Monday, February 14, 2005

Economic change at the deepest level

In an earlier post, I linked to an account of life in Bombay because I found it a particularly good example of the type of institutional baggage that can retard economic efficiency and hence development. I had a hard time finding a good definition of institutions, and relied on Avner Greif’s.

I’ve just found one that I really like and it comes from Douglass North, naturally. This is the beginning of a survey article he wrote for the Journal of Economic Perspectives. Anyway, without further ado:
Institutions are humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).
He goes on…
Throughout history, institutions have been devised by human beings to create order and reduce uncertainty in exchange. Together with the standard constraints of economics they define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity. They evolve incrementally, connecting the past with the present and future; history in consequence is largely a story of institutional evolution in which the historical performance of economies can only be understood as a part of a sequential story. Institutions provide the incentive structure of an economy; as that structure evolves, it shapes the direction of economic change towards growth, stagnation, or decline.
If institutions are the key to economic performance, then what are we to do? Where do we start?

I found a pretty inspiring lesson in the work of former Bogota mayor Antanas Mockus. Mockus' approach, quite unconventional, has the best chance I know of to actually change institutions for the better.

Another innovative idea was to use mimes to improve both traffic and citizens' behavior. Initially 20 professional mimes shadowed pedestrians who didn't follow crossing rules: A pedestrian running across the road would be tracked by a mime who mocked his every move. Mimes also poked fun at reckless drivers. The program was so popular that another 400 people were trained as mimes.

More...
When there was a water shortage, Mockus appeared on TV programs taking a shower and turning off the water as he soaped, asking his fellow citizens to do the same. In just two months people were using 14 percent less water, a savings that increased when people realized how much money they were also saving because of economic incentives approved by Mockus; water use is now 40 percent less than before the shortage.

"The distribution of knowledge is the key contemporary task," Mockus said. "Knowledge empowers people. If people know the rules, and are sensitized by art, humor, and creativity, they are much more likely to accept change."

Mockus taught vivid lessons with these tools. One time, he asked citizens to put their power to use with 350,000 "thumbs-up" and "thumbs-down" cards that his office distributed to the populace. The cards were meant to approve or disapprove of other citizens' behavior; it was a device that many people actively - and peacefully - used in the streets.

He also asked people to pay 10 percent extra in voluntary taxes. To the surprise of many, 63,000 people voluntarily paid the extra taxes. A dramatic indicator of the shift in the attitude of "Bogotanos" during Mockus' tenure is that, in 2002, the city collected more than three times the revenues it had garnered in 1990.

Another Mockus inspiration was to ask people to call his office if they found a kind and honest taxi driver; 150 people called and the mayor organized a meeting with all those good taxi drivers, who advised him about how to improve the behavior of mean taxi drivers. The good taxi drivers were named "Knights of the Zebra," a club supported by the mayor's office.



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