Professor John Nye of George Mason University discusses the importance
of New Institutional Economics for developing countries. He talks
about how reforms are best understood from the default position
of poverty. In fact it is the prosperity of some nations that
is a rare and recent event. The real issue is how countries can
rise out of destitution, and why it is particularly difficult
to do so.
Nye explains that elites distrust reform because they are not
sure they will remain unscathed. The key then, is to broker a
compromise between the leading factions that will open up the
economy in the long run, but will preserve the existing order
in the short term. Real world compromise requires not only getting
the elites to agree to transformation, but also to create vested
interest in further reforms.