The Anti-Manichaeist

Below is a significant paper, particularly since it comes from MIT and is part of the working-paper series of the National Bureau of Economic Research, which is the most prominent working-paper series in the economic discipline. It can be obtained for five dollars.

Institutions are what keep us from killing each other. In the course of existence, due to pervasive scarcity, there are many conflicts among numerous parties and how we reconcile our differences alters over time. How we settle our differences then affects our ability to learn from each other, to decentralize decision-making and avoid negative-sum wars.

It is my contention that the cultural wars in the US are affecting our institutions, deteriorating them, so we can’t work out solutions to many of the pressing problems that face us in a manner satisfactory to most of the affected parties.

“Institutions as the Fundamental Cause of Long-Run Growth”

BY: DARON ACEMOGLU
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
Centre for Economic Policy Research (CEPR)
SIMON H. JOHNSON
Massachusetts Institute of Technology (MIT)
Sloan School of Management
National Bureau of Economic Research (NBER)
JAMES A. ROBINSON
University of California, Berkeley
Department of Political Science
Centre for Economic Policy Research (CEPR)

Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=541706

ABSTRACT:This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two ‘quasi-natural experiments’ in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally a conflict over these social choices, ultimately resolved in favor of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de jure political power, while groups with greater economic might typically possess greater de facto political power. We therefore view the appropriate theoretical framework as a dynamic one with political institutions and the distribution of resources as the state variables. These variables themselves change over time because prevailing economic institutions affect the distribution of resources, and because groups with de facto political power today strive to change political institutions in order to increase their de jure political power in the future. Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders. We illustrate the assumptions, the workings and the implications of this framework using a number of historical examples.