An institutional economics approach to agribusiness in development : South African case studies

Karaan, Abolus Salam Mohammad (2006-04)

Thesis (PhDAgric) -- Stellenbosch University, 2006.


ENGLISH ABSTRACT: This dissertation is a sojourn into institutional economics and its application to contemporary economic and development issues in South Africa. Economic development initiatives in agribusiness have much to gain from the theories and approaches advanced by the new institutional economics. Institutions are considered essential to the functioning of economies, markets and organizations, despite its neglect in neoclassical economics The study intends to prove that 'institutions matter', especially when social and economic transformation is necessary. The cases studied exhibit how institutions matter and shape economic outcomes. The theoretical basis established in this thesis was applied to economic development challenges such as contracting, organizational innovation, economic empowerment, land reform, building social capital, organizational design, supply chain management, entrepreneurial development, and modes of constructive engagement. The thesis is a compilation of academic papers applied to the various selected developmental challenges prevalent in South African agriculture. The study begins by delving into the more popular New Institutional Economics literature and specifically transaction cost economics. Somewhat unexpectedly, this leads to a greater appreciation for the insights generated by the Old Institutionalists in investigating the nature of institutions. Hence, the old institutional economics gains prominence in the latter part of this work, contrary to contemporary approaches followed in agricultural economics. The acknowledgement given to aspects like social capital and embeddedness is consistent with Williamson's proposed framework for the economics of institutions and this is used as the conceptual framework in this thesis. Whereas the new institutional economics was found to be useful in yielding knowledge through analysis and remediable outcomes, the old institutional economics retains its advantage in promoting understanding of problems especially in the face of complexity. This inclination has influenced the thesis in two ways. First, it diverted the latter part of the work towards the old institutional economics and the role of social capital in shaping institutions and economic behaviour. Second, it reverts to theories on the nature of the firm that complements the transaction cost approach. The transaction costs approach is thus only used where it is found most effective i.e. analysing vertical integration between firms and the relevant ex ante incentives and the ex post governance aspects Most studies are motivated by a general recognition of the role of institutions in framing economic outcomes and end up in the new institutional economics and subsequently transactions cost economics. This favouring of the transaction cost approach has found appeal due to its ability to predict structural and organisational outcomes such as the efficient boundaries of firms, internal organisation, contractual relations, incentives, etc. Methodologically, it enables analysts to employ the empirical and mathematical rigour that has become a feature, but too often the purpose, of economic research. Three papers are devoted to this approach and elicit organisational designs that best contend with identified transaction costs. The study confirms that several aspects matter in institutional analysis when applied in an economic developmental context such as South Africa. Historical context is acknowledged as a critical facet of institutional analyses in the sense that institutions are shaped by the forces of history. Social capital is established as an important component of institutional economic analysis and particularly relevant in situations where social capital has been eroded by political economic manipulations. Attending to social capital require (inter alia) insight into the nature of the societal context, implied path dependency, the extent of trust, enforcement mechanisms, and agency relations. Three of the papers attend to these aspects.

AFRIKAANSE OPSOMMING: Die proefskrif bevat 'n toepassing van institusionele ekonomie op kontemporere ekonomiese- en ontwikkelingskwessies in Suid Afrika. Die nuwe institusionele ekonomie het veel te hied tot ekonomiese ontwikkelingsinisiatiewe vera! in agribesigheid. Institusies word beskou as essentieel tot die funksionering van die ekonomie, markte en organisasies, ongeag, die nalaat daarvan in die neoklassieke ekonomie. Die studie poog om te bewys dat 'institusies geld', vera! wanneer sosiale en ekonomiese transformasie noodsaaklik is. Die teoretiese basis wat gevestig is in die proefskrif, vind toepassing op ekonomiese ontwikkelingsuitdagings wat insluit kontraktering, organisatoriese innovasie, ekonomiese bemagtiging, grondhervorming, bou van sosiale kapitaal, organisatoriese ontwerp, waardeketting bestuur, entrepreneurskap ontwikkeling, en modes vir konstruktiewe omgang. Die studie begin met teoretiese 'n ondersoek in die meer populere nuwe institusionele ekonomiese literatuur, en spesifiek transaksie koste ekonomie. Dit lei later tot 'n onverwagse waardering vir die insigting wat die ou institusionele ekonomie genereer, wanneer die aard van institusies bestudeer word. Gevolglik, verkry die ou institusionele ekonomie prominensie in die latere deel van die studie, in teenstelling met die landbou ekonomiese benaderings wat deesdae bespeur word. Die erkenning aan sosiale kapitaal en institusionele ingeworteldheid is in tred Williamson se voorgestelde raamwerk vir die ekonomie van institusies is word gebruik as die konseptuele raamwerk in die tesis. Waar die nuwe institusionele ekonomie nuttig is in die werwing van kennis, is die ou institusionele ekonomie nuttig in die kweek van insig en verstaan van probleme en kompleksiteit. Die proefskrifword op twee maniere hierdeur beinvloed. Eerstens, leun die latere deel van die werk meer na die ou institusionele ekonomie en die rol van sosiale kapitaal in die vorming van institusies en ekonomiese gedrag. Tweedens, verskaf dit 'n fokus op die teoriee oor die aard van die firma wat komplimenter staan tot transaksie koste ekonomie. Die transaksie koste benadering word aangewend in die ontleding van vertikale integrasie tussen firmas en die relevante ex ante insentiewe en ex post strukture, waar dit vera! nuttig is. Meeste studies erken die invloed van institusies op ekomiese uitkomste en gebruik hoofsaaklik die nuwe institusionele ekonomie en transaksie koste ekonomie. Hierdie vooroordeel ten opsigte van transaksie koste ekonomie, vind byval as gevolg van die vermoe om strukturele en organisatoriese uitkomstes te voorspel soos die doeltreffendheidsdrumpel van firmas, interne orgasnisasie, kontrakte, insentiewe, ens. Metodologies, moedig dit empiriese en wiskundige benaderings tot ontleding aan, wat ongelukkig a! die doe! geword het in vele ekonomiese ondersoeke. Drie van die referate wat in die proefskrif vervat word, behels die identifisering van toepaslike organisatoriese ontwerpe wat geskoei is op die transaksie kostes wat geldentifieer is. Die studie bevestig dat sekere aspekte van belang is in institusionele ondersoeke, vera! in 'n ekonomiese ontwikkelingskonteks soos Suid Afrika. Historiese konteks, word erken as a kritieke faktor in institusionele ontledings, in die sin dat institusies onontbeerlik deur geskiedkundige kragte gevorm word. Sosiale kapitaal word ook erken as 'n belangrike komponent in institusionele ekonomiese ontledings, vera! in omstandighede waar sosiale kapitaal verweer het as gevolg van polities ekonomiese manipulasies. Dit veries dat aandag geskenk work aan, ( onder and ere) sosiale konteks, gelmpliseerde koers afhanklikheid, vertoue, afdwingbare meganismes, en agentskap verhoudings. Drie van die referate word hieraan gewy.

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