Article summary – Richard Nelson’s “What Enables Rapid Economic Progress: What Are the Needed Institutions?”

Nelson, Richard R. (2008). What Enables Rapid Economic Progress: What Are the Needed Institutions? Research Policy, 37(1), 1-11.

Central Thesis: The article explores the vital role of institutions in economic growth, especially in relation to technological progress.
Background: Critiques prior economic growth literature for its narrow focus on institutional efficiency, neglecting the critical aspect of technological advancement.
Objective: Aims to bridge the gap in understanding between institutions in economic growth and their relationship with technological change.

Physical vs. Social Technology:
- Physical Technology: Refers to the procedures and steps involved in activities (like the ingredients and steps in a recipe).
- Social Technology: Involves the coordination mechanisms among actors required to execute the ‘recipe’. For instance, in baking a cake, social technology would be the coordination in purchasing ingredients, dividing tasks among people, and utilizing equipment efficiently.
Role of Institutions: Institutions shape and stabilize prevalent social technologies through laws, norms, expectations, and customary organizational modes.

Self-Reinforcing Nature: Social technologies are inherently self-reinforcing due to expectations and familiarity. Deviating from them requires challenging established norms.
Interdependence: Social technologies exist in systems where each is tuned to others, making changes challenging due to the interconnected nature of these systems.
Evolution Over Time: Like physical technologies, social technologies evolve, accumulating experience which makes trying new social technologies risky.

Against Aggregated View: The economy should be understood as a composition of various sectors, each with its dynamics, rather than as a uniform, aggregated phenomenon.
Sector-Specific Institutions: Different sectors and eras require different supporting institutions, highlighting the need for detailed analysis within each sector.

Evolutionary yet Influenced by Humans: While institutions evolve, human purpose, intelligence, and beliefs significantly influence this evolution.
Generation of Alternatives: Human ideas and beliefs contribute to the creation of institutional alternatives.
Selection and Survival: Human actions and beliefs also play a crucial role in determining which institutional changes prevail and which do not.
Balance of Actions: Institutional change involves a mixture of collective (often governmental) actions and decentralized individual initiatives.

Intellectual Bridge Proposal: Suggests integrating the study of social and physical technologies for a deeper understanding of economic progress.
Call for Holistic Research: Encourages scholars to explore the interplay between social and physical technologies to fully grasp the dynamics of economic progress.

RICHARD WILSON