A Good Institution Is Hard To Find

Many of us who study institutions are convinced they matter because we can see them. We observe the obstacles they create for people trying to improve their lives. We can document the ways in which they restrict choices, create opportunities for rent-seeking elites, and deprive many people of formal recourse against the predatory practices of those with greater power or wealth.

The archives for Russian serf estates in the eighteenth and nineteenth centuries are full of documents with titles like these:

“On the punishments meted out to peasants who migrate without permission”

“List of fines levied on peasants who own more than two sets of clothes”

“Punishments for peasants who hire outside laborers to perform their feudal labor obligations”

“Decree prohibiting unmarried women to seek work beyond the manor”

“Complaints about village officials confiscating communal land and renting it out for profit”.

“Report on manorial officials taking bribes from villagers”

“Decree ordering all trading peasants to purchase licenses from local guild members”

Mobility restrictions, sumptuary legislation, labor market interference, gender discrimination, expropriation, corruption, rent-seeking – a cursory look through the archive catalogue hints at a significant number of “extractive” growth-constraining institutions. When one digs deeper, the connections between these become clearer, as does the larger political-economic context of serfdom, in which a state with low fiscal and administrative capacity creates ample scope for the rent-seeking activities of nobles, peasant communes, guild members, and local officials.

The “inclusive” institutions, the ones thought to generate growth and political openness, are much harder to identify. To some extent this is due to the endogeneity of the sources, as recently discussed by my Broadstreet colleague Adam Slez. The kinds of rent-seeking and corruption on display in the Russian case above were artifacts of serfdom, communes, and guilds – institutions that were built into the larger political economy and whose activities were recorded and are immediately visible. In places with a more “inclusive” equilibrium, the institutions that made property rights more secure also kept evidence of corruption, expropriation, and rent-seeking from making it to the surface (except in more spectacular cases or those involving the crown or parliament). To understand how these “good” institutions work, one has to dig more deeply — to examine, for instance, court records and other documents related to dispute resolution, where evidence of conflict and enforcement would be observable. This is very labor-intensive historical research, along the lines of micro-level work I described last week, but absolutely necessary, in my view, if we are to move beyond the broad correlations between generically-characterized institutions and long-run growth and development.

To date, the “inclusive” mechanisms are still vague: credible commitments, constitutions, strong states, parliaments to check the strong states, and even, more recently, civil society. There has, for some time, been a certain skepticism on the part of historians about the explanatory power of these institutional features, including criticisms similar to those I raised last week about the endogeneity (or “historical contingency”) of these individual “strands” that have been extricated from their respective political-economic contexts. The problem is exacerbated, I think, by the disproportionate attention given by researchers to the English case. This has come about for a number of reasons. The most obvious one – and the one that has probably motivated most of the HPE research in this field – is that it’s the society where the industrial revolution, and the long-term growth associated with it, first occurred. It makes sense that we should want to better understand the context that gave rise to this outcome. If we can figure out why this happened in Britain at this particular time, we may be able to draw conclusions that have more universal applicability. Furthermore, it doesn’t hurt that the historiography is in a language accessible to so many researchers working in the field of HPE. And given that England has been central to this literature for so long, there is now a large body of research focused on England (or Britain), with lively debates over a number of competing theories, and this itself continually attracts new researchers to the field.

Unfortunately, England is too often left to stand in for “inclusive institutions” and for Europe more generally. Since much of Europe converged on a path to industrialization and sustained growth in the nineteenth century, it is reasonable to assume that whatever kicked it off must have been something all of these societies shared. This is reinforced by debates about the “great” and “little” divergences, which divide Europe into regions that are thought to have had broadly similar trajectories, making it seem natural to view the rest of Europe through the lens of British economic and political developments. Looking at the broad similarities across countries that experienced rapid and sustained economic development is fine – may even be necessary – as a starting point. But it will only take us so far. It will not help us to get more precise about mechanisms.

In last week’s post, I noted that institutions form a complex scaffolding beneath the outcomes we observe on the surface. No two societies have the exact same combination of institutions. Even if they have certain institutional components in common, they have them in different proportions or different combinations. A cursory glance at, say, the Netherlands, France, or German-speaking central Europe – all places that eventually converged on outcomes similar to Britain (or experienced growth even earlier in the case of the Netherlands) – makes clear that there is more than one route. There are undoubtedly similarities that eased this convergence. But the differences are striking. Parliaments did not perform the same functions in all of these societies; they were institutions that evolved in response to differing (and changing) political, social, and economic circumstances at each local level. The development of the French state – before and after 1789 – was very different from that of England, where there is already something resembling a centralized state in the late medieval period. (And, as I have argued elsewhere, the impact of the French Revolution and the Napoleonic Code would have been largely determined by the existing institutional structures in place in the societies affected.) The German-speaking lands were institutionally quite different from both England and France. German industrialization in the nineteenth century was very much state-led, for one thing, and came about under quite different circumstances than in the English case. There appear to have been far fewer “checks” on states in Europe than there were in England – or at least the checks were different – though more than there were in a place like Russia.

It might help then to look at these societies individually and separately, instead of seeing them as a monolithic bloc (as “western” or “northwest” Europe), to gain a better understanding of how they differed from England and from one another. This would also improve the calibration of comparisons with societies outside Europe. Most importantly, it would shed some much-needed light on the range of institutions, or configurations of institutions, that can give rise – have historically given rise – to sustained growth over the long term. No institutional system generates only inclusive outcomes or only extractive ones; there are costs and benefits to each combination. And so long as we are unable to say with any greater precision which combinations are necessary or sufficient for “inclusiveness” or where on the continuum the tipping point is, we will struggle to articulate what the lessons of history are for modern development.

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