Tuesday, May 20, 1997

Nobel economist addresses University crowd

Nobel economist addresses University crowd
By Pamela Appea
The Chicago Maroon

Douglass North, 1993 Nobel Prize Winner in Economics, and Luce Professor of Law and Liberty at Washington University in St. Louis, Missouri, gave a lecture entitled “Order, Disorder and Economic Change” last Monday evening, May 12 to a full crowd at the University of Chicago Social Sciences building.

The event, which was free and open to the public, was sponsored by Phi Beta Jappa, the Social Sciences Collegiate Division, the Irving B. Harris Graduate School of Public Policy Studies, and Oeconomica, an undergraduate student economics organization.

A specialized U of C workshop was help Tuesday from 4 to 6 p.m. at the Irving B. Harris School of Public Policy entitled “Economic Change in Latin America: Past, Present, and Future.”

North’s research attempts to take neoclassical economic theory in a new direction by incorporating institutions as well as addressing social and cultural issues within these institutions. Neo-classical economic theory is typically classified around study of the individual, said Lekshmi Venugopalan, an Economics Major, and fourth-year student in the College.

North’s two main regions of specialization in economic infrastructure are Eastern Europe and Latin America.

His most recent book, entitled Institutions, Institutional Change and Economic Performance, explored some of the issues which he brought up during his Monday lecture. North said he aimed to find answers to the age-old question of why some countries are wealthier than others. He is currently working o a new book which will focus on “answering the questions.”

“More than half of the world is still poor. How come?” asked North.

During the lecture, North who is currently doing intensive research on wealth distribution, explored possible causes and solutions for this unequal distribution of wealth, by combining socio-economic theory with a philosophical and historical approach. Ultimately, it is impossible to definitively answer this questions, however North stated that he was optimistic that viable solutions will be found for economic progress.

North started with a “quick overview of the past ten millennia.” He emphasized that history plays an important part in how economists and social scientists can study economics and economic theory.

Centuries ago, many societies located in Europe or the Middle East, for example, started out with small-time trading communities. North explained that after time, traders and other merchants within the trading circles of their society knew that there would be a certain amount of stability and constancy in their small economic worlds.

“These people knew the players in the game; they knew that there were only a few [trustworthy] people who were playing in the game, and they knew what the rules of the game were,” said North.

In many societies, the economic “game” changed over tie because “belief systems” changed. Growth and expansion in markets along with international and overseas trading complicated the “trading game,” said North.

However the growth of prosperity as a result of this trade expansion did not happen uniformly in all societies. Some countries inexplicably continue to survive using the marketplace which North called an “inefficient enterprise.” Or they rely on other forms of informal economy endeavors.

Later in his lecture, North addressed the current times. Nowadays, while some countries trade on an international level, others do not have the means and the economic structure to do so. This means that some countries are developed and experience economic prosperity and overall economic stability, while others have a start and stop: economic growth which is detrimental to the country in the long run. Still other countries have no growth at all, said North.

North’s work aims to build a long-term plan for developing countries like several in Latin America, which should ensure a stable economy in the future. He speculated that some economists would say people in developing countries should know and strive towards what is in their best interests.

“It’s not that simplistic,” he said. “If the human landscape would stay constant, we would eventually get it right. Eventually the belief system would coincide with the landscape.”

North went on to explain that economic theory is much different than practice. Also in attempt to reinvent the same scenario or duplicate the success from the U.S. is virtually impossible. By way of example, North mentioned that, in this century, many post-colonial Latin American countries adopted a constitution that was similar to the U.S. Constitution. However, North stated that because of socio-political stability, such as military coups, those countries’ economic states deteriorated.

North stated that in every country, to determine each country’s economic stability, one must consider the structure of its government. Firstly, there is the formal law, secondly there is common or informal law, and thirdly there is “rate of enforceability of these laws,” North emphasized that no matter how many laws are in place, these laws cannot be effective if they are not enforced.

While in most countries, citizens do pay attention to formal law, they do not follow it strictly. What matters the most is the informal law, because most people act in accordance with societal norms and standards.

North believes that it is impossible to have an economically stable country without a stable political structure. If citizens of a country do not adhere to laws or if a government is weak and falls apart easily, a new and more solid government should be implemented, which in the long run may allow for a solid, economic infrastructure.

Thus, North concluded that economists and social scientists need to carefully examine the institutions such as political structures, the relationship between church and state and the cultural norms of a country. He ended the lecture by reiterating that many questions have yet to be answered; however, he feels by taking these factors into consideration we are on the right track.

Lecture attendees had a post-lecture coffee hour with North, where some attendees expressed their enjoyment of North’s lecture.

One attendee commented that he felt that ultimately, it would be impossible to have a uniform economy across the world in every country. Another listener elaborated on the point, claiming most Latin American countries or sub-Saharan nations will never catch up with the U.S.

“If you compare some of the countries to ants, and compare the U.S. to human beings, you can understand. While ants may have a complex, organized system, it becomes clear that our system is just on a whole different scale. You can’t even begin to compare,” said Mich Turner, a community resident who attended the lecture.

“Because it is a new subject matter, there are a lot of uncertainties. I am interested to see how [North] backs up his beliefs in his [upcoming] book, said Venugopalan.

Originally Published May 20, 1997