The enduring importance of understanding institutions and values

Papers that pay attention to the socio-economic institutions affecting agricultural change have appeared regularly in this journal. It is important to continue encouraging such papers, as proposals of policies and technology packages for bringing about agricultural sustainability must be grounded in an understanding of both existing institutions and values and the changes needed. The record of my fellow economists in giving due attention to institutions and values over the course of my professional career has, however, been definitely mixed.

I was first introduced to institutional economics during graduate school at the University of Maryland in the late 1960s, in particular through the teaching and influence of my major professor, the late Phillips Foster. Foster believed that existing institutions and values were frequently an impediment to agricultural change.

I conducted fieldwork for a PhD dissertation in northern India during the autumn/winter period of 1967/1968. My topic was the incentives and disincentives for the adoption of productivity-increasing agricultural inputs, using a broad framework of analysis that accounted for both on-farm profitability and socio-economic institutions. It so happened that the 1967/1968 winter (rabi) season was the first in northern India in which there was a coincidence of both favourable irrigation water supplies (after 2 years of severe drought, the monsoons had returned the previous late summer) and fairly widespread availability of the recently introduced high-yielding dwarf wheat variety seeds. The result was a rapid adoption of the high-yielding fertilizer/dwarf wheat input package. My research, and that of others during early stages of the Green Revolution, showed a potentially high profitability of this input package for farmers who had access to irrigation water. Some traditional village institutions such as caste did not appear to be much of a barrier to its adoption.

At the same time, however, my broad examination of agricultural institutions revealed some potential constraints. One was the land tenure system that had led to extreme fragmentation of holdings in northern India. My analysis indicated that this was likely to be an impediment to investing in irrigation pumps by many farmers whose holdings were too small and fragmented to efficiently use such pumps, unless there was institutional change such as government-initiated land consolidation.

Although I became exposed to the ‘institutional’ perspective at Maryland in the late 1960s, institutional economics was being deemphasized at many other universities at that time. Bright young agricultural economics undergraduates were being encouraged to do their graduate work at universities with a strong reputation in quantitative analytic methods at the time, rather than, say, the University of Wisconsin, which was considered the cradle of institutional economics in the USA. At the same time, the University of Chicago was starting to exert a major influence on the economics profession, including agricultural economics. The Chicago Economics Department was strongly influenced by Milton Friedman, with his neo-classical economics and ultra-free market perspective – a perspective that downplayed attention to institutional complexity and values other than profit maximization. The only institutions to receive much attention in ‘Chicago School’ economics were those associated with free markets and property rights. The Chicago School influence and other forces contributed to a shift away from institutional economics and towards a much greater emphasis on quantitative methods and neo-classical economics (in both agricultural economics and general economics). In the work of agricultural economists, there was a gradual decline in the amount of attention paid to understanding the critical role of institutions and values.

Over the course of my professional career, I have taught and conducted research on a range of topics in the USA and other countries, with the last 20 years focused primarily on sustainable agriculture. Let me give just one example of the kind of professional resistance to the institutions and values perspective I frequently encountered in my work over the years.

In a paper I once submitted to an agricultural economics journal, comparing the profitability of some organic and conventional farming systems that we had analysed in South Dakota, I undertook some extrapolations with the data to demonstrate that family income goals could be achieved at smaller farmer sizes with organic systems than with conventional systems in the study area. The policy inference was that a social goal of keeping a large number of family farms on the land could more easily be achieved through organic agriculture than through conventional agriculture. One of the journal's reviewers objected to this inference on the grounds that if organic agriculture were more profitable, then individual organic farms would not cease to expand after achieving a particular income level; rather, they would continue to expand in size up to the point at which marginal returns of additional hectares equal marginal costs of farming those additional hectares.

The problem with this reviewer's assertion was the implication that farmers value only profits (income). My rejoinder to the journal editor made the common sense assertion that farmers in the real world have other goals in addition to profit maximization, including the goal to have some time for family and social activities, rather than to work endless simply because it is ‘profitable’. This was not enough to prevent the editor from asking me to drop this portion of the paper as a condition for publication – which I did, rather than see the comparative profitability findings go unpublished. I had not compromised my findings, but I had been forced to omit what I thought was the most interesting and policy-relevant portion of the paper. (I did later publish the omitted farm size analysis elsewhere, in a multidisciplinary journal.) This obsession with profit maximization among many neo-classical economists over the last few decades has distorted policy with its failure to fully understand real people's full range of values.

So as not to paint too negative a picture, it must be stated that agricultural economists involved in multidisciplinary farming systems work in developing countries, from the 1970s onwards, generally have been very attentive to institutions and values in their analyses. So have many agricultural economists working on multidisciplinary sustainable agriculture studies in the USA and elsewhere since the 1980s and 1990s.

Of the top 100 questions of importance for the future of global agriculture, in a paper by that name in Volume 8, Issue 4 (2010) of this journal, I count 37 that require explicit attention to institutions and values if research is to develop comprehensive and practical answers (Pretty et al., 2010). This is especially true of the ‘agricultural development’ (14 of the 20 questions) and ‘markets and consumption’ (16 of the 22 questions) categories. Questions such as no. 93 and no. 94 in the latter category are good examples, both dealing with questions of how to make equitable and efficient food production compatible with global trade and food security. I would argue that the World Trade Organization (WTO), with its current rules derived from a narrow concept of economic efficiency, is one institution that would need to be fundamentally altered for the goals implied in those questions to be achieved. Research on those questions would need to explore alternatives to the current WTO framework, rather than take the current form of that institution as given.