Beyond Bone Structure: Historical Institutionalism and the Style of Economic Growth

Explaining economic growth is a bit like trying to account for beauty. Beyond the obvious ‘chacun à son gout’ is a debate about what really matters. While neoclassical economists (and their esthetic equivalents) might argue that bone structure is everything, historical institutionalists might insist that growth (like beauty) reflects a certain sense of style. Indeed, institutionalists bring into the growth equation all sorts of factors neglected by their economistic colleagues: not least institutionally determined relations between employers and workers, patterns of cooperation among firms, systems of financing, and the opportunities or constraints created by the structures and policies of government. They do that because the succinct explanation for cross-national differences in growth rates, provided by historical institutional analyses, is that institutional divergence produces variations in economic performance. Institutions create incentives for firms to undertake certain types of strategies for economic production. The emerging differences in production processes lead to divergent policy outcomes. Although, in an ideal world, countries might be expected to converge on the best model, in practice institutional systems become entrenched. Because each model has its own sets of benefits and detriments, and of winners and losers, institutional configurations and path dependencies are difficult to alter.