A long-run view — virtuous circles

(extracts from pp. 115; 118)

“Interactions between governance and growth can set in motion a cascading chain of economic, social, institutional and political changes. Chapter 6 explores a variety of further mechanisms through which inclusion, institutional change and economic growth can support a virtuous circle of development.  One way to summarize the interactions is in terms of three mutually-reinforcing virtuous sub-circles.

“The first sub-circle links institutional improvements and inclusive growth. In this sub-circle improvements in the provision of  public services, plus gains in investor confidence that property rights will be protected, strengthen the business environment, and support continuing economic growth.  Sustained growth, in turn, leads to a stronger private sector and a growing middle class, which generates new pressures and incentives to strengthen institutions.

“The second sub-circle links growth and expectations. The promise implicit in inclusive growth is one of hope, of continually expanding access to economic opportunity, of a growing middle class, and a better future for all. Growth can thus provide a powerful platform of legitimacy. And the resulting sense of confidence that things are on the move can  in turn, further spur growth.

“In the third sub-circle, public  institutions  provide a ‘container’ for politics – a set of stability-enhancing rules for channeling collective action and citizen engagement. Citizens pressure to  enhance the quality of the rules. Insofar as their pressure is successful, they gain increasing confidence  that the rules of the game  have the potential to work for them —  ‘unstacking’ a deck which had hitherto been skewed to serve a privileged few.  By nurturing compliance rather than confrontation,  growing legitimacy  lowers the transactions costs of co-operation, further strengthening institutions.

“Discontinuous change is, almost by definition, unpredictable, and carries with it a risk of losing momentum.  As an alternative, this book explores the potential of  incremental, momentum-sustaining, with the grain institutional reforms [where] resilience to shocks builds through cumulative interactions between governance and growth. …. The process of development is a knife edge. Too much pressure for change risks derailing the positive momentum of virtuous circles; but with insufficient attention to what needs to be changed,  the process risks grinding to a halt.”

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