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Introduction
The institution is a decisive factor in economic reform, the endogenous variables of economic activities and the driving engine for economic reform. An effective institution has the functions in three aspects: constraints on relations between behavior of economic subjects and economy, reduction on the social and economic disorder and uncertainty; clearance of property rights, reduction on economic opportunism and transaction cost; formation of an effective incentive mechanism so that the potential of economic elements can have full release. In a dynamic environment, the existing institution will be gradually solidified, become a hindrance to economic development. Institutional innovation’s point is to eliminate the stable path of institution and structural inertia (North, 1984). Therefore, the institution must be constant changed, and the old institution should be got rid of leading to the formation of a new supply of institution.
Institutional change and economic/financial reform
Institutional change is the propeller of economic reform. The sustained economic development needs incessant impetus to drive economic development. The key of whether institution, as the engine, can produce force constantly lies in the innovation of the institution (Grossman & Helpman, 1991). In an innovative institution, the function and effect of institution is released to the most, producing the driving force for economic reform. Conversely, if in a not innovative institution, the function of institution gradually declines, and the driving force of economic reform will be exhausted. Institution change is to set up a better institution structure and the institution arrangement, to reconstruct the social resources and ability, adjust the powers and interests relations between social organizations and members, make the function of institution have self-reinforcing effect, promote the sustainable development of economy.
The efficacy of impetus power of institution on economic development depends on the effectiveness of the institution, namely the institution effectiveness (Hall, 1997). In the process of economic development, institutional structure and institutional arrangement on different environmental conditions have different performances. Generally speaking, in the absence of effective institution or in the transition period of the new and old institutions, and in the process of institution change, the effectiveness of the institution shows high efficiency and presents the increasing status, and the role of the institution in promoting the reform of economy is strong. When the institution is gradually improved, the institution will be faced with the platform of reform, so that the function of the institution is in a relatively stable state. When the institution is in the reform platform state, if the existing institution can not be timely innovated, the institution performance will decline, and present a declining status. Therefore, the institutional change can improve the system performance, so as to enhance the driving force of economic development.
The most important significance in the institutional change lies in that an innovative institution can ceaselessly provide power, in order to ensure the sustainable reform of economy (Herring & Litan, 1995). On the other hand, the lack of institutional change, economic reform is difficult, and even if the economy has once developed, the development is not sustainable. The examples of the short-term economic reform in some Southeast Asian countries can be taken to briefly prove this truth. Economists think that in the nineteen eighties in some Southeast Asian countries, economic growth is a "paper tiger", which is based on very good reasons, because the large increase in this growth came mainly from labor and capital, and the lack of technological progress and institutional change, especially the lack of institutional change leading to the attenuation of driving force in economic reform, so growth can not be sustained (Krause, Koh & Tsao, 1987). Therefore, for developing countries in order to achieve sustained economic reform, institutional change is the key. The lack of institutional change will result in unreasonable allocation of resources, and the potential of economic elements are not fully released, economy will be difficult to develop, more difficult to reform.
In a dynamic environment, the system is dynamic as well, which must have self innovation with the changing internal and external environment, in order to get adapted to and promote the reform of social economy. Otherwise, the institution will produce a kind of aging, namely the institution will be gradually lagged behind the development of social economy, showing a conservative, rigid state (Stubbs & Underhill, 1994). The original institution is transformed into a shackle of the institution, bounding the burst of innovative elements in economic activities and the emergence of the innovation thoughts, which can not promote the development of economy, and even will become a hindrance to economic reform. Hannan has pointed out that the formation process of institutionalization and standardization process of organizational structure is the structural inertia, and when the environment changes, structural inertia is the cause of the decline and fall of the organization (Hannan & Freeman, 1977). Therefore, the institution must change with the environment constantly, and the institution should become a normal state to promote economic reform.
Conclusion
The process of the institutional change relies on the elimination of the constraint institution, breaking the structure inertia and the fixed path of the original institution, making use of the new institution which is adapted to the development of productivity and constantly discarding and replacing the old institution which can not be adapted to the process of development of productive forces. The institutional change is the constant adjustment and update of system itself (Tufte, 1980). A good institution should be an institution with continuous incentive of change. At the same time, this institution itself also should be constantly innovative, and only in this way the institution is a viable institution. As the other resources of economy, good institution is a kind of scarce resource, which will be in the state of shortage; therefore, the institution must be constant changed in order to get rid of the old institution and lead to the formation of a new supply of institution.
Reference
North, D. C. (1984). Estructura y cambio en la historia económica. Alianza Editorial, 37-52.
Grossman, G. M., & Helpman, E. (1991). Innovation and growth in the global economy. the MIT Press, 59-91.
Hall, P. A. (1997). The role of interests, institutions, and ideas in the comparative political economy of the industrialized nations. Comparative politics: Rationality, culture, and structure, 174-207.
Herring, R., & Litan, R. E. (1995). Financial regulation in the global economy. Brookings Institution Press, 49-58.
Krause, L. B., Koh, A. T., & Tsao, Y. L. (1987). The Singapore economy reconsidered. Institute of Southeast Asian, 48-98.
Stubbs, R., & Underhill, G. R. (Eds.). (1994). Political economy and the changing global order (pp. 366-77). London: Macmillan, 50-69.
Hannan, M. T., & Freeman, J. (1977). The population ecology of organizations. American journal of sociology, 929-964.
Tufte, E. R. (1980). Political control of the economy. Princeton University Press, 69-84.
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