A win–win path for institutional change

Abstract

Institutional change is a response to socioeconomic pressures caused by resource scarcity, population growth, cultural change, and economic inefficiency. Historical evidence shows that the unequitable resource redistribution among groups caused by institutional change can indirectly reduce income, particularly when it leads to civil conflicts. A more equitable and effective approach to institutional change would seek win–win solutions. To examine this possibility, I review historical examples of institutional change in China to show how gradual institutional change that lets all stakeholders share the economic benefits is the most successful path. Therefore, innovation to replace or modify old institutions and equitably increase economic growth will be a key approach. This win–win approach requires persuasion, compromise, demonstration projects, competition, and embracing institutional diversity. Increased economic benefits come from economic innovation and encouragement of stakeholders to participate in institutional change, but require nurturing of new social groups that will drive the change process.