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Understanding the Process of Economic Change by Douglass North

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In order to illustrate the rules of the game, North narrates an anecdote when he visited Moscow together with three other Americans. They were tasked by the Soviet Academy of Scientists to go to Moscow to advise the Soviet Union on its economy. The first American said, all you have to do is privatize and all will be well. The second American said, all you have to do is eliminate government, and all will be well. The third American said, all you have to do is have the computer and will be well.

I was the fourth American and I said, don't pay attention to the first three speakers; the problems are much more complicated. North presented the solution would be privatization, the “ catch-all panacea” to al Russia’ s ills. But North warned that “ privatization without the fundamental structure of the rule of law and enforcement mechanisms to go with it does not produce desirable results” . He mentioned that there is privatization in Latin America, but privatization in the context of government fostered monopolies produces a world that does not at all like what you want.

He averred that problems would still ensue when nations are trying to improve the performance of their economy and there’ s nothing you can change but the formal rules. To wit, informal constraints should also be equally addressed, in order to attain the enforcement characteristics that will produce the desired results. Providing the purpose of laying Latin America’ s experience, he suggested that: What we are trying to deal with is how we can adjust and make changes in policies so that they produce more performance characteristics on the part of societies and economies.

It is quite clear that our ability to make a radical change depends on the way in which beliefs have evolved in society, and the degree to which that set of beliefs is amenable to the kind of changes that we think are essential. As an advancement of the interconnectedness of all parts of the world, particularly in communication and commerce, globalization has become the buzzword of the Information Age.

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