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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? - PowerPoint PPT Presentation
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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?
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?
Institutions RuleTaxation 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?
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
Endowments – Institutions - Endowments
Inequality: cause and effect
Political power Economic powerReinforce status quo?
Promote progress?
Inequality MattersCountry Top to Bottom Gini Coefficient (Mid Decades/Year)
OECD, before tax 6.4 (20% in ‘90s) 34.8 (‘70s) 33.2 (‘80s) 33.8 (’90s) ----- (‘00s)
USA, before net taxes 15.9 (10%) 8.4 (20%) 40.6 (‘70s) 43.6 (‘80s) 47.7 (’90s) 48.6 (‘00s)
USA, after net taxes 31.6 (‘70s) 33.7 (‘80s) 36.1 (‘90s) 38.0 (‘00s)
UK, before net taxes 13.8 (10%) 7.2 (20%) 33.8 (‘70s) 41.9 (‘80s) 45.3 (‘90s) 44.5 (‘00s)
UK, after net taxes 26.8 (‘70s) 30.9 (‘80s) 33.6 (‘90s) 33.1 (‘00s)
CND, before net taxes 9.4 (10%) 5.5 (20%) 38.5 (‘70s) 39.5 (‘80s) 43.0 (‘90s) 43.6 (‘00s)
CND, after net taxes 30.4 (‘70s) 29.3 (‘80s) 28.9 (‘90s) 31.7 (‘00s)
SWD, before net taxes 6.2 (10%) 4.0 (20%) 38.9 (‘70s) 40.0 (‘80s) 43.8 (‘90s) 43.2 (‘00s)
SWD, after net taxes 21.2 (‘70s) 19.8 (‘80s) 21.1 (‘90s) 23.4 (‘00s)
Latin Am, before tax 11.7 (20% in ‘90s) 49.1 (‘70s) 49.8 (‘80s) 49.3 (‘90s) ----- (‘00s)
Mexico 21.6 (10%) 12.8 (20%) 48.3 (‘08)
Peru 26.1 (10%) 16.2 (20%) 48.1 (‘10)
Brazil 11.0 (10%) 12.0 (20%) 54.7 (‘09)
Chile 26.2 (10%) 15.7 (20%) 52.1 (‘09)
Panama 49.9 (10%) 23.9 (20%) 51.9 (10)
Haiti 54.4 (10%) 26.6 (20%) 59.2 (‘01)
Endowments – Institutions – Development Vignette I: The Conquistador Model
A. 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
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 midwest 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.