A new notion of progress: Institutional quality

The notions of human capital and growth have been debated for a long time in economic literature. The limits of these concepts are generally recognised. In fact, recently, there has been an attempt to articulate a more extensive definition of “human capital” by considering all the attributes embodied in individuals that are relevant to economic activity. On the other hand, the GDP growth rate has been included into the Human Development Index, taking into account different aspects of development such as life expectation, literacy and health. Nevertheless, the evolution of the definitions of human capital and growth is in some way restricted to their economic meaning, neglecting the intrinsic complexity of concepts demanding an in-depth re-examination of their social, cultural, and historical value. Using an interdisciplinary approach, this paper focuses on the conceptual meaning of progress. Progress was considered as the economic, social, and cultural evolution of a country. The idea of evolution has ancient roots and is subjective. In economic and social terms, evolution may be deemed as the path human beings follow towards freedom. Since the earliest times, humanity has been fighting against poverty, scarcity of resources, disease, abuse of power by a group, environmental disaster. In order to give a more complex definition of progress entailing the idea that freedom is its driving force, we used the main concepts of institutional and evolutionary economics. Highlighting the contributions of the best Old Institutionalists (Veblen, Commons, Dewey, and Ayres), we introduced two alternative notions: “knowledge” in place of human capital and “progress” instead of economic growth. Local knowledge is the most important factor of development, while, on the other hand, the model of ongoing institutional change is the “alarm bell” for progress or stagnation. In this way, institutional change towards freedom and the providing of incentives for progressive forces become a proxy for the level of cultural, social, and economic progress reached by a society. Progressive forces may grow in societies where there are no barriers to the free exchange of opinions and knowledge and where education and training systems are conceived to create autonomous people. The enemy of progressive forces are “ceremonial institutions”, that is institutions opposing any kind of renewal. Using the available data, we showed that the GDP growth rate is not necessarily a factor of human life satisfaction and it does not necessarily improve the quality of life. We compared some European Countries to demonstrate that there is no clear-cut link between material wealth and the quality of life. Instead, at a given level of material wealth, the freedom of choice and the governance indicators seem much more correlated to life satisfaction. Finally, utilizing the Veblen’s notion of “recursive causality”, we highlighted that it is possible for policy makers to foster a given institutional context rather than an alternative one. Therefore, it is possible that the culture of “GDP growth” has influenced institutions and has created a number of problems (pollution, social distrust, social immobility, life dissatisfaction, corruption, and rent-seeking) which emerged in the recent financial and economic crisis.