Modern economic theory has moved beyond "capital fundamentalism." In the words of Hoff and Stiglitz, (2001, p. 389) "[d]evelopment is no longer seen primarily as a process of capital accumulation but rather as a process of organizational change." This realization has made possible an "institutional turn" in development theory that emphasizes the role of ideas and institutions as determinants of the possibilities for capital accumulation rather than the reverse. Both the "new growth theory" and Douglass North's "new institutionalism" are examples of the institutional turn. Unfortunately, the "institutional turn" has been used in a perverse way by global policy-makers. The globally dominant view is that because institutions are so important, therefore an institutional blueprint based idealized versions of Anglo-American institutions must be uniformly imposed on the countries of the global South in order for them to develop. Not surprisingly, this view has failed in practice. Alternative perspectives proposed by Rodrik and Sen argue that development is unlikely to succeed unless institutional change is grounded in local decision-making. That is the view that is explored in this paper. The State of Kerala in India and the city of Porto Alegre in Brazil are used as concrete cases.
economic growth theory; development; institutions; democracy; globalization; capabilities; Kerala; Porto Alegre