Business
Development is not a matter of getting growth first or good institutions first; each reshapes the other, step by step, in ways specific to place and time. Asking which causes which misses that the cause runs both ways and keeps changing.
A center can drive change by setting broad, deliberately vague goals and leaving local officials to improvise the specifics. Ambiguity is the tool: it gives people on the ground room to fit solutions to local conditions, and they often invent fixes the center would never have thought of.
Leaving some areas legally and politically unclear on purpose lets people try things that strict rules would forbid. The hard part of development is not knowing that experimentation matters but creating the conditions that let ground-level creativity happen.
A government can turn its own departments into entrepreneurs by requiring every office and senior official to bring in investment and rewarding success with generous bonuses. Officials then share in the gains they produce, which drives growth but also makes a form of profit-sharing corruption part of how the system works.
The institutions that help an economy take off are not the ones that preserve and consolidate markets later. Early on the state mainly lets activity start; once it is running, the state shifts to regulating and shaping it, steering industries to complement each other and form specialist clusters.
As an economy develops, corruption does not simply rise or fall; it changes kind, moving from petty favors like free meals to large sums captured by senior figures. Cracking down on it can also slow the growth it was tied to.
The right way to promote markets differs across stages of development, across regions, and even between towns in one country. The one constant in a successful transformation can be the willingness to use many approaches matched to local conditions, rather than copying a blueprint and expecting growth to follow.
For economies just starting out, so-called weak institutions, loose, personal, and imperfect, often work better than the clean, rule-bound ones of rich countries. Theories that credit strong institutions for growth were built from middle- and high-income economies and do not fit the starting line.
The first step out of a poverty trap is to put existing resources to work, even if they look backward or break rich-world norms. Where capital and formal rules are scarce, personal networks of friends, relatives, and contacts can be harnessed to start markets, as can an existing informal industry such as film pirates turned into distributors.
A large state must decide how much to let localities differ and how much to hold them to common standards. Change is broad, bold, and uneven, and the system has to link fast-moving early adopters with lagging areas rather than force all to move in step.