Douglas North: Why are so Few Countries Prosperous? - Dissertation Économique

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There are a few prosperous countries in the modern world. Those who have approached the level of the United States include South Korea, Spain, Puerto Rico, Taiwan, China, Greece, Portugal, Ireland, Israel, Equatorial Guinea, and Japan. Good institutions are among the things that countries should focus on improving their standards, according to Douglas North. They provide structures that reduce uncertainty. Economists have also come up with other factors fostering the growth of a country. They are capital-labor in addition to human capital.

There is a belief by North that all institutions, both formal and informal, can evolve with time. North’s work did not agree with the separation of social and political institutions from the economic workings economies cannot grow if there is political instability in the institutions that may lead to conflicts and war. He argued that weak institutions are costly; hence the performance of any economy is affected by the institutions. According to North’s study, good institutions include openness to globalization as well as the rule of law. They generate positive objectives that encourage people to engage in productive activities and businesses.

The Development Challenge

United Nations, together with world band and all countries around the world, have programs to end the extreme poverty in the countries by 2030. It gives us hope that the challenge may not exist for an extended period. UN development agenda in 1990 was to reduce the poverty level by the year 2015. It was achieved because, at that time, 36 percent of the world’s population lived in poverty, and now the percentage reduced 18 percent in 2010. The decrease was because of china’s rapid economic growth in the Asia east region.

The only region where we have a large number of people living in extreme poverty is African sub- Saharan. Over a billion people who lived in extreme poverty are now out of poverty in the world. According to the world bank, 3 percent of poverty is equal to eliminating the poverty. Some are in poverty temporarily. Those termed as temporarily poor are the once who may be lost their jobs. In China, hundreds of million people were raised from poverty by the policies introduced by the government to raise agricultural productivity. The World Bank has proposed the same practices for growth policies.

A History of Crisis

In the previous year’s many countries have faced a crisis in their financial status. China has had a four-decade interruption by the

crisis, and it has nearly eradicated poverty, but for so many developing countries, it has not been the case. The second currency is the crisis is the fall of the European exchange rate mechanism in 1992. Borrowing becomes more expensive, and the investment lowers when the rate of interest is high.The third generation currency and financial crisis were observed in Asia from 1997 to 1998. The difference between the Asian crisis and other others is that the currency crisis led it.

In these highlights, crises arising from the emerging economies are the most vulnerable. In a sustained high growth rate, there is a concern. Emerging markets’ economic growth has slowed down in the 2010s. The large emerging economies called the BRIC economies, which are Brazil and Russia, put effort into growing while India and China keep growing at a moderate pace. As countries became wealthy, the rate of growth automatically slows down.

Vietnam’s Institutional Challenge

In 1986, many market-oriented reforms were formed in Vietnam, which were called ‘doi moi.’ One of the institutions which are tough to reform is the state-owned enterprises. Just like other countries, Vietnam has bad banks to eliminate the bad debts from the state- owned bank. The progression of Vietnam’s pledge to reform its enterprises have has been prolonged. It has taken three decades for the state firms to be reformed.

Myanmar’s Fast-Changing Institutions

Formerly Myanmar was called Burma. In 2011 6 percent of Myanmar had a mobile phone with 10 percent having bank accounts. Myanmar was left undeveloped by the decades of the military rule. Myanmar has the potential to grow, which has touched the attention of big organizations. Myanmar is in a good position for development being in Asia.

Africa’s Progress and Challenges

In many years, Africa has been the second after Asia in terms of development. Many African countries have grown well and rapidly. The average growth has been 5 percent in a year. It is due to exploitation in industrialization and mechanization of agriculture. In Africa, most of the challenges are the lack of jobs, and there is still a problem with income inequality. The unemployment rate in Africa is 25 percent hence being a concern in most countries.

Taking Stock

North, in his study, has recognized that the growth of an economy does not mean poverty reduction. He also argues that in Asia where institutions have boosted economic development, and reduced poverty is a lesson for other countries. Good governance has played a major role in Singapore and South Korea. It promoted good policies for manufacturing and exporting.

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