Understanding “Development”: Insights from Some Aspects of Complexity Theory

Abstract

Complexity theory allows for a non-equilibrist approach to the economy, an approach that is shared by new institutional economics. Drawing on lessons from both schools of thought, this paper examines institutions as their own complex adaptive systems, even as they are nested in larger institutional systems and the broader economy. Tracing the evolution of an economy as the sum of its institutional parts, I examine the idea of development as the improvement of institutions. The key finding of this examination is that some aspects of complexity theory, relying on institutional and Austrian approaches, actually come full circle to a neoclassical prescription of laissez-faire in regard to institution-building. Given the complexity of both institutions and institutional systems, it is may be more important to remove political and other barriers from the path of institutional development than to actively engage in institution-building in order to encourage development. This too, unfortunately, faces challenges as a result of complexity.