Lecture 8 - The Fingerprints of Institutions Flashcards
Institutions and economic development
What are examples of institutions?
- property rights
- democracy constraints on the excutive
- judicial systems
- systems of taxation
- free media
Extractive and inclusive institutions definitions
- Extractive political institutions allocate political power narrowly and feature a central state that is unable to provide key public goods, hindering human capital accumulation
- Inclusive political institutions place a strong emphasis on private property and checks agaisnt government power, and create the incentives and opportunities necessary to harness creativity and entrepreneurship, protect property rights, and encourage social mobility
- the concentration of political and economic power in the hands of a narrow elite, empowering them to protect their privileges and preserve existing disparities, has typically held back the tide of progress
- most pre-industrial states were extractive
- availability of natural resources may also be a reason why inclusive or extractive institutions were put in place
What can we use as an examples to analyse the causual effect of extractive instituions on economic development
Colonial origins of comparative development
- Mortality rates of settlers as a instrument for the quality of institutions : the formation of extractive states was more likely where the envrionment was not favourable to European settlement
- Peru’s mining mita, by comparing places right inside the Mita system to those right outside: although this system was abolished in 1812, Peruvian regions that were subjected to it remain poorer and have higher child malnutrition rates compared to nearby areas that were not exposed to the system
- countries that had highest settler mortality also have lowest GDP per person today -
settlers who faced bad geography or bad climate died. As a result bad institutions were put in place and these institutions persisted and today those places have lower income per person - the communal land tenure inside the mita did not encourage public good provision - mita villages today are much poorer
what do institutions and the persistence of cultural traits show
shows the role of who holds onto power and what their incentives are
Institutions and the persistence of cultural traits
Civic Capital - standards of living in the South of Italy are much lower than in the North, why?
- South Italy was governed by Norman Kings who imposed feudal economic and political order while in the North there was no unified government and city-states were a lot more fragmented
- In the South there was intense family ties, low trust and no cooperation outside the kinship: much less democratic participation so there was a persistent lack of self- efficacy and people would rely on their families rather than on society
- In North the mercantile elite these merchants passed laws and institutions that were favorable to trade so that they could survive - by incentivising trade which created much more social capital
Social capital = set of shared values that allows individuals to work together in a group
to effectively achieve a common purpose
Institutions and the persistence of cultural traits
Slave Trade
- places that were richer suffered the most from slave trade- if those places were richer you could extract more wealth, those places are now poor- less human capital and population as they took slaves away
- eroded interpersonal trust and trust in politicians in Africa as slaves were often tricked into slavery by the people close to them
this relationship of mistrust only occurred after the 1960s: independence happened in the 1960s so all the mistrust and such materialized then
The co-evolution of culture and institutions
- Do modern properous states always generate intrinsic preferences for ‘good behaviour’?
Kuba Kingdom to indentify its casual effect on cultural norms
- migration of different ethnic groups however the kuba kingdom eroded the intrinsic preferences of its subjects to follow rules and generated a greater propensity to cheat for material gain
example of how inclusive states can generate bad social outcomes
if you have stronger institutions, whatever cultural norms that all the other ethnicities had before, those cultural norms will erode in favour of bad cultural norms
- do centralised and extractive states always generate ‘bad’ cultural and economic outcomes?
Adoption of a common language and national identity in France
- at French revolution only 10% of French population spoke French
- Guizot Act: state sponsored education which taught national language and national history
- demand for eduction played a role because of human capital because France had a very early decline in fertility, so in return they want more education - quality to quantity trade off
However, big loss of diversity
the high returns from education play have played a role in this policy’s success
What were the the benefits of assimilating people to build a national indentity in France
1) If people all spoke different languages in different parts of the city why would they want to fight a war for the French king?
2) if the interest of your population is aligned with your interest as a leader (such as language or history) than the population will be less likely to revolt - 1830s a lot of revolutions
3) less likely to vote for far right today because
the rise of nationalism is not a by product of trying to homogeneous
Summary - Origins of Insitutions
Institutions typically survive for centuries and adapt very slowly, even when technological and commercial developments call for urgent reform. The main impact of institutions might in fact lie in their continuity and thus in their persistent effect on development
