Question

6. Using North (Chapter 6) explain the importance of the following factors to economic success:
(a) Informal constraints;
(b) Adaptive efficiency;
(c) Artifactual culture.

Answer 1

a) Importance of Informal constraints to economic success

                        Informal constraints refer to those constraints that are inherent in a society and a formal rule or law is not established for its working, yet is so essential for the functioning of an economy and a society. Informal constraints play a major role as these are not restrictions imposed by the rule of law and hence the functioning of such a constraint would require the entire economy to work together and formulate a specific methodology so as to invoke a common platform in the economic stimulus of the society. The implication of the informal constraint makes sure that the economic etiquette is maintained and the market mechanism is run without being affected by the tenets of the society that affects the economy. It would bring in an economic harmony and hence makes sure that the economic success is maintained in the society.

b) Importance of Adaptive efficiency to economic success

                        Adaptive efficiency of an economy refers to the ability of the economy to adapt itself to the changing economic and market conditions of an economy and hence maintain the market mechanism of the economy. Adaptive efficiency is an important characteristic of an economy. The economic and market conditions are always evolving. Thus, we cannot formulate a specific size to fit model that can replicate the efforts at all the stages of an economy. In accordance with the changes in the demand and supply characteristics of the international and domestic market and with the changes introduced in the economies of scale in the international community, the market economy of each nation would change and it is thus important for each economy to adapt itself to the changing economic situations so that the market structure of the economy is maintained and thus forms a part of the new order in the international economy.

c) Importance of Artifactual culture to economic success

                        Artifactual culture refers to the representation of a product or service in an economy which would make use of the creator of it or justifies the creation while being a part of the market structure of the economy. This is an important factor in the development of the local market of the domestic economy and the trade in the international scale. For example, if there is a local trademark product, then once the product is being traded in the international market, then the trademark of the product would be an added advantage to the local market as more of the international community would become aware of the creation and the place of creation which would result in the development of the local community and the local market which would in turn develop the domestic economy in the short-term and the international trade in the long-term.