Economies in Transition and in Development: A Possible Warning from Adam Smith

If Adam Smith were asked about transitioning and developing economies today, one may infer, he might suggest introducing small, yet constant, opportunities for wealth accumulation, avoiding the sudden accumulation of riches. Good institutions and the moral rules often needed to complywith them are more likely to be disregarded if there are large, suddenmaterial gains, such as new wealth generated by the sudden opening ofmarkets or government granting monopolies. For Smith, the desire to showoff in front of others can inhibit moral behaviour and respect for goodinstitutions, generating perverse incentives that hinder growth. Gradualchange is to be preferred.