Page 92 - Azerbaijan State University of Economics

B.N.Babayev: The rise of new institutional economics and assessment its contributions to the
post Washington consensus

earlier, the most policy prescriptions of the PWC have been described in the popular
lectures of Stiglitz (19 October 1998 and 7 January 1998) and these prescriptions
influenced economic policies in our contemporary period. Carroll shows that two
schools of the NIE especially made contributions to the policy prescriptions of the
PWC. First is transaction cost and second is imperfect information (2005:3).
Within his lecture on 7 January 1998, Stiglitz summarized the several key
prescriptions for economic policy of developing countries which cover the agenda of
the PWC. First point which he mentioned is that economic liberalization can not
achieve growth itself, that‟s why developing countries need “regulatory framework”
and “truly competitive markets” to overcome “market asymmetric information” and
“market imperfections”. Second argument which he made is that “the role of
government” and “effective institutions” is unavoidable in order to foster the
economic growth (1998: 7). The principles of the PWC which focus on an effective
state, good institutions, and regulatory framework do not have much difference from
the Washington Consensus as Carroll calls it “socio-institutional liberalism”
(Carroll, 2005: 1).
Carroll discusses the PWC in his book and identifies some arguments for the
consensus. First, he mentions that the PWC is fully based on the theoretical ideas of
the NIE. Second argument is that the agenda of the PWC continues supporting the
neo-classical reforms, but it proposes new institutional arrangements and good
governments to manage institutions which have been contributed by the theory of
the NIE (2010: 28-69).
Furthermore, while analyzing the policy prescriptions of the PWC we can
assume that they have been influenced by the NIE. For example, the basic
proposals of the NIE require an institutional framework and effective government
for economic development (Ankarloo, 2006: 2). We can see this influence in the
agenda of the PWC as well. Especially, formal institutions which include rule of
law, legal environment for competition, property rights and effective state to
effectively manage the mentioned institutions are the ideas dominating within the
agenda of the PWC.
At the same time, the changes of informal institutions for economic and social
development derived from the principles of the NIE also underpinned the theoretical
base of the PWC. For example, Stiglitz (1998: 16) stipulates that the development
must be based on “transformation of the society” which must be achieved by
transforming the institutions. Second point which Stiglitz argues is that equality

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