On a unified theory of development: New institutional economics & the charismatic leader

- A new model of development is presented that combines NIE and charismatic leadership.
- The foundation of NIE, spontaneous order, is argued to be contained in charismatic leadership.
- Removing spontaneous order and attributing it to a new model, unifies non-rational social and rational market in one theory.

Rural communities face a number of compelling and specific challenges in relation to economic and social development. Issues such as declining or isolated populations, inadequate technological and commercial infrastructure, and restricted social networks are only some of the difficult challenges which must be overcome by successful development programmes; these challenges often require that unique and innovative development efforts take place. Government and third-party development organisations encourage rural development through community outreach and extension, education and training, social and economic research, and various grants and subsidised community loans. While many development efforts are structured in similar ways, there are varying degrees of success, with some outright failures. The success of a development programme differs even within similar geographies, which adds further complication to the development process. To try to enhance understanding of why this might be, we propose a focus on the role of “institutions”. Institutions are central to many rural development efforts as they offer a place of reference for community members, development researchers, and practitioners to develop a sense of norms and understanding from which to work. Over the past three decades, New Institutional Economics (NIE) has gained prominence in rural development literature through its attempt to understand how institutions allow for an efficient catalyst of economic growth in rural areas. While much advancement in rural development have been made vis-à-vis NIE theory, there is little research on which processes lead to the creation of successful indigenous institutions in rural areas. This paper argues that the creation of local institutions does not happen spontaneously, as understood by NIE theorists; rather, institutions manifest through the natural behaviour of what Max Weber called the charismatic leader. Moreover, it is maintained that the extemporaneous nature of the formation of institutions can be explained by the spontaneous virtues of the charismatic leader. Removing this specific uncertainty from NIE theory and placing it within the domain of local leadership in a rural community context reconciles key social and economic theory - which, ultimately, allows for the exploration and advancement of a unified theory of development.