Foundations of Entrepreneurship and Economic Development.

• Author: Boettke, Peter J.
• Position: Book Review

David A. Harper New York: Routledge, 2003, 276 pp.

In commenting on modern economics, Ronald Coase once remarked, "That in my youth it used to be sad that something was so silly it could be sung, but in modern economics it can be put in mathematics." This silliness was no more evident than in the fields of comparative economic systems and development economics. From the mid-20th century to the 1990s, optimal planning and statistical analysis of aggregates substituted for institutional analysis in both of those fields' models. The silliness was not only an academic exercise, it also proved damaging to the lives of millions of individuals as they languished in poverty and suffered under the yoke of totalitarian rulers and military dictatorships.

With the collapse of the Soviet Bloc in the late 1980s and 1991 in Russia, much has changed in the world and in terms of our thinking about the world. Despite what you may read in the popular press about life in the former Soviet Union, by any reasonable measure of well-being, the lives of millions of people have been made better off by the collapse of the old regime, and our thinking about the institutional preconditions for human flourishing has improved immensely. This improvement has not been limited to East and Central Europe and the former Soviet Union, but also to the Third World. Intellectual improvement is more evident as several international agencies rethink their agenda in light of new knowledge about legal, political, social, and economic institutions, and how they shape and transform societies. William Easterly in his The Elusive Quest for Growth has made indictments of the older approach to development policy and foreign assistance, and the scholarly literature is filled with examples of how the investment-gap theory failed and must be replaced with an institutional analysis of alternative legal and political arrangements. The institutional revolution in comparative systems and development economics is not limited to Douglass North; major figures such as Andre Shleifer and Ed Glaeser at Harvard, and Avner Greif and Barry Weingast at Stanford are transforming the fields. Studies continually flow from Massachusetts Institute of Technology by scholars such as Simon Johnson and Daron Acemoglu stressing institutions, policy, and cultural heritage as primary explanatory variables in the analysis of why some countries are rich and others poor. Times certainly are changing, and for the better...