Well Beyond Market Failure
Well Beyond Market Failure
Abstract and Keywords
This chapter introduces the theoretical lens of evolutionary developmental states and highlights the need to move beyond traditional market-failure approaches evaluating the health sector in late industrial states. It addresses the economic and political questions of industrial and health policies in the case of India and discusses the essential characteristics of late industrializers in relation to industrial supply. This chapter recommends the combination of insights from the economics of technical change with more traditional political economy analyses of development in order to understand the problems of the health sector.
A Time for Integration: Evolution of States and Markets
This chapter looks beyond market-failure explanations in understanding the health sector in late industrial states. It advocates for a better appreciation of markets as processes, not immutable institutions, and for a wider, more evolutionary understanding of variety in markets and developmental states. Such an approach will serve us better across time and geographic scales. Rather than “the” market, the term “market menagerie” captures the many species of extant markets. The task of development is to structure the markets within this menagerie by plans, regulation, and other tools to serve broader developmental goals for city and nation.
I argue here for an analytical lens with three essential components: First, move beyond traditional market-failure explanations in economics and political economy. Second, draw from insights of the economics of technical change and its evolutionary contributions to provide essential grounding in institutional variety. Third, integrate urban and regional planning and industrial geography for a local institutional lens on technological advance and community institutions. By marrying these evolutionary, institutional approaches with the more traditional developmental political economy of “underdevelopment,” “development,” and developmental states, we can appreciate how to move beyond market-failure approaches and to assess the institutional triad's dilemmas.
Analysts have often argued that certain medicines and vaccines remain unproduced or unavailable because of “market failure.” Many of these failures arise from more traditional arguments of public goods and externalities, and still others (still traditional) because of monopolies. “When markets fail” is then the very broad rationale for demarcating nonobjectionable boundaries for state and planning action in producing public goods such as health, defense, education, or public transportation.
There are several drawbacks to thinking of developmental interventions as primarily justified on market-failure grounds. I argue here that although the health sector has many market-failure candidates, the state's developmental task moves well beyond them. Moreover, such an explanation irrespective of the technologies involved is simply misleading. Technological advance often creates new markets and new pressures on states. As technologies differ, so do regulations, market structure, and the plans to accommodate them. Indeed, technological learning itself may require market failure such that specific priorities may be achieved. For instance, where late industrial production is concerned, states often step in to ensure that price is not equal to marginal cost and purposefully induce market-failure conditions so that firms can learn to adapt to imported technologies and produce them in-house.1
Some failures arise, it is said, because markets are underdeveloped or absent in developing economies or are closed to more efficient private-sector participation.2 Indeed, market failure as an idea is so dominant that most textbooks describe development in no other terms but as a colossal symptom of market failure and sharply restrict when states should act. In turn, many “developmental states” have usurped that mantle by combating market ideology and building interventionist states. However, unlike sectors such as garments, footwear, or video recorders, the health sector calls for a dramatically different approach to markets and planned economic development precisely because both industrial and health entitlements must be considered. Michael Lipton has correctly argued that perhaps the most challenging issues in development studies are those that arise from market success and government success, not the tired arguments of market and government failures.3 The commercial success of the pharmaceutical industry complicates health care in many ways, as we shall see, but it can also provide a powerful boost. It is precisely because the industry is so successful that we should look more closely at markets and state choices.
(p.34) What is this “developmental” approach? Although this approach has a tautological quality, we often think of “developed” economies as those whose more visible institutions do not obviously contradict one another (although there may well be inherent conflicts that become visible over time). This notion of development accommodates variety and diversity. If development is seen as a complex process of creating and legitimizing institutions that mostly complement one another, and at the same time including more interested parties at the table, then states and urban and regional planners, for instance, need not step in only when markets fail. They may also build complementary bundles of markets and nonmarket institutions to provide an inclusive umbrella for different actors. These may require creating for-profit or not-for-profit organizations, supporting those that arise, or ensuring, for example, that pharmacy locations are even across a city. They may be called on to ensure that some groups are not excluded from insurance coverage and that children's health does not suffer from the private sector's pullout from some pediatric vaccines. In this realm states and anticipatory plans are especially vital because the public sector is not only a critical producer, funder, and buyer of health technologies (defense being an important reason to invest in health as well), but is also vital to delivery and the design of institutions for collective consumption (such as insurance policies, but also easily accessible clinic locations or mobile vans). The economic organization of the industry can then be reflected nationally. Some nation-states are practically monopolies: the United States dominates global production and consumption of medical devices.4 Yet, not surprisingly, its production and consumption are closely wedded to the country's policies, such as those on domestic insurance, hospital services, and medical prescription practices.
Extant Systems and the Weakness of Ideology for Reform
Even if reform is vital, an overdependence on market failure and adherence to market ideology are insufficient for health-care reform. After all, libertarians will find to their dismay that the state is actively present in all health-care systems; socialists may find access challenging despite universal rhetoric; and several capitalist systems, despite an emphasis on “free” markets, have nevertheless attained universal access. In every national system health goals may be accomplished by diverse mixes of markets and nonmarket institutions. In (p.35) other words, markets per se lead to no particular forms of economy; their variety, mix, and regulation (by state or other planning institutions) do so. The key to responsive health-care systems is agile, adaptable, and responsive regulation balancing industrial supply, delivery, and consumption. I pose development planning here not as regulation of single acts in single markets, but as the integrative, fine-tuned management of market and institutional variety. This view is especially important in industrializing supplier countries like India and Brazil, where technological capabilities may outstrip the regulatory context for managing delivery and consumption simultaneously.
The moral fiber of nations and their health-care systems is also evident in the choices and strategies of their national and local states.5 Indeed, in practice, neither market liberals nor conservatives object strongly to some state intervention in health-care practice because of some shared moral notions unique to countries in order to preserve minimum standards and practices. This morality in health care may support state actions even if the same camps are widely opposed on state intervention in industrial policies.6 Therefore, the conventional reading that governments step in where markets fear to tread is incorrect. States always plan and regulate in both health and industry; state intervention is simply a matter of degree, usually agreeable even to those who may, in principle, be opposed to it.
Neither will pure theory guide choices for economic practice because health-care markets are far from competitive. In principle, perfectly competitive markets and equilibria are supposed to assist Pareto optimality.7 If an initial wealth distribution is chosen suitably, it could bring about a Pareto-efficient distribution. But Pareto efficiency in welfare economics also requires that any good's distribution (such as health care) be nonunique; that is, not only must the solution be such that any change will make someone worse off, but the solution should be true of all distributions and must aim to make everybody better off. Kenneth Arrow's emphasis was that optimal social states could be achieved by “successive approximations,” where markets take over the resource-allocation task, and where public policy handles the redistribution of income.8 However, because health-care markets are not competitive, Pareto efficiency in its strictest sense is a fuzzy guide to regulation.9
Moreover, localized economic and health-care planning raises other concerns about community institutions. Markets do not exhaust our forms of exchange or social institutions, after all. Uwe Reinhardt and others have argued that the individual utilitarian basis on which a voluntary exchange of (p.36) health services takes place also holds together poorly even under the less stringent case of Kaldor-Hicks optimality, where those that are better off can compensate in various ways those that are worse off. An individual utilitarian basis also breaks down as a means to an end when communities, not individuals, are targets. Proxy institutions also complicate the individual's role in areas ranging from of insurance to intellectual property.10 Combine industrial and health worlds, and these utilitarian issues become practically intractable in determining the individual's interest and political entitlements in an increasingly collective, proxy world of contracts and property rights. Therefore, situating health technologies at the intersection of local community institutions and the disciplinary areas of innovation studies, welfare theories, and international political economy can prove useful. Thus there are strong philosophical, theoretical, and, most important, practical challenges to utility as a basis for theorizing about health technologies.11 Therefore, on both market- failure and equity grounds, state intervention is guaranteed. The private sector can certainly solve some of these problems; in others, especially with regard to equity, this may not always be possible.
Moreover, the mainstream economic view of markets as central to economies and as the institution that makes them operate at full potential includes the view that other, nonmarket institutions “hold markets back.” This scholarly bent toward deregulation pushes for understanding broad market dynamics without much institutional detail and focuses on market-supporting policies that legitimize markets as the primary (and sometimes the only) economic institutions of interest.12 This trend narrows the debate of economic institutions in two ways: first, it limits studying market variety, and second, it limits nonmarket institutions.13
This need to look beyond markets and market failures is vital. In planning for real-life, several nonmarket, nonprice considerations enter health care all the time: expertise, availability, delivery infrastructure, experimentation, trust, reputation, hope, risk, and scientific and engineering breakthroughs. Each is difficult to analyze purely in market terms. For example, in pharmaceuticals, a complex regulatory mix of organizations and institutions determines the adoption of new technologies. For example, the state often leaves the introduction of surgical instruments to clinical expertise before it steps in to legitimize the practice and make it routine. Regulatory and payment rules for drug and vaccine markets too can be especially heterogeneous, depending on reputation, trust, and a society's acceptance of a particular healing practice.
(p.37) These nonmarket institutions often link an individual's access or costs to society's values about how the costs should be shared. We thus reduce markets to pure individualism at our peril because they have obvious social and collectivist natures. Societies may subsidize contraception for individual choice or population policies, but not Viagra; sometimes our health systems do just the opposite, making individuals pay more for contraception. Societies may sometimes require us all to pay collectively more for treating workplace accidents, but not for smoking-induced lung problems. Similarly, in some countries insurance firms, not states, are powerful arbiters; they routinely decide individual and collective benefits from experimental therapies for cancer or new biotechnologies for Alzheimer's. These market and nonmarket decisions for industrial production of medicines are also physically and spatially experienced in distinct ways: insurance and pharmaceutical firms, hospitals, ambulance routes, and pharmacies may be present in some parts of cities, they may agglomerate, or they may selectively offer some services and physical space to only a few and long waiting lines to others.
The divisions within health care also differ by country and technology system. Although I focus on pharmaceuticals and biotechnologies here, systems of medicine may differ across countries and regions within them. Allopathic technologies (“Western medicine”) are extraordinarily different from homeopathy and Chinese, Unani, or Ayurvedic treatments. Insurance coverage norms (which are socially determined as much as they are price driven) may pay for these treatments in some countries and not others. In some, this is a matter of traditional use and trust; in others, standardized testing for safety and efficacy precludes other systems of medicine from coverage. Medical associations and regulatory agencies can be equally virulent in debating coverage when health and profit stakes are high. For instance, as plant-based therapies and “natural” treatments have been commercialized, regulatory agencies have struggled to determine the appropriate systems of accreditation, treatment, and payment.
Therefore, exhorting states to “stay out of markets” until market failure occurs is faulty on at least three counts. First, empirically, there is no extant health-care system without state regulation. Second, one of development's primary tasks is to mitigate broader economic and social risks that accompany economic change. The necessary social protections include health-care entitlements and (p.38) counter the intensity of market exposure and dependence of individuals on labor and continued good health alone. Third, states have roles beyond inducing competition and structuring the rules of the game. Planning for good health and the necessary supply capabilities cannot rest on minimalism. Hayek's followers may limit the state's role to minimalist economic reasoning, but real health-care systems encompass few candidates for such policy reticence, especially when technological changes shape new market challenges for the state. Even if states have no more privileged information than private actors, they must act all the same for safety, equity, and building capabilities. States must “steer,” not simply “row,” to act as the public realm for the identity and beliefs of our society on health entitlements.14
For industrializing countries, the developmental state steps in to correct for market failures, but equally and influentially to steer the economy. Not surprisingly, developmental states are many things to many people. Early on, Chalmers Johnson, in analyzing the extraordinary history of Japanese industrial advance, required of developmental states that they have “a developmentally-oriented political elite committed to break out of the stagnation of dependency and underdevelopment and for whom economic growth is a fundamental goal.”15 Others have variously defined the developmental state as “a state that puts economic development as the top priority of government policy, and is able to design effective instruments to promote such a goal”16 or “a state which can create and regulate the economic and political relationships which support sustained industrialization.”17 Most agree that the developmental state must be able to use the private sector's own economic goals as a crucial instrument of broader development. This is a difficult political and administrative task; certainly it would be wrong for us to expect developmental states always to dominate this relationship.18
One important reason that market failure is too limiting and that developmental states are no leviathans is that “development” itself has multiple goals. Moreover, democracies such as India, Mexico, South Africa, or Brazil face particular challenges in reconciling their economic and social goals of development as technology changes. Domestic social and political structures, however, have crucial effects on the state's ability to pursue plans.19 Atul Kohli has conducted a superb political science analysis of four nations, South Korea, India, Brazil, and Nigeria, in which he emphasizes that industrial development involves social change, and that differentiated ability to implement development plans rests in the nature of the state. As Kohli recognizes, the (p.39) differentiated ability characterizes the episodic effectiveness and character of states across their history, and not their continual, immutable character. The ability of the Indian state to pursue its development goals may be more straightforward in production, but its class, religious, and ethnic character emerges stridently in the challenges of structuring demand and health insurance. This is quite typical of many late industrializers that have anemic industrial welfare programs. Some, like India, have faced manufacturing employment growth, which exacerbates class politics and labor regulations and leaves (especially urban) low-barrier services as the primary conduit for employment expansion. There are clearly many simultaneous concerns that militate against a minimalist approach to plans and integrative capacity.
Bringing an Evolutionary Perspective to Development
Building Inclusive Capabilities
Technological capabilities are especially crucial in understanding the state's contingent capacity to envision collaboratively, plan effectively, and implement ethically. Twentieth-century East Asian history drives home the importance of technological learning embodied in both technical and organizational changes as a source of economic growth and prosperity. Sanjaya Lall, an influential industrial economist, described this well:
[Technological development] is important because it constitutes the basis of successful industrial growth by the NICs (newly industrializing countries) as revealed by their productivity increases or penetration of international markets. It is complex in that it is neither easy nor automatic. It requires not just a base of skilled technical manpower, but deliberate, often risky, strategies of investing in learning and innovating. It is differentiated because it is highly sensitive to the economic policy environment.20
However, technological frontiers constantly change. On the one hand, this may create new learning pressures for firms and new institutional relationships both within a firm and with external research centers. Economic and social goals are often at odds during this period.21 Technological advance, even if instigated by the state, further shifts the state's ability to pursue development to its fullest capacity because states and firms may be preoccupied with the need to build deep productive capacities and rapid regulatory changes to meet export market challenges. They may therefore push aside domestic concerns as (p.40) they revamp production. On the other hand, the uncertainties and learning pressures associated with new technologies may open customized strategies for domestic consumption and new state legitimacy for intervention in the sector.
Those scholars who hone in on technological capabilities are correct in emphasizing that the South Korean and Taiwanese states, for example, were especially “developmental” in reining in private-sector interests, galvanizing technological learning in both public and private sectors, and filling institutional gaps as their economic transformation unfolded.22 However, technological capabilities are complex and may require attending to other prior social concerns. In my estimation, therefore, the statists may have been too generous in generalizing about state capacity in regulating markets because they have either focused on production and underemphasized the state's task of juggling several priorities at once or have assumed that wider industrial change and building capabilities in specific technologies are synonymous. The last two processes may be simultaneous, but technological capabilities are by no means easy or inevitable, especially if these states must attend to redistribution at the same time. Dovetailing production with redistribution is not simply politics dependent; it is also technology dependent.
The Evolution of Institutional Bundles
Development statism scholarship, of course, emerged as stridently as it did in partial response to overly market-oriented development agencies and governments. In developmental political economy a smaller subset of the literature does concern itself with technological advance in late industrializers; it may emphasize the upswing of industrial capabilities, but not, perhaps, its uneven nature over time. Atul Kohli's work attends to industrial development, but less to technological details of specific products and processes that might alter our view of the state and its developmental task.23 Others, such as Robert Wade and Alice Amsden, see the political economy as firmly embedded in the details of technological learning and the state's spurring of production, but do not necessarily use such detail to understand why a particular state's ability to attend to concerns beyond production may wax and wane over time.24
However, there are other analytical avenues, such as evolutionary theories, that traditionally have been reticent about states, but not about the evolutionary attributes of technological advance itself. In contrast to development analyses that may seek extreme characteristics (that the state is overly rent seeking (p.41) and/or lacks capacity or is highly effective), evolutionary economics may be more sympathetic to nuances in institutional change in the face of technological advance. In evolutionary models there is some agnosticism with regard to “optimal” institutional configurations (which the Washington Consensus and its brands of economists were never shy about specifying). In evolutionary terms, change, variety, heterogeneity, and disequilibria, are grist for the mill. In general, however, there has been much less inclusion of states as institutions of study within this tradition, although it may contain much general discussion of policy options. Notable exceptions are studies that attempt to formalize the state s role and justification for intervention, but may not translate this to the real world.25 Although the economics of technical change is mostly nondevel-opmentalist in its inattention to the state, other approaches, especially French régulation, that are open to evolution and nonequilibrium analyses go further in exploring structural change, crises, and adaptation in the economy. Régulation in this sense is unlike the Anglo-American use of the term, which focuses on rules and statutory and legal systems. Régulation refers to the episodic, impermanent, and process-based change in several institutions over time within a capitalist system. Although some have argued that evolutionary approaches have paid too little attention to the political context, and the régulation approach not enough to the technology,26 this “school” nevertheless has more to offer than alternatives in technical change by engaging more directly with the political context of growth and crises, and it is more nuanced about the effect of time itself.
There are other important attributes that an evolutionary perspective, broadly conceived, brings to variety and evolution. For instance, it is comfortable with aggregating “up” and “down” because variety may encompass many economic units. Although it is clear that national institutions play crucial roles in shaping distinctive patterns of productive capabilities, the evolutionary perspective also stresses that urban, regional, and sectoral systems of innovation exist, as in pharmaceuticals.27 Moreover, detail on “lower” units of product and process variety can give us “higher” insights into a region's and nation's economic future. Some scholars have increasingly attempted to make the case for an evolutionary, more systemic approach to development and policy. An ambitious 2009 attempt to incorporate the language and efforts of such specialists into development discourse can be seen in several background studies prepared for the United Nations Conference on Trade and Development's (UNCTAD) The Least Developed Countries Report, 2009: The State and Development Governance.28
Although this book is empathetic to the statist literature, it departs from that literature in important ways. First, the focus is less on why some states are more successful than others; rather, it is intent on fleshing out why one state struggles in particular ways over time. Why does the state in one country and one industry (and health is an especially revealing one) seem so successful in some instances, yet appear to be holding a finger in the dyke to prevent a tidal wave of collapse in others? Second, this focus on a single state requires a technological orientation to appreciate what in other studies is often a secondary variable bundled with aggregated industrial change, less carefully sifted through as direct evidence of constraints on states and markets. What this story tells us is how technological detail enriches the narrative of political and economic readings of state development and the developmental state by looking at market varieties and their evolution. Technological imperatives drive specialization and push the state to structure and restructure the market repeatedly in order to achieve developmental goals. At the same time, markets have structures and varieties that change with variables outside the state and shape how the state responds. In some instances the state's own learning is driven by production challenges and pressures from firms, while in others this learning is forced through social mobilization for insurance or problems of last-mile access to medicines.
A third important difference I have mentioned earlier is that this study more directly takes on the combined institutional challenge for the state of managing production, demand, and delivery. It will thus not substitute for a health economics or health policy study, which invariably focuses on one of these dimensions. Nevertheless, by its industrial emphasis, this book can highlight crucial challenges for late industrial supply economies, a subset of nations and subnational regions that are transforming the world's supply of medicines and responding to demand and delivery in varied ways.29 Clearly this multifaceted challenge affords us more glimpses into why technological challenges manifest in different spheres of state action, why the state often falters, and why there is no substitute for state action in technological learning and redistributive concerns, even when markets function reasonably well.
Finally, India's complex federalism requires this appreciation of localized production, demand, and delivery. Most late industrial economies face immense decentralized challenges of physical infrastructure, investment, and (p.43) location decisions for industry amid health-care delivery concerns, especially failing public delivery and growing privatization within the sector.
This rich context situates these technological capabilities and their material surroundings. It requires states to politically and physically embed firms, unions, insurance programs, biohazard units, and hospitals and clinics. This domestic context is related to the trade behavior of firms. Although theoretically trade is structured on the basis of factor differences, including knowledge, history has shown quite convincingly that all firms (and all countries) do not have access to the same bodies of knowledge or sets of technologies, especially as international trade becomes increasingly subject to stringent trade-related regulations.30 And even if scientific principles can be relatively well understood and managed internationally, technology and markets need not.31 Development is then far less about “free” markets and far more about different barriers of entry for firms and nations. It involves a domestic drama played out through search, learning, and technological advance. Domestic context matters both physically and institutionally in how effectively firms and states respond to trade. Consequently, the emphasis on technological learning that motivates this book is vital to rethinking both markets and states.
Industrial development in pharmaceuticals and biotechnologies is especially provocative because just as health economics is full of market failures, so too is the economics of technological change. The very process of searching for, acquiring, adapting, and disseminating technologies is a diverse, complex task that poorly fits neoclassical economics' models. Even greater than the theoretical limitations of existing models are the policy limitations of advice that models industrial advance on the contexts of “early” industrializing nations where labor markets, entrepreneurs, firms, and land dynamics looked quite different. Moreover, technology supply provokes a series of new development pathways and politics with momenta of their own, creating new variety and future plans and prospects for industrial development that did not exist earlier. Technology, too, is part art, part science. Technology is tacit, but knowing is a necessary prerequisite. Those nations and subnational regions with some industrial capabilities in health technologies are better positioned to supply the necessary products and processes. Examples are the recent meningitis vaccine from India, the Hib vaccine from Cuba, and the promising efforts to develop several essential medicines in other late industrial supply countries, such as Thailand, China, and Brazil. Therefore, technology has its own “push” and creates its own diversity.32 Particular knowledge and technological tides in the (p.44) affairs of men, when taken at the flood, as it were, lead on to fortune, while others do not. But there is no question that technologically speaking, luck favors the prepared.
States and Institutional Variety
In order to build this capability, firms and states must be able to produce effectively from land and equipment and adapted to technology vintages, quality of inputs, and local costs. But variety in industrializing contexts is the norm, not the exception. This variety may be evident in the nature and size of firms and production settings, the types of production processes (small-batch versus more ambitious, continuous-flow systems), or the effort invested in product, process, or sector specializations.33 Consequently, states must have within their development toolboxes the capacity to accommodate this institutional and production diversity. This diversity may rest in the productive capacity of firms or other productive social institutions such as families, unions, or caste groups. The state may have to coordinate with these other institutions and organizations to plan the physical capacity and land and employment requirements of industrial change, and certainly to support, protect, and (where needed) discipline the learning of essential technologies. This “essential” set itself is a basis for plans and debates about values, but it is quite likely that private firms and their technological capabilities may not automatically attend to urgent problems unless some state-crafted incentives exist to persuade them otherwise.
The economics of technical change has certainly come to appreciate better the need to accommodate this institutional variety Factor scarcity is too limiting in understanding why such variety and limited scaling have come about. Rather, a wider scarcity approach may explain why contingent historical explanations are more useful in appreciating the cognitive context as well as the climate of welfare entitlements within which innovation emerges.34 Indian firms chose process capabilities rather than products to further their learning because of several institutional and other scarcities within their innovation milieu. Attending to technological capabilities and learning processes requires states to move further away from considerations purely of factor and production functions, especially because the real-life difference “between moving along the production function and shifting to a new one” is not always evident.35 The institutional and physical scarcities to which states must attend involve more than determining appropriate factor allocations. (p.45) Some types of idiosyncratic learning have generated immense gains for late industrializers and, for instance, may not need traditional plans or policies, but instead new recognition, awards, and advance market commitments to scale them up and diffuse them.
Other fields of economic inquiry have also increasingly become more welcoming of heterogeneity. For instance, recent economics grappling with real-world financial markets and hedge-fund regulation lends particular credence to this approach because it has become more sympathetic to concerns of self-organization, complexity, and speed of interactions of actors. It too emphasizes that market ecologies and evolution need more study and description.36 Simply put, market organization is complex.37 Some market species are more robust, while others are frail and eventually die out. Technological change precipitates even more market evolution and variety, partly because new products and processes are always arising, and new customers and price signals become necessary. States may also initiate or support new markets in diverse ways. In terms of sheer influence in health markets, no single animal in the menagerie is more influential than the state itself—producer, deliverer, and buyer, sometimes all at once.
States have much to do, sometimes to induce market failures themselves, sometimes to move beyond markets to legitimize new markets and embrace innovation with its accompanying uncertainties. An evolutionary lens can assist in describing the state's inner and outer conflicts. For example, there is emerging evidence to show that ministry bureaucracies in India, rather than elected representatives holding cabinet positions, have sometimes wielded disproportionate power in defining the scope of recent pharmaceutical reform.38 Such data could point us further to the use of evolution to capture the ebb and flow of power of actors and organizations within the state in a manner that goes beyond traditional national-innovation-systems analysis. I focus more on the evolutionary learning aspects and their contingent influence on the state's ability to reconcile this production with other goals.
Firms' Responses to States
The evolutionary compass and technological detail also point us to how and to what firms respond and therefore to more questions about technological detail for understanding the state. Firms, rather than being primarily focused on being the best suppliers from a product and process standpoint, often direct their efforts at the constraints that the state imposes rather than those (p.46) that markets impose. In my estimation, it would be incorrect to focus exclusively on firms; rather, they should be seen as part of wider transformations in developmental mandates and evolving market environments. As states learn and change, often so do firms' strategies.39 Sometimes states may invest too much in technological efforts with overly optimistic projections of how markets and state policy can match social values.40 Conversely, state intervention to pursue many social objectives may not necessarily lead to desirable technological efforts for the particular goal, although they may certainly add to the general technological capabilities of particular firms, regions, and even, in a more diffuse sense, the nation.
A more optimal industrial development of the health sector would lead not only to greater efficiencies in the way industry manages itself but also to greater overall productive variety in products, processes, organizations, and markets.41 After all, variety in health technologies can be superfluous as well, with some formulations or diagnostics having minimal differentiators that may not always help patients even if firms can influence their commercial success by aggressive marketing. When differentiation arising from variety is seen as more than product-market variety, it can be applied to different levels of aggregation, including individual products, systems of firms, the national economy, and even the world economy.42 Another framing of institutional variety is in thinking about economic transformation. One proposition that seems intuitively sensible is that if economic development is to be successful, it requires economies to generate both efficiency and variety. The first trend of efficiency results in higher outputs, that is, in general, doing better going forward. The second trend of greater variety in markets, products, and processes is more relevant to us here because it captures not only the search processes of Indian firms but also the varieties of markets and policies.43 Variety may lead to enhanced outputs of its own, but it generates creativity by constantly producing new institutions and products and processes in existing sectors. In other words, the second process complements the efficiency trend by injecting creativity and adaptability into the economy, making it more resilient in the long term.44
In reconciling economic with social goals, an evolutionary compass is useful because it suggests that the two processes may not necessarily be complementary and are contingent on technology as well. This more dynamic view of variety and scale rests on the idea that institutions may come bundled and may not always be complementary to social cohesion or economic progress.45 The “social structures of innovation and production” approach allows a complex, (p.47) complementary set of institutional matches and negations to explain outcomes.46
It does not take market failure to generate this interest in institutions. After all, well-functioning markets have creative roles, and the search process of firms and states alike can unleash new forms of creativity, essential to development. This is common to both structural and evolutionary approaches to development, where markets by appropriate incentives at various times have important creative functions.47 In both structural and evolutionary approaches, market variety and evolution generate substantial selection and adaptation. Increasing returns and uncertainty build cumulative causation and specific regional and sector path dependence. Not only do past technological choices affect the strategy of firms, but increasing returns can also further spread the variation in the capabilities of firms, as well as of regions. Furthermore, this institutional variety has political manifestations. The triad's three corners mirror at least three political dimensions (and many coevolving mixes) where diverse stakeholders appear. Private firms and the state have largely shaped production, while on the demand side, labor unions and nonprofits have traditionally been important adversaries and have mobilized opposition to the state and business interests. In delivery, an immense constellation of actors is arrayed, from the state to nonprofits, private-sector hospitals and clinics, and hybrid organizations. It would therefore be too simple to pose any of the dimensions exclusively in terms of class, business, and state interests, and this is one more reason to look for a marriage of traditional development scholarship with evolutionary analysis.
The emphasis on variety is also, not accidentally, one of evolution and diversity. After all, it is in the shift of conditions that we understand both dynamic economic activity and state activity. Peter Boettke, for instance, argues that although several economists have hypothesized (in both classical and new institutional economics) that market arrangements may have many inefficiencies, they have not fully explored the mechanisms by which markets structure human activity and timelines of adjustment. He stresses the need to look at processes of exchange and to search for a theory and nuance of economic activity, not equilibrium. In his view, both Adam Smith and Friedrich Hayek, the supposed progenitors of the efficient-markets hypothesis, were actually focused on market dynamism and were therefore more cautious about policy prescription.48 Unfortunately, despite considerable change in the field, it continues to be the case that equilibrium states have far greater theoretical (p.48) reification in economics, partly perhaps because periods of activity and change tend to involve much hand-waving analysis.49 However, equilibrium conditions can also mislead in suggesting various “isms”—capitalism or socialism among them—as hallowed systems. Mercifully, late industrial economies have tended in the past decades to be omnivorous as far as market ideology goes and thereby to offer new perspectives on old debates.
Markets as Process
The theoretical leaning in evolutionary formulations in economics—both Austrian and older traditions of institutional economics—is also toward non-equilibrium and an openness to the idea that just as markets may not be the best institutions to achieve certain ends, states may have their own challenges.50 But a straightforward account of evolution and an appeal to Schumpeterian dynamics of the economics of technical change often shy away from the dissent and conflict that pervades the health sector. A Schumpeterian workfare state, for example, extends the scope of an evolutionary political economy but suffers because its focus on entrepreneurs and firms has not progressed into a broader political economy and processes of planning for change. Innovation, after all, may lead to regressive social changes as economies adjust. Therefore, political pragmatism, even if agnostic, requires looking more closely at the evolution of markets and states over time, although it may lead to modest policy interventions in some cases. Examining one industry is especially helpful because although the policy interventions may sometimes be modest, they may be more open to experiment and unexpected outcomes and new partners. By necessity, therefore, well-functioning markets will require nonmarket institutions alongside them.
For example, Indian biotechnology firms have tended to develop in certain niches, partly as a result of certain demographic comparative advantages such as population and disease profiles, but also because of past policies defining market structure and specialization areas. This path dependency has shaped the interpretive frames, appetite for risk, and context within which firms, other institutions, and citizens pursue social challenges. These markets for biotech products require debate about institutions of testing, compliance, ethics, identity, and so forth, and call for new organizations and often new standards to develop. Therefore, the path dependency does not predetermine future options, but the impact of past planning and regulatory choices is certainly evident.
(p.49) In the evolutionary view, markets, states, and other institutions have coordinating and integrating roles. These in turn generate significant variety among firms and other organizations. However, these institutions are constantly transformed by imbibing new knowledge. Therefore, modern capitalist economies are inherently restless, and their restlessness generates a dynamism that endogenously changes structure. Innovation processes act as one of these vital dynamics. Markets, then, are not animals of interest because of any equilibrium characteristics they possess; on the contrary, they facilitate innovation and the absorption of new knowledge, thus acting as important nonequilibrium selection institutions.51 In short, they are menageries filled with exotic varieties that inevitably change over time.
A last note on what this story can reveal. Scholars sometimes pit supposedly cumbersome state-driven import-substitution industrialization (ISI) against the benefits of agile, market-driven export orientation. This is too simple a reading of states and markets in both directions. As we shall see, in India's case, the first market environment of technology transfer and considerable import substitution permitted private firms to build substantial technological capabilities even though many regulatory issues were left poorly addressed. Similarly, although export-oriented industrialization brought more competition and forced firms to upgrade, it created complex demand and delivery hurdles at home and forced a technological trajectory that has had mixed development outcomes. Moreover, some successful export-oriented firms have tended more recently to look homeward to expand their domestic market base. In this sector, ISI—especially through public health market supports—was a vital component of many of the industry's leaders. Later, others diversified into pharmaceuticals, many from sectors such as chemicals, telecommunications, energy, and construction that had enjoyed some ISI of their own.
Therefore, a systemic, evolutionary approach has further advantages for studying development because it can extend economic theories of dependency and structuralism in useful ways, not least by emphasizing the evolutionary nature of technological learning. Régulation approaches, moreover, can imprint in our minds that regulation is a process, not a legal statute, and that states and markets in capitalist development are not as neatly separable as orthodox economics would have us believe.52 Finally, an evolutionary approach can better capture why the strange amalgam of technology, finance capital, and entrepreneurial behavior can cause technology investments to (p.50) bunch together, generating the financial investments, physical infrastructure, and time-dependent industrial clustering so visible in cities and regions.
The Fine Touch
Compatibility of Local Institutions with Nation-States
Markets, however, must also be understood as local processes of exchange and debate. This is especially true in health because when people fall ill, the body's location is determinate, and the doctor and the drug are local. Douglass North's state that minimizes transaction costs is compatible with and necessary to his notion of the state in development as the ultimate determinant of property rights.53 An extension of health care and access to medicine would raise several political, moral, and metaphysical questions whether property rights end or begin with the body. Is it the state's ultimate test to protect these rights? Seen in such literal language, the state's role is then a complement and eventual determinant of the compatibility of rules of exchange with these alternate questions.
In contrast to standard economics' simplicity by studying institutions primarily in national frames and cold-war rhetoric that further ossified the debates about central plans and states versus markets, urban and regional planning, and some strands of economic and political geography have much more ably attended to local institutions.54 These fields have more correctly noted the importance of history and path dependency in understanding heterogeneous institutional outcomes. They have been more agile in understanding how economic theory deviates from real life because they have been forced to confront the physical nature of land and the built investments that accompany booms and busts of capital accumulation in technological advance and production cycles. These business cycles and booms and busts shape cities first, before the more abstract nation-state.55
The essential point is that an evolutionary approach can be extremely useful to development planning scholarship. After all, late industrializing states have significant challenges other than production. Furthermore, production technologies in such suppliers exacerbate the essential development challenges and contradictions of the state. For example, the existing approaches to analyzing East Asian development as state versus market poorly capture the myriad ways in which their technological advances have combined with employment and social policies. Often, production policies that have been progressive on one (p.51) count have been repressive in others, such as labor relations, the feminization of labor, overreliance on family systems of care, the centralization of authority, and the physical aspects of dormitory labor or migration.56 This more complete lens is crucial for late industrial supply countries because their structure and politics include diverse nations such as India, South Africa, Nigeria, Morocco, Indonesia, Ukraine, Brazil, and Argentina. They often struggle with core technologies while simultaneously building a domestically contested industrial organization through diverse plans and politics and widely divergent market and state pressures.
Alternate Developmental Units
Indeed, attention to political economy and the evolution of time forces us to look beyond nations. The developmental nation-state, after all, is an artifact of a period of nationally driven economic plans and of certain types of centrally planned economic activity. Sociologist Peter Evans calls a developmental state one where ties “link the state intimately and aggressively to particular social groups with whom the state shares a joint project of transformation.”57 However, the state does not simply step into the breach between user and producer. In the health industry, end users vary, as do their consumption politics. For drugs and vaccines, for instance, individuals are end users, while for medical equipment and surgical innovations, clinicians or other technicians may be end users. However, even when individual end consumers are involved, they are almost never directly in contact with suppliers of health technologies except through advertising from the latter to the former (which some countries permit). Rather, there are several intermediate institutions and organizations that mediate this proxy health relationship (most notably physicians and sometimes insurance companies). The proxy relationship can muddy the waters for producers who must understand and customize their innovations for individual end users. This problem may become especially acute in lower-income categories within late industrial economies.58 As if this relative isolation of users from suppliers in the health sector were not problematic enough from both a political and a technological standpoint, suppliers who are attracted to overseas demand characteristics are even less likely to generate innovations with domestic and low-income users in mind. States that act primarily on behalf of such suppliers are thus surely not “developmental” even if they fulfill the aims of production and competitiveness. Moreover, although the production of health technologies may be a shared project of the central state and firms, the (p.52) demand and delivery politics rarely are, embedded as they are in regional or municipal plans. Even if several successful suppliers exist, it is hardly inevitable that their products will reach end users, whether they be surgeons (in the case of medical equipment or surgical innovations) or individual patients (in the case of drugs or vaccines).
It is therefore worth remembering each time we slide into analyzing the health sector in national terms that this transfer of health as a political category out of the hands of local action into that of the nation is a peculiarly recent phenomenon. Even countries that became nations early rarely subjected the individual to centralized state action. Only later did local governments develop particular characteristics to mediate between the individual and the nation. Even worse, employment-related health benefits and state action are rarely integrated throughout the national territory; rather, they are split among work entitlements, place entitlements (especially residential entitlements), and workplace entitlements. These provide distinct fissures in health access and in the urban context for production, delivery, and demand.59 One can be a resident of a city but have no easy access to health care, or one can be a worker and have access to health care only through one's employer. There is clearly no simple economic resolution of technological advance and precarious health through refuge in the nation-state; its federalist and political entitlements need to be specified. Indeed, as production systems become increasingly globally fragmented and subnationally concentrated, the dilemmas of national controls in health distribution become especially acute.
Local economic planners are probably always instinctively evolutionary (and somewhat guardedly optimistic) about variety and change, partly because they work closely with so many different types of institutions and organizations in their actual practice of economic principles. In contrast, economic development planners at national levels tend to do this less by instinct and much more by fiat and are likely to see less of the on-the-ground species variety. Aiding competitiveness in this sector requires a stomach for attending to localized, unequal access and affordability, crucial when we question market variety and scale in this sector. Technological advance, politics, and the ever-changing market context for products and processes are sector and locale specific.60
Changing Market Territory and Rules
In principle, it is in no way inevitable that the nation-state or even the continent be the ultimate determinant of access. Massachusetts is the first U.S. state to (p.53) attempt “universal” coverage. Bolivia is one of the first in a highly unequal Latin American system to move toward a national health-care strategy. Sri Lanka has always had one of the most equitable health-care systems in Asia. Well before you or I purchased the medicine or experienced the new dengue test in the hospital, our governments, past and present, made several choices about quantity, cost, quality, and safety, sitting alongside manufacturers and medical specialists. National context never disappears, but the capacities of villages, towns, and cities to adopt national institutions may differ widely. Therefore, the challenge for health care is not one of market failure in the traditional sense, but of the multiple, uncertain roles that the state must play in creating and regulating markets. Whether all Indians, Canadians, or Chinese have access to medicines is an institutional and regionally diverse question; technological capabilities, however, circumscribe the choices available and the power that some within these societies have to make the choice. Indeed, nations (even where they buy and sell in bulk procurement policies) do not produce health technologies; firms do. These firms are set in specific economic development localities and markets.
We urgently require a differentiated approach to “national” industrial and health reform. New economic powers such as India, Brazil, and China are in the second and third phases of public reform, often led by regional and urban governments, rapid local growth, and diverse decentralized politics. Their industrial regions are far from dusty Dickensian coke towns or rusty auto-manufacturing belts of Fordist yore. They mix manufacturing and services, R&D and labor-intensive home-based work, favelas and opulent high-rises, and poverty and immense wealth. This complex industrial design cleaves health fissures in these cities and regions. As our world becomes patched over by the “knowledge economy,” and high-tech city identities build on life-science capabilities, the double ironies are inescapable: cities that place biotechnology science parks and worker shantytowns alongside each other.
In these regions the state is tasked with the pursuit of multiple goals and the regulation of markets in the plural. The state also produces and reproduces distinct forms of care physically and spatially: these include homes, churches and temples, schools, hospitals and clinics, high-tech science parks, pharmaceutical and vaccine firms, manufacturing plants, and laboratories. More mundanely, it also encompasses a maze of sewers, waterways, toilets, and roads that more often than not determine health-care outcomes on the ground. Markets are in essence sanctioned and designed into city economies and their (p.54) physical morphology. Consequently, planning at national and local levels involves strategy and response to institutional variety and scale, not single acts of regulation of single institutions at a snapshot in time. Planning, especially for considering the practical challenges of antibiotics, vaccines, or diagnostic kits in cities and regions, is an act of experimentation, adaptive institutional redesign, and regulation.
The Indian evidence suggests that political theories of state and society alone cannot account for the effects of technological imperatives and their timing in forcing a disjuncture between production and redistribution. Markets thus are a construction of specific moments in history and are dependent on the occurrence of certain technological advances; they are not passive background environments that “receive” a given technology. In this sense there is no ceteris paribus assumption of holding all other variables constant. It is precisely because other variables change that a moment in history unfolds; causality and counterfactuals are challenging.
The chapters that follow will not provide a “how-to” for health policy. Rather, they inquire into the empirical nature of two fundamental institutions, markets and states. The next chapter dives straight into the first market environment of the Indian pharmaceutical industry and the nation-state's roles.
(1.) See, for instance, Alice H. Amsden, “Editorial: Bringing Production Back In—Understanding Government's Economic Role in Late Industrialization,” World Development 25, no. 4 (1997): 469–480.
(2.) Joseph E. Stiglitz, “Markets, Market Failures, and Development,” American Economic Review 79, no. 2 (May 1989): 197–203.
(3.) Michael Lipton, “The State-Market Dilemma, Civil Society, and Structural Adjustment,” The Round Table 317 (1991): 21–31.
(4.) For instance, in the early 1990s, up to 60%. Susan Bartlett Foote, Managing the Medical Arms Race: Public Policy and Medical Device Innovation (Berkeley: University of California Press, 1992).
(5.) Uwe Reinhardt, “Can Efficiency in Health Care Be Left to the Market?,” Journal of Health Politics, Policy and Law 26, no. 5 (2001): 967–992.
(6.) For a compelling and controversial discussion of ethical norms to limit U.S. production and innovation of health technologies in order to make people healthier, see Daniel Callahan, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System (Prince ton, NJ: Prince ton University Press, 2009).
(7.) For a longer discussion, see Reinhardt, “Can Efficiency in Health Care Be Left to the Market?”
(8.) Arrow had much to say on both invention and health. His political concern was the impossibility within a given set of conditions of resolving equitably individual and social goals See Kenneth J. Arrow, Social Choice and Individual Values (New York: John Wiley and Sons, 1951). Similarly, for the challenge of achieving social goals in invention, see Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity, ed. Richard R. Nelson (Prince ton, NJ: Prince ton University Press, 1962); and Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care,” American Economic Review 53, no. 5 (1962): 941–973.
(9.) As Arrow puts it, the arguments of optimality depend on a competitive market: “Operationally, the significance of this proposition is that if the conditions of the two optimality theorems are satisfied, and if the allocation mechanism in the real world satisfies the conditions for a competitive model, then social policy can confine itself to steps taken to alter the distribution of purchasing power. For any given distribution of purchasing power, the market will, under the assumptions made, achieve a competitive equilibrium which is necessarily optimal; and any optimal state is a competitive equilibrium corresponding to some distribution of purchasing power, so that any desired (p.253) optimal state can be achieved. If, on the contrary, the actual market differs significantly from the competitive model, or if the assumptions of the two optimality theorems are not fulfilled, the separation of allocative and distributional procedures becomes, in most cases, impossible.” Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care,” American Economic Review 53, no. 5 (December 1963): 943.
(10.) Smita Srinivas, “Intellectual Property Rights, Innovation, and Healthcare: Unanswered Questions in Theory and Policy,” Economica (Brazil) 10, no. 2 (December 2008): 106–146.
(12.) Richard R. Nelson, “What Makes an Economy Productive and Progressive? What Are the Needed Institutions?” (Staff Paper P07–01, InSTePP Paper 07–01, Staff Paper Series, Department of Applied Economics, and International Science and Technology Policy and Practice, College of Food, Agricultural, and Natural Resource Sciences, University of Minnesota, January 2007); see also Richard R. Nelson, ed., The Limits of Market Organization (New York: Russell Sage, 2005).
(13.) This may be endemic to mainstream economics. In other words, the “history of economic thought … is nothing but the history of our efforts to understand the workings of an economy based on market transactions.” Mark Blaug, Economic History and the History of Economics (New York: New York University Press, 1985), 6.
(14.) John Braithwhite and Peter Drahos, eds., Global Business Regulation (Cambridge: Cambridge University Press, 2000).
(15.) Chalmers Johnson, MITI and the Japa nese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982), 140.
(16.) Amiya K. Bagchi, “The Past and the Future of the Developmental State,” Journal of World Systems Research 11, no. 2 (2000): 398 (emphasis added). See also Amiya K. Bagchi, The Political Economy of Underdevelopment (Cambridge: Cambridge University Press, 1982).
(17.) Ha-Joon Chang, “The Economic Theory of the Developmental State,” in The Development State, ed. Meredith Woo-Cummings (Ithaca, NY: Cornell University Press, 1999), 183.
(18.) Or succinctly, to see the state as “some kind of omnipotent and omniscient leviathan that always gets what it wants.” Thandika Mkandawire, “Thinking about Development States in Africa,” Cambridge Journal of Economics 25, no. 3 (2001): 291.
(19.) Atul Kohli, State-Directed Development: Political Power and Industrialization in the Global Periphery (Cambridge: Cambridge University Press, 2004).
(20.) Sanjaya Lall, Learning to Industrialize: The Acquisition of Technological Capability by India (Basingstoke: Macmillan, 1987), xi.
(21.) As Kohli argues, demand and mobilized opposition may make states scramble for legitimacy, thus promising more than they can deliver and emerging as “middling performers on numerous dimensions, including the promotion of industrialization and growth.” Kohli, State-Directed Development, 11.
(22.) Alexander Gerschenkron, Economic Backwardness in Historical Perspective: A Book of Essays (Cambridge, MA: Harvard University Press, 1962); see, e.g., Alice J. (p.254) Amsden, The Rise of the Rest: Challenges to the West from Late Industrializing Economies (Oxford: Oxford University Press, 2001).
(23.) Similarly, other writings look more explicitly at subnational politics and industrial development. See Aseema Sinha, Regional Roots of Developmental Politics in India: A Divided Leviathan (Bloomington: Indiana University Press, 2005).
(24.) Alice Amsden, Asia's Next Giant: South Korea and Late Industrialization (New York, Oxford University Press, 1989); Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, NJ: Princeton University Press, 1990).
(25.) E.g., François Moreau, “The Role of the State in Evolutionary Economics,” Cambridge Journal of Economics 28 (2004): 847–874.
(26.) Benjamin Coriat and Giovanni Dosi, “The Institutional Embeddedness of Economic Change: An Appraisal of the ‘Evolutionary’ and ‘Regulationist’ Research Programmes,” in Institutions and Economic Change, ed. Klaus Nielsen and Björn Jonsson (Cheltenham, England: Edward Elgar, 1998), 3–32.
(27.) On national systems, see Bengt-Ǻke Lundvall, Bo Johnson, Elspeth S. Andersen, and Bent Dalum, “National Systems of Production, Innovation and Competence Building,” Research Policy 31, no. 2 (2002): 213–231; and Richard R. Nelson and Nathan Rosenberg, “Technical Innovations and National Systems,” in National Innovation Systems: A Comparative Analysis, ed. Richard Nelson (New York: Oxford University Press, 1993), 46–87. At the level of firms and industries, there is an immense literature of case studies, but for a particular style of synopsis and abstraction, see Luigi Orsenigo, “History Friendly Models of Industrial Evolution,” in The Elgar Companion to Neo-Schumpeterian Economics, ed. Horst Hanusch and Andreas Pyka (Cheltenham, England: Edward Elgar, 2003).
(28.) United Nations Conference on Trade and Development (UNCTAD), The Least Developed Countries Report, 2009: The State and Development Governance (Geneva: United Nations, 2009). Various background papers are inputs to the report and include relevant evolutionary and institutional arguments. See, e.g., Smita Srinivas, “Industry Policy, Technological Change, and the State”; Morris Teubal, “Direct Promotion of “Commercial” Innovation (CI) in Least Developed Countries (LDCs): A Systems Evolutionary (S/E) Perspective”; and O. Therkildsen, “Public Sector Reforms and the Development of Productive Capabilities in LDCs.” See also the thoughtful volume by Leonardo Burlamqui, Ana Celia Castro, and Ha-Joon Chang, eds., Institutions and the Role of the State (Northampton, MA: Edward Elgar, 2001), and Banji Oyelaran-Oyeyinka, Learning to Compete in African Industry: Institutions and Technology in Development (Aldershot, England: Ashgate Publishing, 2006).
(29.) Padmashree Geh-Sampath's Health Innovation in Late Economic Development (Abingdon, England: Routledge, 2010) focuses well on technological learning, knowledge infrastructure, and Schumpeterian approaches but differs in the use of nation-states as primary political units and focuses less on the inherent contradictions of the late industrial state.
(p.255) (30.) Information in a narrow sense of more data still requires certain institutions and organizations, such as patent offices, information bureaus, professional associations, or nationwide standards.
(31.) Raymond Vernon's work is especially representative of this approach of trade differences in knowledge and products. Raymond Vernon, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics 80 (1966): 190–207. For a more recent (and very different) heuristic on institutional and other scarcities, technological capabilities, and knowledge, see Smita Srinivas and Judith Sutz, “Developing Countries and Innovation: Searching for a New Analytical Approach,” Technology in Society 30, no. 2 (April 2008): 129–140.
(32.) As Dilmus James describes, this synchronous combinative variety and serendipity are evident in the work of early institutionalist scholars such as Clarence Ayres and Thorstein Veblen, who emphasized workmanship and the momentum that technology capability generates. Dilmus D. James, “The Economics of Technological Progress: A Comparison of Non-institutionalist and Institutionalist Dissent from the Neoclassical Position,” Journal of Economic Issues 21, no. 2 (June 1987): 733–741.
(33.) E.g., Jorge Katz, “Technological Innovation, Industrial Organization, and Comparative Advantages of Latin American Metalworking Industries,” in Technological Capability in the Third World, ed. Martin Fransman and Kenneth King (London: Macmillan, 1984), 113–136.
(34.) See Srinivas and Sutz, “Developing Countries and Innovation.”
(35.) Richard R. Nelson and Sidney G. Winter, “In Search of a Useful Theory of Innovation,” Research Policy 6 (1977): 48.
(36.) See Andrew Lo, “The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective,” Journal of Portfolio Management 30 (2004): 15–29; Erik Reinert, “Evolutionary Economics, Classical Development Economics, and the History of Economic Policy: A Plea for Theorizing by Inclusion” (Technology and Governance Working Papers, Paper 1, Tallin University, 2006); and Geoffrey Hodgson and Thorbjørn Knudsen, “Dismantling Lamarckism: Why Descriptions of Socio-economic Evolution as Lamarckian Are Misleading,” Journal of Evolutionary Economics 16 (2006): 343–366.
(37.) For an excellent overview of the complex market dilemmas of industrial economies, see the contributions to Nelson, Limits of Market Organization.
(38.) For instance, Anil Jacob, “Steering the State: The Politics of Institutional Change in the Pharmaceutical and Telecommunication Sectors in Post-reform India” (PhD diss., Rutgers University, 2010), which uses the recent Right to Information Act strategically to obtain policy process documents, something impossible to do a few years ago.
(39.) E.g., Lall, Learning to Industrialize, 11.
(41.) Some see economic development itself as comprising two complementary processes of greater efficiency and greater variety. Pier Paolo Saviotti and Andreas Pyka, “Product Variety, Competition and Economic Growth,” Journal of Evolutionary (p.256) Economics 18 (2008): 323–347; Stanley Metcalfe, John Foster, and Ronnie Ramlogan, “Adaptive Economic Growth,” Cambridge Journal of Economics 30 (2005): 7–32; Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar, Economic Transformations: General Purpose Technologies and Long-Term Economic Growth (Oxford: Oxford University Press, 2005). This variety may be based on differentiation at different levels of aggregation. For narrower definitions of differentiation within a product group, see Kelvin Lancaster, “Socially Optimal Product Diff erentiation,” American Economic Review 65 (1975): 567–585; and Lancaster, Variety, Equity, and Efficiency (New York: Columbia University Press, 1979).
(42.) See especially Saviotti and Pyka, “Product Variety, Competition and Economic Growth,” 324–325.
(43.) The classic reference dwelling on an evolutionary approach to nonoptimized search, satisficing, and technical change is now Richard R. Nelson, and Sidney G. Winter, An Evolutionary Theory of Economic Change (Cambridge, MA: Belknap Press of Harvard University Press, 1982). For the more macrosocial effects of such behavior, particular technological paradigms result. Giovanni Dosi, “Technological Paradigms and Technological Trajectories: A Suggested Interpretation of the Determinants and Directions of Technical Change,” Research Policy 11, no. 3 (1982): 147–162.
(44.) Saviotti and Pyka, “Product Variety, Competition and Economic Growth,” 324–325.
(45.) See Bruno Amable, “Institutional Complementarity and Diversity of Social Systems of Innovation and Production,” Review of International Political Economy 7, no. 4 (Winter 2000): 645–687. From a society-wide perspective, see Robert Boyer, “How and Why Capitalisms Differ,” Economy and Society 34, no. 4 (November 2005): 509–557; and Boyer and Saillard, Régulation Theory.
(46.) Several scholars argue that the Anglo-Saxon variety of “optimum” regulation is indeed almost the reverse of French régulation approaches, which do not seek to dissolve all economic institutions to markets, contracts, and principles/agents but recognize that an economy's wealth of institutions and organizations may well interact through the market, but also independently of it (see Boyer, “How and Why Capitalisms Differ”).
(47.) Nicholas Kaldor, “The Irrelevance of Equilibrium Economics,” Economic Journal 92, no. 328 (1975): 1237–1255; Albert O. Hirschman, Rival Views of Market Society and Other Recent Essays (Cambridge, MA: Harvard University Press, 1992).
(48.) Peter J. Boettke, “What Happened to ‘Efficient Markets’?,” In de pen dent Review 14, no. 3 (Winter 2010): 363–375.
(50.) An excellent discussion can be found in Philippe Dulbecco and Véronique Dutraive, “The Meaning of the Market: Comparing Austrian and Institutional Economics,” in The Evolution of Economic Institutions: A Critical Reader, ed. Geoffrey M. Hodgson in association with the European Association for Evolutionary Political Economy (Cheltenham, England: Edward Elgar, 2007), 160–182.
(p.257) (51.) See J. Stanley Metcalfe, “Instituted Economic Processes, Increasing Returns and Endogenous Growth,” in The Evolution of Economic Institutions: A Critical Reader, ed. Geoffrey M. Hodgson in association with the European Association for Evolutionary Political Economy (Cheltenham, England: Edward Elgar, 2007), 98–102; also, from a more Austrian standpoint, V. J. Vanberg, Rules and Choice in Economics (London: Routledge, 1994). Note that this focus on nonequilibrium market behavior can encompass diverse views on rationality and other individualistic characteristics.
(52.) Specifically on industrial change and underdevelopment, Erik S. Reinert's How Rich Countries Got Rich … and Why Poor Countries Stay Poor (London: Constable Press, 2007) pursues whether Schumpeterian economics can explain the dynamics of underdevelopment; also, Eduardo da Motta e Albuquerque, “Inadequacy of Technology and Innovation Systems at the Periphery,” Cambridge Journal of Economics 31 (2007): 669–690, attempts to match structural and dependency approaches to development with more systems and evolutionary perspectives.
(53.) Douglass C. North, “Institutions, Transactions Costs and Economic Growth,” Economic Inquiry 25 (July 1987): 419–428.
(54.) This literature occasionally overlaps with Marxist political geography, but planners on average tend to have greater optimism about social change and opportunity. In contrast, David Harvey and others value a Marxist account of the state and of complicit physical plans (and planners) in aiding social reproduction, e.g., David Harvey, The Urbanization of Capital (Oxford: Basil Blackwell, 1985), although this has been heavily critiqued as a narrow reading of economic plans and planning goals and practice and only one aspect of accumulation cycles.
(55.) Carlota Perez is one of the few scholars who have addressed physical and institutional aspects of innovation together, using technoeconomic paradigms in a neo-Schumpeterian framework. However, her work has tended to focus primarily on national systems. Carlota Perez, “Microelectronics, Long Waves and Change: New Perspectives for Developing Countries,” World Development 13, no. 3 (1985): 441–463; Perez, “The Double Bubble at the Turn of the Century: Technological Roots and Structural Implications,” Cambridge Journal of Economics 33 (2009): 779–805. The challenge overall is that most neo-Schumpeterian work with significant insights for innovation is rarely explicitly political. Régulation theorists such as Bruno Amable and Robert Boyer, in contrast, recognize and emphasize not only that national systems of innovation may be drawing the system boundaries too rigidly to encompass a limited number of organizations and institutions deemed “technological” (for instance, often isolating questions of labor markets, social policy, or finance), but also that the essential political frames that accompany these broader systems may have been expunged from the theory in order to maintain the abstractions.
(56.) Arguably, for smaller East Asian countries such as Singapore and Hong Kong, which are practically city-states, the question of geographic heterogeneity is less problematic. However, South Korean history shows variation by sector and geography and over time.
(57.) Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995), 59.
(58.) See arguments for the limits of utility frameworks and a reconsideration of the social context that induced several generations of pharmaceutical innovations, Srinivas, “Intellectual Property Rights, Innovation, and Healthcare.”
(59.) Smita Srinivas, “Industrial Welfare and the State: Nation and City Reconsidered,” Theory and Society 39, nos. 3–4 (May/July 2010): 451–470.
(60.) Albert O. Hirschman, The Strategy of Economic Development (New Haven, CT: Yale University Press, 1958); Albert O. Hirschman and Michael Rothschild, “The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix,” Quarterly Journal of Economics 87, no. 4 (1973): 544–566.