Structural reform, economic order, and development: Patrimonial capitalism

ABSTRACT This contribution claims that structural economic reform, in a range of non-OECD countries, has led to capitalist, yet non-market economies which differ qualitatively from competition-based market systems. Patrimonial capitalism is an economic order that is shaped by the political order and power relations it enshrines, and is characterized by distinct features such as structurally higher transaction costs and a distinct relation between formal institutions and informal rules that govern exchange processes. It can flourish only in specific types of non-democratic political environments. While anecdotal evidence is presented from Arab cases, the concept's applicability is not restricted to any single world region. The findings are relevant for comparative economic systems analysis, but also for the practice of international cooperation because they can serve to better assess the political-economic context in which structural reform is supported, and to avoid errors that continue to be committed by international policy-makers in assisting economic reform processes worldwide. Conceptually, as is shown, neither neoclassical theory nor institutional economics provide adequate tools for assessing such questions on the economic orders level. This article therefore suggests a wider and integrated framework that also includes approaches established by political science and political and economic sociology.