On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it’s $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty.
The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity.
In From Poverty to Prosperity, Nick Schulz and I elaborate on these institutional differences. We draw an analogy with a computer’s operating system.
Acemoglu goes on to suggest that the solution to global poverty is as simple as cracking down on tyrants and supporting democratic activists. This ignores the insights of Douglass North into the differences between a limited-access order and an open-access order.
In a limited-access order, in which power and wealth are limited to a dominant coalition, which rules by force. In an open-access order, power and wealth are accessible to anyone with the skill to build a successful business or run an effective political campaign. The change from a limited-access order to an open-access order is analogous to a phase change from liquid to gas. The transition is not simple.