Juntas vs. Open Societies
By Arnold Kling
Douglass C. North, John Joseph Wallis, and Barry R. Weingast have a new paper, immodestly titled, “A Conceptual Framework for Interpreting Recorded Human History.” I will excerpt from it in the extended entry.
An earlier paper (from 2005) may be accessed without paying a toll to the NBER. This paper says,
Primitive orders do not possess governments, and the degree of specialization and division of labor in their economies is extremely limited. The civilizations that first begin to appear 10,000 years ago, what we call “natural states,” represent major achievements that allow humans to capture the productivity benefits of the first revolution. Natural states support a range of economic specialization, including a readily identifiable group who compose the government. The natural state strictly limits access to positions of power within political, economic, and religious systems. What we call “open access orders,” began to develop around 1700. These societies are characterized by open political and economic competition, rather than the limited political and economic privileges enjoyed solely by elites in natural states.
…our theory implies that natural states cannot develop [economically]. Open access competitive markets are fundamentally at variance with the natural state’s political logic. Political insecurity drives natural state’s to control markets, not control competitive ones. They may exhibit some growth by creating the basis for some specialization and exchange or by adopting new technologies from elsewhere, but they cannot create thriving markets with open access and generalized incentives for all citizens to make investments.
The main implication of this point is that the label, “developing countries,” is a misnomer. These countries are not developing; indeed, our perspective implies they are anti-development.
But my favorite quote from the 2005 paper is
For much of the world, the relevant alternative to the natural state is not an open access order like the United States or France, but a descent into the hell of disorder.
Reading this made me think of a contemporary example. Without revealing which country it reminded me of, let me just say that it starts with I and ends with q.Here are some excerpts from the new paper. Perhaps best to start with the conclusion.
All developed countries in the world today have both competitive democracies and competitive market economies. This connection strongly suggests that theories of economics that take politics as exogenous and theories of politics that take economics as exogenous are incapable of explaining the process of modern social development. Our framework integrates both. It suggests three major conclusions. First, limited access orders have been the default option for human societies over the last ten thousand years. We have termed the political and economic structure of the limited access order the natural state for a reason: it is the natural form of human society. The implications for development policy are enormous. Natural states are not failed states, they are typically not produced by evil men with evil intentions, and they are not the result of pathologies in the structure of these societies. Nothing is unnatural about natural states. And because natural states are not sick, policy medicine will not cure them.
Limited access orders manipulate the economy to produce rents and then systematically use those rents to create political stability. The result is a modicum of social order, an increase in specialization and division of labor, and economic growth. Natural states vary enormously. In terms of politics, economics, violence, and culture, some limited access orders are more successful than others. No forces inherent in the logic, social structure, or historical dynamics of limited access orders inevitably lead them to become open access orders. Because natural states have internal forces built on exclusion, privilege, and rent-creation, they are stable orders. They are therefore extremely difficult to transform.
Second, open access orders maintain open access to political, economic, and other social organizations. Access to organizations vitalizes competition in all systems, and competition sustains the social order. Economic and political systems are just as intimately connected in an open access order as in a limited access order, but the connections lie at a deeper level. In an open access order, economics appears to be independent of politics. This seeming independence is reflected both the famous classical liberal dictum about limited government and in neoclassic economic’s view that markets are antecedent to government and that the government intervenes into markets. A competitive economy requires not only a state that maintains open access, entry, defines property rights, and enforces competition, it also requires a state that is capable of providing the social infrastructure that sustains perpetually lived and extremely sophisticated and complicated organizations. The modern business enterprises and thriving modern markets cannot exist outside the institutional framework provided by open access polities.
Similarly, political scientists have ignored the critical role that a competitive open access economy plays in sustaining open access politics and competitive democracies. Modern western democracies could not exist without being embedded in competitive market economies characterized by competition as Schumpeter described it: creative destruction resulting from competition between large, well organized, and technologically innovative economic entities. Modern social science is as far from understanding how open access social orders work as they are from understanding how limited access social orders work.
Third, our perspective redefines the problem of economic development. In contrast to the perspective in modern economics, our framework suggests that economic development is not an incremental process, such as gaining more education, capital, and making marginal improvements in the rule of law. Each of these can improve a developing limited access order by moving it a bit toward the doorstep conditions, but these incremental changes can take a limited access order only so far: they are not the process of development.
The process of economic development is instead the movement from a limited access order to an open access order. This process is very difficult to engineer. Despite the massive attention to economic development by international donor agencies, only eight countries have made this transformation since WWII. Our approach implies that development requires a transformation in society from a limited access to an open access basis. This transformation takes place through what we have called creating the doorstep conditions, which represent a radical change in both the state and society: rule of law for elites; perpetual life for organizations, including the state; and political control of the military. Each of these changes increases the gains from specialization and exchange; they also create mechanisms that underpin impersonal exchange. For this reason, natural state on the doorstep are wealthier. Moreover, the doorstep conditions create incentives to make incremental increases in open access that can transform a natural state on the doorstep into an open access state.
Some other excerpts:
the formation of the state provides a first order solution to the problem of limiting violence by inducing the most powerful members of society to create arrangements that reduce their potential gains from using violence. This form of state does not induce the powerful to disarm or refrain from threatening violence, nor does it eliminate violence. The internal structure of relationships among members of the state – the state’s industrial organization if you will – is what constrains violence.
…the natural state does not eliminate violence. The internal dynamics of the dominant coalition are based on continuous assessment of the strength of individual members. Part of what holds the natural state together is the threat of violence by coalition members.
…The limited access order is a social equilibrium. The equilibria share common characteristics:
1) Control of violence through elite privileges.
2) Limits on access to trade.
3) Relatively strong property right protection for elites and relatively weak property right protection for non-elites. To the extent a natural state is characterized by the rule of law, it is for elites.
4) Restrictions on entry into and exit from economic, political, religious, educational, and military organizations.
…Rents exist in an open access order just as they do in a limited access order. What differs is the way the political system manipulates the creation of rents in the economic system in order to order the political system. In an open access order, rents serve as an inducement to Schumpeterian competition. In a limited access order, rents exist because Schumpeterian competition is inhibited or not allowed to function.
…transitions [from limitede-access to open-access orders] occur in a period of time that are quite short by historical standards, something on the order of fifty years or less. In the twentieth century Taiwan, South Korea, Ireland, and Spain appear to have made very rapid transitions. In the late eighteenth and early 19th century, Britain, France, the Dutch, and the United States made transitions that took roughly fifty years.