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1)WHY NATIONS FAIL READING (CHAPTER 1 AND 3) BY ACEMOGLU AND ROBINSON
Egypt- all economic impediments they face stem from the way political power in Egypt is exercised and monopolized by a narrow elite Egypt is poor precisely because it has been ruled by a narrow elite that have organized society for their own benefit at the expense of the vast mass of people. Political power has been narrowly concentrated, and has been used to create great wealth for those who possess it (for ex. 70 billion dollar fortune accumulated by Mubarak). Countries such as Great Britain and US have become rich because citizens have overthrown elites who controlled power and created a society where political rights were much more broadly distributed, government was accountable and responsive to citizens, and where great mass of people can take advantage of economic opportunities. The Revolution expanded political rights for countries like Europe. It did not spread out for countries like Egypt. Although Egypt was under the English rule for several decades, imperialism did not teach Egypt of the ways of the “Revolution” but created another distinct hegemony that of the English being superior to their colony. The Beginning- Latin America Juan Diaz de Solis explores Rio de la Plata (River of Silver) in 1516, and Pedro de Mendoza found Buenos Aires in 1534 But Solis and Mendoza unable to enslave and put to work the hunter-gatherers Indians of the area, the Charruas and the Querandi. Starving Spaniards soon left the area. In 1537, Juan de Ayolas found the sedentary and more densely settled Guarani up the Parana river, in Paraguay. The Spaniards could not successfully take over the Guarani hierarchy, enslave them and put them to work to produce food for them. A very similar pattern of colonization of the Aztecs and the Incas The Beginning- US Colonization attempts of Virginia Company in Jamestown in early 17th century, attempting to create an authoritarian, “extractive” regime No man or woman shall run away from the colony to the Indians, upon pain of death Anyone who robs a garden, public or private, or a vineyard, or who steals ears of corn shall be punished with death. No member of the colony will sell or give any commodity of this country to a captain, mariner, master or sailor to transport out of the colony, for his own private uses, upon pain of death. [from the laws passed by Sir Thomas Gates and Sir Thomas Dale]. But the Company was unsuccessful it could not force the English
entry barriers and regulations preventing functioning of markets and creating a nonlevel playing field EXTRACTIVE POLITICAL INSTITUTIONS: in the limit of “absolutism”: Political institutions concentrating power in the hands of few. create powerful forces toward economic growth by: o Encouraging investment (because of well-enforced property rights) . without constraints. topography.settlers into gang labor and low wages. attitudes and values) and geography (climate. law and order. Insecure property rights. checks and balances or “rule of law” INCLUSIVE ECONOMIC INSTITUTIONS: Secure property rights.Lack of law and order. and Maryland The chain of events ultimately leading to the declaration of Independence and the U. uphold contracts. Company switched to a “headright system” giving all the settlers 50 acres of land and then shortly thereafter also political rights. and Ayolas did not set up forced labor and repressive regimes because they were ignorant of the implications Instead. open to relatively free entry of new businesses. broadly defined the rules that govern economic and political behavior Key questions: historical roots of institutional differences and the logic of institutions do not unleash growth Towards a Theory of Institutions EXTRACTIVE ECONOMIC INSTITUTIONS. access to education and opportunity for the great majority of citizens INCLUSIVE POLITICAL INSTITUTIONS: Political institutions allowing broad participationpluralism. rule of law (closely related to pluralism) But also some degree of political centralization for the states to be able to effectively enforce law and order Growth Under Inclusive Institutions Inclusive economic and political institutions (OR INCLUSIVE INSTITUTIONS FOR SHORT). in the form of it General Assembly in 1969 Similar events unfolded in Pennsylvania. TO TAKE ADVANTAGE OF NEW ECONOMIC OPPORTUNITIES An “ignorance hypothesis” also unable to explain the logic of social arrangements leading to relative poverty – Cortes. markets and state support (public services and regulation) for markets.S. central role of “institutions”. JUST LIKE BRITAIN. they are not the main source of this “divergence” o Much of Latin America likely richer than North America as late as mid-18th century o DIVERGENCE IS DUE TO THE INABILITY OF THE UNITED STATES. Carolina.and placing constraints and checks on politicians. Pizarro. Constitution The differences in the ways Latin America and North America were organized historically explain the differences in the ways they are organized today and their different levels of prosperity Making Sense of the Divergence While both culture (religion. disease environments) are important for the ability of humans to form well-functioning societies.
this will not be sustained growth Towards a Theory of Institutional Change As a consequence of the distributional consequences of institutions conflict pervasive in society In the context of differential institutional driftsmall but notable differences in institutions across nations Small differences that matter when critical junctures arise.confluence of actors which can determine status quo Institutions- drift-institutionst+1 critical juncture institutional divergence But outcomes not historically determined. Barbados. and broad-based property rights) Key aspect of growth under inclusive institutions: investment in new technology and creative destruction Central question: Why are extractive institutions so prevalent throughout history and even today? The Logic of Extractive Institutions Main thesis is that growth is much more likely under inclusive institutions than extractive institutions Growth. Soviet Union) o When relatively secure in their position. Consequently. entry of more efficient firms. gain free entry. China today) o But big difference from growth of inclusive institutions: no creative destruction and dynamics very different.Harnessing the power of markets (better allocation of resources. because of growth and its supporting institutions. Growth Under Extractive Political Institutions Though growth is much more likely under inclusive institutions. the elites may wish to allow the emergence of relatively inclusive economic institutions under their control (e. will create both winners and losers. because of changes in institutions or introduction of new technologies o Political losers: those who will lose their unconstrained monopoly of power.fear of creative destruction o Both are important in practice but particularly political losers are a major barrier against the emergence of inclusive institutions and economic growth. partly contigent The changes that happen as a result of this interaction then become the background institutional differences upon which new critical junctures act o .g. it is still possible under extractive institutions Why?—Generate output and resources to extract Two types of growth under extractive political institutions: o Extractive economic institutions allocating resources to high productivity activities controlled by the elites (e. ability to finance for starting businesses etc. Thus there is a logic supporting extractive institutions and their stagnation: o Economic losers: those who will lose their incomes. and inclusive institutions that will support it.) o Generating broad-based participation (education. South Korea under General Park. even though growth is possible under extractive institutions.g. for example their monopolies.
Venice but ultimately reversed Crucial turning point can be found in the Glorious Revolution in England in 1688 o The Glorious Revolution brought much more inclusive. the ability of a king. Institutional Divergence at Critical Junctures: Black Death and Feudalism The divergence of Western and Eastern Europe after the Black Death. Brown and Hopkins. in the East.positive law. president. 1956) Why do nations fail? -Because they have extractive political and economic institutions -These are difficult to change though they can be successfully challenged and altered during critical junctures -The roots of modern world inequality lie in the emergence of inclusive institutions in Britain and the fruits of this. function of political power.Transition to Inclusive Institutions Extractive institutions have been the norm in world history. distribution of land holdings) Key mechanism: increases in wages following population decline (e. the power of landlords intensifies leading to the Second Serfdom in the 16th century The institutional divergence driven by a large demographic shock interacting with initial institutional differences (organization of peasant communities.in the West the power of landlords declines and feudalism withers away. either by a divine authority Legislation. Where do inclusive institutions come from? o Earlier moves towards inclusive institutions resulting from conflict and institutional driftRoman Republic.g. pluralistic political institutions which then led to a transition towards much more inclusive institutions This created the conditions which led to the Industrial Revolution Growth in the 19th century and dissemination of industry were conditioned by interactions between initial institutional differences and the critical junctures created by political events and the Industrial Revolution itself.the industrial revolution – spread to those parts of the world that had similar institutions (settler colonies) or quickly developed them (Western Europe) -Other parts of the world languished with extractive institutions which have persisted over time and thus remain poor today 2) ON THE RULE OF LAW BY TAMANAHA 3) THE ORIGINS OF POLITICAL ORDER: FROM PREHUMAN TIMES TO THE FRENCH REVOLUTION (2012) BY FUKUYAMA THE ORIGINS OF THE RULE OF LAW Law vs. that is. legislature. baron. Phelps. legislation Law. or warlord to MAKE and enforce new rules based ultimately on some combination of power and authority “State building and the rule of law therefore coexist in a certain tension” .abstract body of rules of justice that bind a community together -fixed by an authority higher than any human legislator.
such rates of growth are not achievable even presuming the existence of modern property rights and a rule of law because the binding constraints on growth lies elsewhere . nothing will prevent it from taking the property of its citizens. judges. or of foreigners who happen to be doing business with it It is perfectly possible however. including police who will ultimately enforce the law ESTABLISHMENT OF THE RULE OF LAW= ECONOMIC DEVELOPMENT -absence of strong rule of law is indeed one of the reasons why poor countries can’t achieve higher rates of growth Modern Property Rights -those held by individuals who are free to buy and sell their property w/o restrictions imposed by kin groups. it did not restore to Chinese peasants full modern property rights but it gave them usufructuary (one having the use or enjoyment of something) rights to their land These rights were “good enough” to lead to a doubling of agricultural output just four years after change of property rules The economists’ emphasis on modern property rights and contract enforcement under a rule of law may be misplaced in two aspects In the contemporary world. “good enough” property rights w/ no sovereign rule of law are at times sufficient to produce high rates of economic growth In a Malthusian world.Rulers can enhance their authority by acting within and on behalf of the law vs. on the other hand. the law can prevent them from doing things they would like to do. to have “good enough” property rights and contract enforcement that permit economic development w/o existence of a true rule of law Ex. and other officers of the court. if a government does not feel bound by a preexisting rule of law. but considers itself fully sovereign in all aspects. People’s Republic of China There is no true rule of law in China today. not just for their private interest but for the interest of the community as a whole CONTEMPORARY CONFUSIONS CONCERNING THE RULE OF LAW Contemporary developing countries -one of the greatest POLITICAL deficits lies in the relative weakness of the RULE OF LAW EFFECTIVE LEGAL INSTITUTIONS ARE PERHAPS THE MOST DIFFICULT TO CONSTRUCT -“legal institutions. religious authorities and the State [property rights and contract are related to economic growth] Obviously. where continuous technological innovation is possible. must be spread throughout the entire country and maintained on an ongoing basis” -legal institutions require physical facilities as well as huge investments in the training of lawyers. the Chinese Communist Party does not accept the authority of any other institution in China as superior to it or able to overturn its decisions When the party disbanded collective forms in 1978 under the Household Responsibility law.
contract enforcement and commercial law develop? And how did the highest political authorities come to accept the sovereignty of law? HAYEK’S THEORY THAT LAW IS PRIOR TO LEGISLATION Friedrich A. Is the security of persons. a common set of rules of justice. New York. Mme. protected business interests against a legislative effort to limit working hours Where did law itself. Another definition of RoL that likely had as great impact on economic life in premodern. “Checks and balances” taken to be a hallmark of a strong rule of law in society (branches of government check one another) BUT!!!! The mere existence of a formal check is not equal to strong democratic governance Courts can be used to protect interest of elites Ex. 1905 Supreme Court case of Lochner vs. but a rule of law that protects citizens against arbitrary actions of the state itself is often initially applied only to a minority of privileged subjects THE LAW PROTECTS THE INTERESTS OF ELITES WHO ARE CLOSE TO THE STATE OR WHO CONTROL THE STATE Ex. the ability to exit from the violent state of nature and go about one’s daily business w/o fear of being killed or robbed Tend to appreciate it when it is absent rather than present Finally. but libertarians are not opposed to rules as such: “only the existence of common rules make the peaceful existence of individuals in society possible” .IT IS THEREFORE NOT TRUE THAT THERE WAS NO RULE OF LAW IN 17TH CENTURY FRANCE. BUT THE LAW DID NOT REGARD COMMONERS AS LEGAL PERSONS ENTITLED TO THE SAME RIGHTS AS THE ARISTOCRACY People lucky enough to live in countries w/a strong rule of law usually don’t understand how it arose in the first place (thus failure of programs to improve rule of law in poor countries designed by rich) They mistake outward forms of the rule of law for its substances Ex.originate? How did specific rules regarding property rights. Hayek godfather of contemporary libertarianism. as in contemporary times.that is. it is not possible to talk about the RoL without specifying to whom should it apply = the circle of people who are considered legal persons protected by the law Societies seek to enforce basic social rules universally. turning old man and children out of their houses in search of assets to seize 60 townspeople were to be hanged the following day for nonpayment French State would not enforce such drastic penalties on Mme de Sevigne and her circle Imposed onerous taxes on commoners precisely because it was too respectful of the property rights and personal security of the aristocracy So…. de Sevigne of Francesalon patron of 17th century France In a letter to her daughter describes how soldiers in Brittany were enforcing a new tax.
the product of the free invention of a legislator…is actually false and an erroneous product of CONSTRUCTIVIST RATIONALISM EX. can be. no individual could master enough information to anticipate the effects of a planned change in the laws or rules 2) SOCIAL ORDER IS NOT TOP-DOWN but occurs spontaneously through the interactions of hundreds or thousands of dispersed individuals who experimented with rules. and ought to be.HAYEK -constructivism is a conceit of the last 300 years and particularly of a series of French thinkers including Descartes and Voltaire who thought that the human mind was sufficient enough to understand the workings of human society -TOP-DOWN APPROACH WON’T WORK political power. for ex. kept the ones that worked and rejected those that didn’t 3) Law itself a spontaneous order and there can be no doubt that existed for ages before it occurred to man that he could make or alter it “individuals had learned to observe and enforce rules of conduct long before such rules could be expressed in words” LEGISLATION “came relatively late in the history of mankind” all law is. ENGLISH COMMON LAW -cumulative decisions of countless judges -more adaptive and market-friendly than the continental tradition of civil law Sir Edward Coke -common law dated from time immemorial Legal centralists -formal legislated laws create and shape moral values FROM CUSTOMARY TO COMMON LAW HAYEK’S INSIGHT -based on the decentralized evolution of social rules Legal periphalist -simply codify existing norms . Soviet Union RATIONALIST/ CONSTRUCTIVIST -that it proceeded from the will of a legislator who rationally studied the problems of society and devised a law to establish what he thought was a better social order HAYEK SAYS THAT THE RATIONALIST THEORY IS WRONG 1) No single planner could ever have enough knowledge about the actual workings of a society to rationally re-order it -the bulk of knowledge in a society was local in character and dispersed throughout the whole society.
THE INTERPRETATION OF STATUTES THE SPANISH ANTECEDENTS OF THE PHILIPPINE CIVIL CODE BY BALANE MESTIZO: THE PHILIPPINE LEGAL SYSTEM BY AGABIN THE TREND TOWARDS EQUITY VERSUS POSITIVE LAW IN PHILIPPINE JURISPRUDENCE BY JBL REYES THE CIVIL LAW TRADITION BY MERRYMAN (CHAPTER VIII CERTAINTY AND EQUITY viii.different precisely because such an enforcer exists. CANON LAW.Saxon tribal WHY NATIONS FAIL CHAPTER 11 THE CIVIL LAW TRADITION BY MERRYMAN (CHAPTER I. THE SOURCES OF LAW v. THE REVOLUTION iv. CERTAINTY AND EQUITY xix. PERSPECTIVES CHAPTER THE NEW PROPERTY BY CHARLES REICH . which is the STATE itself The first known compilation of Anglo. AND COMMERCIAL LAW iii.-but there have been major discontinuities in the development of law that can only be explained by intervention of political authority and not “spontaneous order” TRIBALSTATE-LEVEL FORMS OF ORGANIZATION Tribal – justice between individuals is a bit like contemporary international relationsbased on self-help of rival groups in a world where there is not 3rd party enforcer of rules AS COMPARED TO OR DEVELOPED INTO State-level societies.VII) i. JUDGES vii. ROMAN CIVIL LAW. TWO LEGAL TRADITIONS ii. CODES AND CODIFICATION vi.
allocated by government in its own terms and held by recipients subject to conditions which express “public interest” Growth of government largess affects underpinnings of individualism and independence Influences Bill of Rights Impact on the power of private interests in their relation to each other and to government WHOLE ARTICLE DISCUSSES 1) EXAMINATION AND NATURE OF GOVERNMENT LARGESS 2) REVIEWS THE SYSTEM OF LAW (IN RELATION TO GOVERNMENT LARGESSSUBSTANTIVE AND PROCEDURAL 3) EXAMINES SOME OF THE CONSEQUENCES. TO THE INDIVIDUAL TO THE PRIVATE INTERESTS AND TO SOCIETY 4) CONSIDERS FUNCTIONS OF PROPERTY AND RELATIONSHIP TO “THE PUBLIC INTEREST” I. like legislative institutions -BUT our society chiefly values material well-being and power to control particular portion of well-being is the foundation of individuality -During the past decade. services. EARLY TIMES MINORtoday’s distribution of largess is on a vast imperial.guards troubled boundary between individual man and state -many other institutions guard as well. LARGESS OF THE GOVERNMENT a. 1) social insurance substitutes savings 2) Government contract = businessman’s customers and goodwill 3) wealth of more Americans depends upon a relationship to the government 4) Americans live on government largess. Forms of Government Created Wealth 1) Income and Benefits -government is a source of income for people even thought they don’t have jobs Ex. important dev’t in US has been that the government is a major source of wealth GOVERNMENT AS A GIGANTIC SYPHON Why? 1) Draws in revenue and power 2) Pours forth wealth: money.forms which are held as private property. benefits. -valuables dispensed by the government are steadily taking over. Eligibility arises from legal status.Property. contracts. taking the place of traditional forms of wealth. Ex. franchises and licenses FUNCTION TIME IMMEMORIAL. scale. SS benefits Unemployment compensation Aid to dependent children Veteran benefits 2) Jobs -more than 9 million people receive income from public funds directly employed by federal state or local government -size of publicly employed working force increased rapidly since founding of the US and likely to increase .
Practicing medicine Guiding hunters through woods licenses which are dispensed of by the government make it possible for holders to receive what is ordinarily their chief source of income 4) Franchises -partial monopoly-created and handed out by government -value depends largely upon governmental power. public lands which are valuable for mining. virtually impossible to lose money on them -businesses sometimes make the government their principal source of income and many “free enterprises” are set up primarily to do business with the gov’t 6) Subsidies –welfare payments for individuals who cannot manage independently in the economysubsidies = business Ex. hordes of surplus crops and . licenses to liquor stores. health and education 7) Use of public resources -large part of American economy is publicly owned -gov’t owns or controls hundreds of millions of acres of public lands.handed out for free. routes of travel and commerceairways.000 dollars WHY? -city has not issued new transferable medallions despite rise in population and traffic TV channel. allotments to growers of cotton and wheat. certificates to oil and gas pipelines. non-business activities like scientific research. radio-TV spectrum avenue for all broadcasting. concessions in national parks 5) Contracts -individuals and business enjoy public generosity in the form of contracts -50 billion dollars annually flows from gov’t in the form of defense spending -often resemble subsidies.3) Occupational Licenses -licenses required before anyone may engage in many kinds of work Ex. but instead sold for many millions * Government distributes wealth when it dispenses route permits to truckers. tideland reservoirs of oil. Local airlines D. Shipping industry given a dole because of its inability to compete with foreign lines C. routes to air carriers. charters to bus lines. HOW? by limiting number of franchises. A. nuclear power. agriculture subsidized to help it survive against better organized (and less competitive) sectors of economy B. lumbering and recreation. government can make them extremely renumerative Ex. grazing. sources of energy. NY taxi medallion -costs very little when originally obtained from the city sold for 20.
sanitation. police and fire protection. services and resources PROPORTION of gov’t wealth increasing dependence but NOT VOLUNTARY Valuables that flow from gov’tsubstitutes rather than supplements. facilities and know-how 8) Services gov’t services source of wealth some are plainly of commercial value. 000 Government payroll reached 45 billion dollars Do not take into account vast intangible wealth represented by licenses. other types of transpo may be compelled to seek subsidies -when some occupations subsidized. find themselves disadvantaged as a class -ex. governmental expenditures on all levels amounted to $164. Importance of Government Largess 1961 when personal income totaled $416. 432. franchises. public buildings and facilitiesresources available for utilization by private individualssuch use is often equivalent to a subsidy RADIO-TV use scarce channels of air for free ELECTRIC companiesuse publicly-owned water power STOCKMEN graze sheep and cattle on public lands at nominal cost SHIPS AND AIRPLANESarrive and depart from publicly-owned docks and airports ATOMIC-ENERGY INDUSTRY uses gov’t materials. postal service for periodicals. others are forced to seek comparable participation -GEOGRAPHIC government contracts can fundamentally influence economy of a region -ex. 000. newspapers. If one form of transportation is subsidized. advertisers. insurance for home-builders and saving banks. other forms of wealth SS and other forms of public insurancesupported by taxes Tax money no longer available for individual savings or insurance Taxpayer now a participant in public insurance by compulsion and his ability to care for his own needs independently is reduced NO CHOICE ABOUT USING PUBLIC SERVICES CREATING A DEPENDENCE ON THE GOV’T Dependence creates a vicious cycle of dependence -it is hard for a business to give up government help as it is for an individual to live on a reduced income -when one sector of the economy is subsidized. 000.materials. GREATEST SOURCE OF VALUE! b. public transportation Communications satellite unusual type of subsidy through service: turning over of government research and know-how to quasi. other which help to pay bill. technical info agriculture sewage. 875. 1) musiciansseeking subsidy to pay for food bills made artificially high because of another subsidy . mail-order houses.private organization EDUCATION.
Holder of a broadcast license or motor carrier permit or a grazing permit. not “property” And has given rise to a distinctive system of law SYSTEM VIEWED IN 3 PERSPECTIVES 1) Rights of Holders of Government Largess 2) Powers of the Government over Largess 3) Procedure by which holder’s rights and governmental power are adjusted A. PROPERTY LEADS TO CREATION OF LAW Property represents relationship between wealth and its owner Government Largess is then “wealth”. Individual’s profession Large manufacturer physical assets not important but contracts. or right to receive income are basis of his various statuses in society most meaningful and distinctive wealth he possesses II. such as profession. Holder of a license had a “right” may be entitled to a hearing before license could be revoked mere privilege might be revoked w/o notice or hearing Gratuity principle -often considered as “gratuity” furnished by state state can withhold grant or revoke largess at its pleasure -government considered to be in somewhat same position as the private giver . privilege Legal protection of right by far greater importance Ex. these new forms. the welfare state undertakes responsibility for well-being of citizens who can’t provide basic services for themselves Responsibility can only be carred out by what was defined as government largess! C. Largess and the Changing Forms of Wealth More and more wealth takes the form of right and status RATHER THAN TANGIBLE GOODS Ex. business arrangements and organization -steel company’s relationships with cool and iron producers more valuable than plant and equipment *To the individual. job.2) unemployed worker replaced by a machine seeks government funds to retainwhen machine was created through government subsidized research and development GOVERNMENT LARGESS -necessarily assume greater importance as we move closer to the welfare state. Individual Rights in Largess PRESSURE FOR PROTECTION OF INDIVIDUAL INTERESTS Ex. EMERGING SYSTEM OF LAW WEALTH or VALUE created by culture or society vs. tends to consider his land his own and to seek legal interference w/ his enjoyment Right vs.
Air-route certificates Benefits -courts have moved toward a measure of legal protection for benefits Ex. . District of Columbia CA rejected argument that a VA decision is not reviewable by courts Subsidies -a subsidy to a business . the appellant has consented to the provisions of the law under which charity is bestowed” -These sentiments are often voiced in the law of government largess but individual interests have also grown up. driver’s license not an economic right but aspect of personal liberty Franchises -less of a “natural right” than an occupational license -confers an exclusive or monopoly position established by government -but the courts took the position that certain types of franchises were “property” protected by the Constitution Ex. coupled w/ an insistence that government action be based on standards that are not “arbitrary or unauthorized” Courts have most readily granted protection to those types which are intimately bound up w/ individual’s freedom to earn a living Occupational licenses -courts said that occupational or professional license may not be denied or revoked w/o affording the applicant notice and a hearing PROCEDURE! With regard to licenses not tied to occupation.the most common forms of protection are procedural. Whole and the parts -since government may completely withhold a benefit it may grant it subject to any terms or conditions whatsoever -WHOLE POWER MUST INCLUDE ALL OF ITS PARTS Internal management -government should have control over its own housekeeping or internal management functions -government treated like private business 4 theories blurred in a single statement of judicial attitude “in accepting charity.
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