made in many countries consisted of simplifying the laws, in order to increase their effectiveness. Nowadays, the law has become a more complex tool, although epistemology and jurisprudence prove ever more clearly that complex rules fail because of the cognitive limits of human nature and of the huge costs implied by operating them.Google Scholar

47.In Principles of Economics, Alfred Marshall considers that ‘the growth of general enlightenment […] has turned a great deal of the increasing wealth of the nation from investment as material capital to investment as personal capital’. But the remuneration of human capital depends on the economic and institutional conditions in which it is activated, see Marinescu, C. (2001) Educaţia: perspectivă economică (Bucureşti: Editura Economică). The size of marginal productivity for the labour factor results from the type and the effectiveness of combining human capital with other capital goods. When a properly qualified Romanian person enters the labour market in Canada, he may soon receive a regular salary there. But if he returns to Romania, he will discover that the Canadian experience did not necessary endow him with the qualities that allow him to receive, on the Romanian market, a higher salary than his countrymen. This means that the level of human capital is not, in itself, a sufficient criterion for appreciating the productive potential in an economy.Google Scholar

48.It is not only that political process defines and applies property rights that form the essential structure of incentives within society; in the modern world, the distribution of GDP is in the hands of government agencies, through their regulations and decisions. Thus, ‘the policy and the economy are inextricably interlinked in any understanding of the performance of an economy and therefore we must develop a true political economy discipline’ – see North, D. (1990) Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press).Google Scholar

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55.For instance, Olson, M. (1982) The Rise and Decline of Nations (Yale: Yale University Press), showed that ‘the increase in regulatory complexity and governmental action that lobbying coalitions encourage and the increasing bargaining and complexity of understanding that cartels create alter the pattern of incentives and the direction of evolution in a society’. With an eye to these complex regulations, arising from the activity of interest groups, an entire – economic and legal – arsenal has been developed, aimed at exploiting the nature of these regulations or at minimising the costs involved in applying them.Google Scholar

56.In the economic literature databases the percentage of the studies that have as key concepts ‘transition’ and ‘institutions’ increased from approximately 6% in 1990 to more than 35% in 2002. At the same time, the studies that had as key concepts ‘transition,’ ‘privatisation,’ ‘liberalisation’ and ‘stabilisation’ narrowed to approximately 10% down from a maximum of 20% in 1995, also as an effect of the (standardised) Washington Consensus’s failure. See Murell, P. (2005) Institutions and firms in transition economics. In: C. Ménard and M. M. Shirley (eds), The Handbook of New Institutional Economics (Dordrecht, the Netherlands: Springer).Google Scholar

57.Although the free market economic system and political democracy are strongly connected, they are not reciprocal. The great majority of countries with a market economy are characterised by democratic political institutions, but the situation is not always and everywhere the same. There is no universal guarantee that institutional transformation in the democratic political system will always favour the private property order and the free market. There are several countries (Chile, South Korea, Philippines, Singapore) where the democratic theory of transformation, such as Weber or Sombart postulated it, is not verified. The Chilean experience is one of the most enlightening: the success of Augusto Pinochet’s reforms meant to introduce capitalism shows that political and economic freedom are not inexorably inseparable, from which follows that a regime can be authoritarian without being totalitarian.Google Scholar

58.Kornai, J. (1990) The Road to a Free Economy. Shifting from a Socialist System (New York: W. W. Norton).Google Scholar

59.Schmieding, H. (1993) From plan to market: on the nature of the transformation crisis. Review of Word Economics, 129, pp. 216–253 underlines the disastrous consequences of the situation in which state property is left uncontrolled through the decentralisation of economic decisions. He shows that state-owned enterprises and banks became, in fact, ‘nobody’s’ enterprises and banks, and the insiders become, de facto, the owners (or, more precisely, the exploiters) of certain assets that were still, de jure, the state’s property.Google Scholar

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62.It should be highlighted that, by its very nature, any interference of government actions with the mechanism of the free market will create advantages for some and disadvantages for others. Those who benefit from this will tend to favour government intervention, advocating for its maintenance and expansion. Therefore, the interventionism in the contemporary economy is synonymous with the manifestation of interest groups (industrialists, bankers, etc) that are permanently lobbying for their potential advantages, the costs being hidden behind the ‘complexity’ of political decisions.Google Scholar

63.In the same respect, North repeatedly shows that ‘rules are, at least in good part, devised in the interest of private well-being rather than social well-being’ – see North, D. (1990) Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press).Google Scholar

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65.European legislation regulates numerous details in the economic and social life. For instance, regulation no. 2257/94 specifies the size and shape of bananas that can be sold in the Union. Bananas have to be at least 14 cm long, their legality being determined ‘by the measurement, in millimetres, of the thickness of a transverse section of the fruit between the lateral faces and the middle, perpendicularly to the longitudinal axis’.Google Scholar

66.For example, in 2007, government spending as a percentage of GDP reached 53.6% in the case of France.Google Scholar

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