Saturday, December 20, 2014
How prosperity originated
Based on the book Why Nation Fail by Daron Acemoglu and James Robinson
In the 14th Century the Plague wiped out almost half of the world's population. This catastrophic event was the catalyst for our modern inclusive institutions. The loss of so many citizens left a void in Europe that caused two very different scenarios. In the east extraction persisted both economically and politically. While in the west feudalism was almost altogether abandoned due to the labor shortage, sending us down a path of inclusion. Broadly, inclusion refers to active participation. Inclusive economic institutions, "are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish." (74) Some key tenets being property rights, a rule of law, and basic public services. Inclusive political institutions follow the same basic ideas and boast pluralism and centralization. On the opposite side of the spectrum lies extractive institutions, "extractive because such institutions are designed to extract incomes and wealth from one subset of society to benefit a different subset." (76) Property rights are almost non-existent under extractive institutions and if they did exist, rule of law would be so that no one would enforce them. Political institutions that are extractive narrowly distribute power and are often completely unrestrained in every aspect.
Several things happened in Western Europe, specifically England, to facilitate inclusion. The English Civil War and the Glorious Revolution were both results of the institutional struggles that were adverse to the average citizen. "The Glorious Revolution of 1688...limited the power of the King and the executive, and relocated to Parliament the power to determine economic institutions." (102) Once a footing for inclusion was found it gradually persisted, growing through the increased liberty and the notion of a rule of law, speeding up the process of political centralization and creating the, "world's first set of inclusive political institutions." (102) A direct consequence was the spreading of inclusion to the economic sector. This is what the authors referred to as the virtuous circle. As inclusion is advanced it naturally fosters more inclusive institutions, allowing them to persist and exist. Opposite, the vicious circle allows for tyranny to ensue until it collapses under its own weight.
The authors argue that the emergence of more inclusion in politics following the Glorious Revolution had several contributing factors. Power was being diverted to middle class and they had a direct incentive to maintain as much inclusion as possible. Next was the broad coalitions that were formed by the newly enfranchised people. Successful because of numbers and diversity. This was not a revolution brought about by narrow interests, but by these newly formed political groups. Finally, the political history at the time allowed for a foundation for which more inclusive regimes could form. Specifically England and France's history of parliaments facilitated this as well as both countries had previously started shifting ideology away from absolutism to more pluralistic ones.
The virtuous circle is able to maintain momentum because once in place power transfers are mandated by law. This makes it difficult to seize any more power than is delegated, with checks and balances maintaining accountability. Second is that inclusive political institutions are supported by inclusive economic institutions; they remove extractive ones by mandating laws against things like slavery and not granting government monopolies. Third, and maybe most important, it allows for free media to exists. Media is important because it provides important information to the masses and allows for resistance and assemblage in opposition to threats against inclusive institutions.