Munich Personal RePEc Archive Growth and institutions in Paolo Sylos Labini’s thought Corsi, Marcella and Guarini, Giulio “Sapienza” Università di Roma, Dipartimento di Studi Sociali, Economici, Attuariali e Demografici. 17 December 2009 Online at https://mpra.ub.uni-muenchen.de/19431/ MPRA Paper No. 19431, posted 21 Dec 2009 06:15 UTC Growth and Institutions in Paolo Sylos Labini's Thought* Abstract According to Paolo Sylos Labini (1920-2005), it is vital for an economist to be acutely conscious of the responsibility to study society for the sake of promoting progress–the economic, social and civil progress of society–and not for personal interest. In his last book, Ahi serva Italia (2006), Sylos Labini spoke as a civic-minded economist to all those Italians who ref se to understand that respect for the rules is an absolute requirement for a market economy, and, in particular, that a market economy needs rules to defend the community against the unbridled expansion of positions of power. Within this analytical framework, our paper aims to discuss the role of institutions along different lines, the role of the market in the process of economic growth, p blic intervention in the economy and the process of institutional innovations. JEL Code: -50, O/0 eywords: Paolo Sylos Labini, growth, institutions, regulation, innovations. 1arcella Corsi Giulio Guarini 3La Sapienza5 University 3La Sapienza5 University 7ipartimento di Studi Sociali Economici 7ipartimento di Studi Sociali Economici Attuariali e Demografici. Attuariali e Demografici. 9iale Regina Elena, 295, 00185, Roma, 9iale Regina Elena, 295, 00185, Roma, ITALY ITALY [email protected] giulio.g [email protected] *The views advanced in this article in no way involve the responsibility of the institutions to which the authors belongA theirs is the sole responsibility for any errors or imprecision. The article forms part of the Progetto di Ateneo 2006 on 3The economic thought of Paolo Sylos Labini and its relevance today5 (coordinator Alessandro Roncaglia). 1 1. INTRODUCTION Among the fundamental ingredients for civil advancement, 3sound institutions5 are an essential element for economic development. The Lectures on Jurisprudence, together with the Wealth of Nations and the Theory of Moral Sentiments constitute the 3Smithian triptych“ pon which Sylos Labini based his analysis. Smith‘s work on Curisprudence fits in perfectly with the other two, closely linking the economic and legal systems in such a way that the economic development of a nation is to be interpreted together with its institutional evolution. The economist cannot be isolated from the law, and cannot elude the imperative to collaborate with the Curist for truly searching analysis of economic realities which imply a wealth of significant Curidical aspects. If we grant a decisive role to the institutions that generate crucial rules for the profitable organisation of the economic system, then the C rists need to be duly aware of their particular role and attentive to realities, without reducing their activity to a sterile formalism1. According to Sylos LabiniBs definition the institutions 3comprise the organisational forms and Curidical order of society in the spheres of both p blic and private law52. Sylos Labini divides the institutes of the capitalistic system into two typologies, the 3strictly capitalistic5, having to do with economic freedoms, the various forms of organisation that firms take on and ownership systems, and the 3not strictly capitalistic5, directly associated with educational, training and research structures, 0 and non-profit institutions. 1 3I rge economists to impress on C rists that they sho ld not remain isolated in their C ridical formalisms, in their formal g arantees, b t rather strive also to see the close connections with economic and social development. In Italy there is a formalistic tradition in law that is very strongA one can co nt on the fingers of one hand the non-formalist C rists, who certainly do not nderrate matters of method b t pay great attention to the nderlying iss es and realities5 (Sylos Labini 1994a, p. 161) 2 2f. Sylos Labini 1994b, p.15. 0 3Among the instit tes constit ting the capitalist system we find private ownership of the means of prod ction and the freedom to la nch new enterprises, b t also a wide range of organisational patterns for prod ctive activities D from a tonomo s workers to the large limited companies D a system of contracts and company str ct res geared to development and a bankr ptcy law. Among the instit tions that are not precisely capitalistic b t nevertheless cr cially affect the f nctioning of capitalism, we have the ed cational system, incl ding the niversities and research organisations, and vario s kinds of non-profit instit tions5. (Sylos Labini 2000, p. 1E1) 2 In the following pages we will pinpoint certain general themes that lie at the heart of Sylos LabiniBs thought, concerning the favourable or harmful role played by the institutions in processes of economic development. In partic lar, we focus on the concept of market, the relationship between innovation and institutions, p blic interventions and institutional innovations. 2. T)E MAR ET The principal institution for economic development is the market. -ehind the very nature of the market is a legal system, according to Sylos Labini the market economy is not to be based on the celebrated motto laissez faire but rather on the motto le marché c!est la loi4, The truth is that the market is not an empty space and there is no sense in the policy of laisse4 faire, if taken literally. FLe marchG cBest la loiH is, rather, what we should be saying, it is the law that creates the embankments between which the water of the economy flowsA without such embankments the water turns to marsh or causes floods. (Sylos Labini 2000, p.XI9). The market is an instit tion in turn generated by institutions that produce norms able to define limits and potentialities for economic action. The laissez faire perspective œ a condition of absolute freedom of action left to economic agents œ entails negative effects not only for social equity, but also œ indeed, primarily œ for any lasting development process.5 He does not see the 4 3- t it is simply not tr e that the market is a nat ral phenomenon, it is the prod ct of the evol tion of cent ries and has gone thro gh profo nd changes in the co rse of time. -efore taking on the form of an economic phenomenon, the market appeared as a legal str ct re5 (Sylos Labini 2000, p.II9). 3In a note drawn p for a conference in Kiev, which I had to forego, I had pointed o t that the market is disc ssed today as if it essentially consisted in an absence of constraints and r les, while the market is a historical prod ct, complicated and delicate, and an essentially C ridical prod ct which takes concrete form in the instit tions and whose mechanisms are essential for development5 (Sylos Labini 1994a, p. 162). 5 P blic interventions m st take place not thro gh discretionary administrative actions D highly dangero s, since they open the way to ab se, waste and corr ption D b t thro gh laws, able to channel the water of the economy in the direction of economic development D certain laws promote development, others obstr ct it. And they m st create or modify the C ridical embankments between which the water of the economy flows, and witho t which the water gives rise to flooding and marshes. -eyond the C ridical embankments, which incorporate r les of an ethical nat re, there are the moral embankments, which are still higher5 (Sylos Labini 2000, p.1E). 0 market as a natural institution, but rather as a historically determined institution that undergoes more or less significant changes over time. Indeed, a maCor criticism which he brings against mainstream theory lies in the fact that, with its axiomatic application of the tool of mathematics in an all-inclusive representation of reality, it fails to capture the real nature of the market, which is of an institutional kind, not existing as a uniform, abstract entity but manifested in different forms over time and across space, since the different periods of history and diverse nations show dissimilar legal systems which directly or indirectly affect the market. As Sylos Labini writes, 3The market itself, which has been seen as the predominant characteristic of capitalism, is not stable, since it does not function in a vacuum but rests on an instit tional structure that changes over time5. (Sylos Labini 2000, p.4) 3. INSTITUTIONS AND INNO,ATION Lollowing along the path traced out by Smith, Sylos Labini gave labour productivity growth a central place in his analysis, seen as the very heart of economic development. Lundamental in this respect is a view of the labour productivity f nction in which the growth rate of this variable depends mainly on market si4e (Smith effect) and dynamic s bstitution between labour and machinery (Ricardo effect).6 -ut, he points out, it is not only economic stimuli that can affect innovation processes, for the presence or absence of certain institutes can influence the productivity trend over time. A significant example is to be seen in agrarian contracts. Referring back to Smith, Sylos Labini observes that contracts granting farmers guarantees for appropriation of part of the fruits of improvements can enhance the productivity of labour and the soil alike. What counts, therefore, is not ownership of land in itself, but the certainty of being able to enCoy the results achieved with oneBs own labour and innovative activity.