There are two worldviews dated back to the eighteenth century in institutional economics. These are âtopdownâ and âbottomupâ views (Easterly, 2008: 95). The topdown view sees institutions as dependent on laws designed by political leaders; thus the name, âdesigned orderâ. Institutions refer to âinformal constraints and formal rulesâ (North, 1991: 97).
The bottomup view sees institutions as originating gradually from the culture and ways of people in society. The written law formalizes the already shaped values âspontaneous orderâ (Easterly, 2008: 95).
Some of the differences between the two orders are the changes in institutions, functions of the economists, global acceptance and the treats that they encounter from economists. Distinctions and examples of these concepts are explained below.
In the designed order the political leaders disregard the old rules and norms and make new ones. For instance, as it was tried in the French revolution whereby the French would disregard the culture, language and style of their colonists and would impose French culture and habits upon them. One of the rules was that the colonists had to speak in French therefore disregarding the indigenous languages of their colonists.
They would also impose dressing and eating habits on them. The spontaneous theory on the other hand, views the recent institutions as highly tied up with the earlier ones. Such institutions rely on the previous theories and facts in order to come up with their decisions.
Therefore, the change in institutions is gradual in nature (Easterly, 2008: 95). For example, Darwinâs theory of evolution gives an account of evolution of man over time. It relies on climate and change of behaviour to account for development of mankind from the first to the last stages.
Under designed order, economists have a problem in determining the best possible institutions to advocate for the political leaders. This happens because they have to use theory to model the institutions afresh.
In the spontaneous order, economists can advise only the desirable additional changes to be made while putting in mind the need for limited institutional change so as not to disrupt the functions of the economy (Easterly, 2008: 95). For instance, when during constitutional amendment, careful changes are made so that the original meaning is not distorted.
The designed order states that there is one worldwide unique and acceptable set of institutions upon which all the societies are thought of being âdevelopingâ. This means that a common law can be developed by a nation regarded as a role model and all the other nations are supposed to follow or abide by it. For instance, most of the western countries develop ideologies which are taken up by the developing countries.
On the contrary, the spontaneous view sees the societies as being able to evolve different institutions even over a long time (Easterly, 2008: 96). An example is seen whereby many developing countries can make decisions regarding the political leaders to vote for without having to make consultations from the developed countries.
According to current research, it has been observed that countries that had their colonizers set up strong property rights many years back (spontaneous order) have higher income levels today than the countries with civil law foundations (designed order). For instance, when Korea split in to North and South Korea, the two countries had similar income levels.
The Northerners planned centrally while disregarding any customs while the Southerners depended on property rights with a little help from the state. More than 50 years later, the South has per capita income that is ten times more than the North (Henry & Miller, 2009: 261).
Another difference between spontaneous and designed order is in the manner in which the economists treat the two concepts. For instance, an economist called Hayek treats the market economy as a product of human action while an economist called Eucken treats it as a product of human design.
A market economy resulting from human action is created by practices and ways of people over some time (spontaneous). On the other hand, a market economy resulting from human design is a product of political leaders who disregard the already established laws (Labrousse, 2001: 185).
Some economists feel that the orders can be treated as one or they can be combined. The economists that support combined treatment argue that the two orders support each other such that the existence of the present laws is a result of the evolution of laws over time (Williamson, 1994: 325). For instance, government laws on land possession in Kenya can function best if they are combined with the customary laws.
This is because land is owned by ancestors who have passed it over to many generations. In order for the government to keep land records and issue titles, it needs to consult the various inhabitants.
Economists that treat the orders separately feel that one order is superior to the other and therefore they cannot be combined. For example, there are economists that feel that spontaneous order is superior because it has its roots from laws and values.
Other economists treat the spontaneous order like a law that cannot function on its own. They say that in order for people to know its importance, there has to be a government that oversees and ensures its implementation.
For example, conflicts that arose between the English aristocrats and kings led to establishment of a system that enabled English people such as UK, Ireland, Poland and others to enjoy land rights (Holcombe & Staley, 2001: 182). However, the government must keep on check to ensure that these land rights are not violated. Contrary, there are economists that argue that designed order only exists because of spontaneous order.
They treat it as a product of laws, values and customs that have evolved over time. For example, some laws that are incorporated in to a constitution rely on customary laws. In order to make laws that serve the needs of all citizens it is necessary that law makers meet in order to come up with fair decisions (Hechter & Home, 2009: 149).
Conclusion
In order to achieve new constitutional economics, it is important that economists learn to understand several factors including designed and spontaneous order. Additionally, they need to incorporate effects of technology in to their studies (Coase, 1998: 73). Evidently, there are several factors that differentiate the two orders. It has also been observed that many economists treat them differently.
When the economists learn to combine the two worldviews, then new constitutional economics will become a reality. As such, there is no particular order that is superior to the other. Both can be useful in different contexts.
References
Coase, R. (1998) âThe New Institutional Economicsâ. The American Economic Review. 88 (2): 72-73.
Easterly, W. (2008) âDesign and Reform of Institutions in LDCS and Transition Economicsâ. American Economic Review. 98 (2): 95-96.
Hechter, M. & Home, C. (2009) Theories of Social Order: A Reader. California: Stanford University Press.
Henry, P. & Miller, C. (2009) âInstitutions versus Policies: A Tale of Two Islandsâ. The American Economic Review. 99 (2): 261-264.
Holcombe, R. & Staley, S. (2001) Smarter Growth: Market-Based Strategies for Land-Use Planning in the 21st Century. Connecticut: Greenwood Publishing Group.
Labrousse, A. (2001) Institutional Economics in France and Germany: German Ordoliberalism Versus the French Regulation School. Berlin: Springer.
North, D. C. (1991) âInstitutionsâ. Journal of Economic Perspectives, 5(1): 97-112.
Williamson, O. (1994) âVisible and Invisible Governanceâ. The American Economic Review. 84 (2): 323-325.