7 - Social and institutional influences on development

Summary

Economic historians, following in the footsteps of orthodox economists, have a tendency to explain the performance of an economy in material terms. As we have seen in earlier sections of the present work, differences in the level of development between countries can be attributed to differences in factor endowments, which can in turn be traced back to such influences as differences over time in, say, rates of population increase or saving. But we have also mentioned the statistical evidence which will show that increases in output can only partly be accounted for by increases in the physical inputs of land, labour and capital. Once again, the large ‘residual’ hovers over our search for explanations. And as soon as we start to consider the quality of labour or the efficient allocation of resources, a personal or ‘human factor’ comes into play. To be more precise, there is the possibility that the entrepreneurial abilities of a population can be an influence on development. At this point, economists and historians alike face an intractable problem. Can one assume that where economic conditions are ripe for development, entrepreneurs (defined by Casson as those who specialize in taking judgemental decisions about the coordination of scarce resources) will always appear, given the basic human motivation to maximize one's gains? Or should one go to the other extreme, and argue that entrepreneurs shape rather than are shaped by their circumstances, with the result that the success or failure of an economy can largely be attributed to the quality of its business leadership? In the first case, development can be entirely explained by conventional ‘economic’ considerations, and entrepreneurship is reduced to the status of a dependant variable.