Economic Growth and the High Wage Economy

11 A theory of induced institutional change

Introduction

In conventional economic theory the state and subsidiary institutions are viewed as instruments that largely evolve in conformity with the efficiency needs of the market economy in response to the level and changes in prices and incomes, tastes, endowments, and technology. Institutional change is thereby endogenized and does not have an independent impact on economic change. For this reason, the conventional economic wisdom pays little heed to institutional change or institutional details, because of the implicit assumption that institutions adapt to the efficiency needs of the economy, where this adaptation process goes largely unexplained.

In the alternative theory presented in this chapter, ...