Understanding the process of economic change in a global world - Essay Example

Attaining Economic Change by Surveying Economic History In Douglas North’s essay end Understanding the Process of Economic Change, he reckoned that “the structure that guides the way in which we operate is made up of formal rules, informal norms of behavior, and their enforcement characteristics. All we can change quickly are the formal rules. We cannot change the informal constraints, at least not in the short run; and even our ability to control enforcement is very limited" (p.11). As an Economics Nobel Prize awardee, North was motivated to scan through the revolution in economic years ago. The resulting thesis demonstrated that economic performance is determined largely by the kind and quality of institutions that support markets In this particular quotation, North is referring to the third way on how people could acquire wrong notions of how we could successfully attain total control of our destiny. Nobel Prize laureate in Economics Herbert Simon pioneered in assisting us to focus our attention issues concerning economic change. He says we can ask what difference does it make that the agents fall far short of substantively rational behavior which would entail full knowledge of all possibilities and contingencies, the exhaustive exploration of the decision tree, and a correct mapping between actions, events, and outcomes. However, the solution thrives greatly in our familiarity with economic history. Aside from the endless depressing tale of miscalculations, leading to famine, starvation, deceit and warfare, death, economic stagnation and decline, and the disappearance of whole civilizations, we could change our destiny if we learn from all the mistakes our predecessors have made. When people are particularly sensitive to our vastly changing environment and they emphasize their awareness to the multifarious problems that economists are facing, we could easily deal with improving the transition third world economies together., that we use tools to control our world that are very blunt instruments. Thus, North suggested that “the only tools that we have that allow us to try to shape the world we are in, are the formal rules of the game” (p. 11). In order to illustrate the rules of the game, North narrates an anecdote when he visited Moscow together with three other Americans. They were tasked by the Soviet Academy of Scientists to go to Moscow to advise the Soviet Union on its economy. The first American said, all you have to do is privatize and all will be well. The second American said, all you have to do is eliminate government, and all will be well. The third American said, all you have to do is have the computer and all will be well. I was the fourth American and I said, don't pay attention to the first three speakers; the problems are much more complicated (p. 10-11). North presented the solution would be privatization, the “catch-all panacea” for al Russia’s ills. But North warned that “privatization without the fundamental structure of the rule of law and enforcement mechanisms to go with it does not produce desirable results” (p. 12). He mentioned that there is privatization in Latin America, but privatization in the context of government fostered monopolies produces a world that does not look at all like what you want. He averred that problems would still ensue when nations are trying to improve the performance of their economy and there’s nothing you can change but the formal rules. To wit, informal constraints should also be equally addressed, in order to attain the enforcement characteristics that will produce the desired results. Providing the purpose of laying Latin America’s experience, he suggested that: What we are trying to deal with is how we can adjust and make changes in policies so that they produce more effective performance characteristics on the part of societies and economies. It is quite clear that our ability to make a radical change depends on the way in which beliefs have evolved in society, and the degree to which that set of beliefs is amenable to the kind of changes that we think are essential (p. 13). As an advancement of the interconnectedness of all parts of the world, particularly in communication and commerce, globalization has become the buzzword of the Information Age. Many experts would say that globalization as the dominant theme of present and future world history. Globalization refers to a comprehensive term for the emergence of a global society in which economic, political, environmental, and cultural events in one part of the world quickly come to have significance for people in other parts of the world. More importantly, globalization is one process of economic change that most countries in the world are struggling to maintain. In North’s essay, we could delineate “globalization” with “laissez-faire”. Comprehensively, globalization is the result of advances in communication, transportation, and information technologies. It describes the growing economic, political, technological, and cultural linkages that connect individuals, communities, businesses, and governments around the world. Globalization also involves the growth of multinational corporations (businesses that have operations or investments in many countries) and transnational corporations (businesses that see themselves functioning in a global marketplace). The international institutions that oversee world trade and finance play an increasingly important role in this era of globalization (Tabb, 2005). The types of these of advancements are many, but for this interest we have to focus on three main types of globalization. First is the economic globalization, second is cultural globalization, and third, the institutions of globalization. These types of globalizations will ponder on its significance and benefits that carved up the advancements in the world. With the global perspective, it is important to understand the processes of economic change. With this, North advised that the structuring of financial and capital markets that worked well in the past simply does not necessarily work well today. He further elaborated that: The fact of the matter is that you cannot assume that markets are going to continue to work perfectly. So we not only need to structure each market differently, but perhaps most important we must recognize that changes in technology, information costs, and government structure will alter the performance characteristics of markets over time. The scandals in the United States involving Enron and others at the end of the 1990’s reflected changing structures that made anti-social objectives far more profitable than the productive objectives that Adam Smith assumed with well- functioning markets (p. 16). For the first time in history, global economic prosperity, brought on by continuing scientific and technological progress and the self-reinforcing accumulation of wealth, has placed the world within reach of eliminating extreme poverty altogether. This prospect will seem fanciful to some, but the dramatic economic progress made by China, India and other low-income parts of Asia over the past 25 years demonstrates that it is realistic. Moreover, the predicted stabilization of the world's population toward the middle of this century will help by easing pressures on Earths climate, ecosystems and natural resources--pressures that might otherwise undo economic gains. Although economic growth has shown a remarkable capacity to lift vast numbers of people out of extreme poverty, progress is neither automatic nor inevitable. Market forces and free trade are not enough. Many of the poorest regions are ensnared in a poverty trap: they lack the financial means to make the necessary investments in infrastructure, education, healthcare systems and other vital needs. Yet the end of such poverty is feasible if a concerted global effort is undertaken, as the nations of the world promised when they adopted the Millennium Development Goals at the United Nations Millennium Summit in 2000. A dedicated team of development agencies, international financial institutions, nongovernmental organizations and communities throughout the developing world constitute the global network of expertise and goodwill that will eventually help achieve this objective (Sachs, 2005). Thus, as we progress through the Information Age, there is a hopeful concept that pervades as nations join their hands in battling extreme poverty, hunger, and other economic problems through globalization. Although as a concept and its benefits are still in question, intensive research and studies should make both ends meet and would lead to a compromise that would pose a win-win situation for all of us. If we want to advance to a better world, we should welcome changes as it continually ushers in. Having an open mind is the key to understand the intricacies of globalization. For, the real goal of the economic change is to offer all its necessary benefits to every person in the world to enjoy. Works Cited North, Douglass C. Understanding the Process of Economic Change. New Jersey: Princeton University Press, 2005. 208 pp. Sachs, J.D. (2005, September). Can extreme poverty be eliminated? Scientific American, vol. 293, no. 3. Tabb, William K. (2005). Globalization. Microsoft® Encarta® 2005 (CD-ROM). Redmond, WA: Microsoft Corporation, 2005. Read More