Applying Douglass North, et al to Iraq and China
By Arnold Kling
In this essay, I elaborate on the new paper by North, Wallis, and Weingast that I first posted on last week. In the essay, I write,
I would say that there is no chance that the United States will succeed in its objective of establishing an open-access order in Iraq. The best we can hope to do is restore Iraq to a natural state, meaning a limited-access order where rights and power are exclusive to certain elites, who will be subject neither to economic nor political competition as we know it.
For a limited-access order to emerge, the leaders of each major faction in Iraq must have a stake in peace. For each leader, that means having enough exclusive economic and political rights to feel that he has more to lose than to gain by resorting to violence.
Like many commenters on my earlier post, I raise the issue of whether China is an anomaly, because of its relatively high level of economic competitiveness and low level of political competitiveness. I can see three possible outcomes:
1. China continued to open up and develop economically, while remaining a one-party state politically. This would tend to discredit NWW’s paper.
2. China undergoes a transition to an open-access order, so that over the next 20 years genuine political competition emerges.
3. To retain power, China’s leaders maintain control over the access to capital in the economy. Eventually, a system of centralization and government favoritism leads to economic stagnation before China achieves full economic development.
UPDATE: Frequent EconLog commenter Steve Sailer says in this essay
In America, you don’t need to belong to a family-based mafia for protection because the state will enforce your contracts with some degree of equality before the law. In Mexico, though, as former New York Times correspondent Alan Riding wrote in his 1984 bestseller Distant Neighbors: A Portrait of the Mexicans, “Public life could be defined as the abuse of power to achieve wealth and the abuse of wealth to achieve power.”
The quote from Riding about Mexico could constitute a succinct summary of what North, Wallis, and Weingast call a natural state. Sailer and I tend to disagree about immigration, for reasons that will be clear if you read his essay.