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Institutions Rule

Institutions Rule. Property rights If you’re insecure in your property, why innovate? Why accumulate? Rule of law Can contracts be enforced? (Anglo) common law trumps (French) civil law? Trust Will contracts be honored? Suffrage...and restrictions Can elites be challenged?

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Institutions Rule

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  1. Institutions Rule Property rights If you’re insecure in your property, why innovate? Why accumulate? Rule of law Can contracts be enforced? (Anglo) common law trumps (French) civil law? Trust Will contracts be honored? Suffrage...and restrictions Can elites be challenged? Who rules for whom?

  2. Institutions Rule Education • Are citizens literate? • Does government promote productivity? Finance • Can aspirations be funded? Labor relations • Free or slave? • Individual on her own or union solidarity? Land ownership and use • Large grants or small homesteads? • Plantations or farms/Proprietors or smallholders?

  3. Institutions Rule Taxation and expenditure • Public or private enterprise? • Redistribution or status quo? Patents • Are ideas protected? Emigration/Immigration • Slave or free? • Open or restricted? • Integration or segregation? Religion and culture • Belief or empiricism? • Fundamentalism or secularism?

  4. Endowments Matter Geography: Resource use/resource curse • Climate • Disease environment • Soil quality • Minerals: gold??? • Access to markets: seas/rivers/landlocked Demography • Population density • Human capital

  5. Endowments – Institutions - Endowments Inequality: cause and effect Political power  Economic power Reinforce status quo? Promote progress?

  6. Inequality Matters

  7. Inequality in the USA: The Top 10% Source: Emmanuel Saez, Striking it Richer, 2010

  8. USA’s Top 1% vs. the rest of the top 10%

  9. USA: The Working Rich

  10. Endowments – Institutions – Development Vignette I: The Conquistador Model • Mexico/Peru – Densely settled empires • Kidnap the ruler/Ransom the ruler/Kill the ruler • Displace the ruler  Encomienda system • Large land grants/Natives come with the land – the mita system Inequality – Extractive institutions Persistent inequality – Stagnation B. Jamestown – sparsely settled tribal lands • Cagey chief...what, kidnap me? • Absence of gold...work or starve  starve • Import colonists • No incentives  no product  no gain • Create incentives  Distribute land Relative equality – Open institutions Evolution – Progress

  11. Endowments – Institutions – Development Vignette II: Finance A. Latin America • Large native population  conquest extractive institutions • Tropical soils  plantation crops (sugar, tobacco, cotton)  slavery • Minerals (gold, silver)  encomiendas Economic and political inequality Bank charters to elites  Lending to elites  Reinforce status quo B. Northeast and mid-west United States • Rocky soils  small-scale grain farming Relative equality Many small banks chartered* – intercommunity lending “Democratic” credit  Development and change *States eager to charter banks as revenue source.

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