The persistence and change of institutions in the Americas.

• Author: Acemoglu, Daron
• Position: Distinguished Guest Lecture

Plus ca change plus c'est la meme chose.--French Proverb

1. Introduction

   There is now a general consensus that differences in economic institutions are the primary cause of differences in income per capita across countries (e.g., North 1990; Engerman and Sokoloff 1997; Acemoglu, Johnson, and Robinson 2001, 2002). Institutions matter because they determine the incentive environment, which conditions decisions to save, invest in human and physical capital, and innovate and adopt better technologies. The countries of sub-Saharan Africa are poor not because they are geographically disadvantaged, have malaria, or because they have a culture that is inimical to capitalism. Rather, they are poor because they have economic institutions that do not create the right incentives--property and human rights are insecure, and barriers to entry and the efficient allocation of resources are rife.

   To understand the world distribution of income, we must therefore understand why different countries' institutions are so different. Why is it that property rights in African countries are insecure while those in the United States are not? To formulate an answer to this question, it is necessary to recognize that economic institutions are collective choices and are therefore, the outcome of a political process. As North and Weingast (1989) pointed out, the emergence of secure property rights in Britain after 1688 occurred as the result of a political revolution that led both to the rise of Parliament, which meant that the state represented very different interests, and to the creation of political institutions, which placed much greater checks and balances on the exercise of executive power.

   Differential economic development, therefore, is a consequence of differential political development. Explaining comparative development entails an account of why some parts of the world developed political and institutional equilibria, which empowered those who were interested in socially desirable economic institutions (such as the British Parliament) and placed constraints on those who were not (like the Stuart monarchy).

   There are of course many sources of variation in institutions and many factors which have moulded the political and institutional equilibria of societies. Scholars who have focused on the emergence of capitalist institutions in Western Europe have focused on such systematic factors as the gradual rise of the mercantile economy (Pirenne 1937), the differential response of institutions to the population collapse of the Black Death (Postan 1944), different patterns of social conflict (Brenner 1976), the great shock of 1492 and the expansion of European powers into the world (Williams 1944; Pomeranz 2000; Acemoglu, Johnson, and Robinson 2005a), or the French Revolution (Acemoglu et al. 2008). Institutions may also evolve in ways which depend on technology, as emphasized by White (1962), or even because of religious conversion (Pirenne 1939).

   Leaving aside the factors that led to the rise of efficient institutions in Western Europe and instead reflecting on the distribution of institutions amongst developing countries today, the role of European colonialism becomes compelling. As emphasized by Acemoglu, Johnson, and Robinson (2001) and a large literature outside of economics in history, political science, and sociology, European expansion after 1492 had profound impacts on the organization of many societies throughout the world and plausibly plays a large role in explaining institutional differences between, say, North and South America.

   Engerman and Sokoloff (1997) and Acemoglu, Johnson, and Robinson (2001) argue that institutional variation between European colonies was caused primarily by differences in initial conditions at the time of colonization. In particular, in places with large indigenous populations and natural resources, such as gold or silver, and where plantation crops such as sugarcane or cotton could be grown and where the disease environment was adverse for Europeans, hierarchical societies developed where a small elite of European extraction lived from the exploitation of indigenous people, slaves, and natural resources. In contradistinction, in places without these conditions, it was not feasible to create such a society, and an alternative had to be found. As the Virginia Company quickly found at Jamestown, if there was no option of exploiting Amerindians or natural resources, the economy had to be based on British labor. But British labor would only come to Virginia and work when it got there if it was incentivized, and in consequence much better institutions developed, which gave access to land and by 1619 the right to vote, at least for adult white males, in a legislative assembly.

   All of these accounts of the historical evolution of institutions make heavy use of the assumption that institutions, once created, have a strong tendency to persist over time. For instance, the arguments of Engerman and Sokoloff (1997) and Acemoglu, Johnson, and Robinson (2001) imply that to understand the current levels of comparative development of the United States and Peru, one must go back 400-500 years and study why these two societies got organized in such different ways. But for this to matter, this initial divergence must create institutional differences which persist over time.

   That institutions persist is consistent with the robust correlations that exist between historical variables which may have shaped institutions and institutions today, such as the density of indigenous population and the mortality environment faced by Europeans. Yet such correlations do not tell us the mechanisms of institutional persistence. That we need to understand this much better is clear once we recognize that many specific institutions show substantial change over periods much shorter than a century. Many less-developed countries, especially those in Latin America and Africa, have changed their political institutions all too often over the past 100 years, with frequent switches between democracy and dictatorship (see, e.g., Acemoglu and Robinson 2006) and multiple changes in constitutions. (1)

   The same pattern also emerges when we turn to economic institutions. For example, while many historians and economists trace the economic problems of Latin America to colonial labor practices such as the encomienda or the mira, and those of the Caribbean to slavery and to the plantation complex, all of these economic institutions vanished long ago. (2) Beneath this pattern of change, however, economic systems often show surprising continuity. The form of agricultural labor relations in many of the Latin American and Caribbean countries changed little after colonialism, and perhaps relatedly, these societies continued to suffer various economic problems, slow growth, and economic and political instability throughout the 20th century. Another interesting example comes from the U.S. South. Even though slavery was abolished at the end of the Civil War, the U.S. South maintained a remarkably similar agricultural system, based on large plantations and low-wage uneducated labor, and remained relatively poor until the middle of the 20th century.

   Therefore, when one talks about the persistence of institutions, one cannot be talking about the persistence of specific institutions, since these change a lot. Thus existing theories of institutional persistence, which are motivated precisely by the desire to explain why specific institutions persist for long periods, are not very applicable. This is true both of the political science literature (e.g., Steinmo, Thelen, and Longstreth 1992; Thelen 2004) and the famous study of the typewriter keyboard by David (1985). Institutional persistence of the form we are talking about obviously cannot be explained by making an analogy to QWERTY.

   Rather what is required is a much more explicit theory of the path dependence of institutional and political equilibria. The fact that the initial conditions in Jamestown and Cajamarca differed so radically led to different specific institutions initially. Over time these specific institutions changed for various reasons, but the underlying distribution of political power that led to those institutions did not change and neither did the basic incentive environment which influenced the performance of the economy. (3)

   In Acemoglu and Robinson (2008) we advanced one possible explanation for the coexistence of frequent changes in political institutions with the persistence in certain (important) aspects of economic institutions. In this paper, we briefly re-cap this explanation but the main contribution is to illustrate it with a detailed discussion of the evolution of institutions in the U.S. South over the past 150 years along with some related Latin American evidence.

   The underlying idea of our explanation is that equilibrium economic institutions emerge from the interaction between political institutions, which allocate de jure political power, and the distribution of de facto political power across social groups (see Acemoglu and Robinson 2006, and Acemoglu, Johnson, and Robinson 2005b). De facto power is power that is not allocated by institutions (such as elections), but rather is possessed by groups as a result of their wealth, weapons, or ability to solve the collective action problem.

   The interaction between de jure and de facto power can create a simple explanation for the coexistence of changes in political institutions and the persistence of economic institutions. This is because a change in political institutions that modifies the distribution of de jure power need not lead to a change in economic institutions if it is associated with an offsetting change in the distribution of de facto political power (e.g., in the form of bribery, capture of the political parties, or use of paramilitaries). In fact, Acemoglu and Robinson (2008) show that there is a natural...