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Society, community, and economic development

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Studies of economic development and economic history have long been concerned with the relationship between the transparent and supposedly anonymous forces of markets, rules, and bureaucracies, on the one hand, and membership in groups, such as local communities, associations, or networks on the other. Economists are quite divided about these latter forces: for some, they are necessary underpinnings for the market, providing trust and social capital which in turn reduce transaction costs and moral hazards and hence promote development; for most, they are seen as archaic, leading to nepotism, rent seeking, and institutional rigidity. Indeed, throughout the social sciences, there is an opposition between the roles assigned to what may be called the “societal” and the “communitarian” bases of social and economic development. But each position in this theoretical standoff underestimates the contributions of either society or community to economic development. This is because both society and community have potentially positive and negative effects; together, however, they can act as mutual checks and balances on their potentially negative effects, while reinforcing the positive contributions of each to economic efficiency. Different levels and types of society and community, in interaction, define complex contexts of choice and incentives in economic development, and allow us to see more clearly the basis of different institutional configurations in relationship to development.

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