Working Paper: NBER ID: w12795
Authors: Douglass C. North; John Joseph Wallis; Barry R. Weingast
Abstract: Neither economics nor political science can explain the process of modern social development. The fact that developed societies always have developed economies and developed polities suggests that the connection between economics and politics must be a fundamental part of the development process. This paper develops an integrated theory of economics and politics. We show how, beginning 10,000 years ago, limited access social orders developed that were able to control violence, provide order, and allow greater production through specialization and exchange. Limited access orders provide order by using the political system to limit economic entry to create rents, and then using the rents to stabilize the political system and limit violence. We call this type of political economy arrangement a natural state. It appears to be the natural way that human societies are organized, even in most of the contemporary world. In contrast, a handful of developed societies have developed open access social orders. In these societies, open access and entry into economic and political organizations sustains economic and political competition. Social order is sustained by competition rather than rent-creation. The key to understanding modern social development is understanding the transition from limited to open access social orders, which only a handful of countries have managed since WWII.
Keywords: economic development; political institutions; social orders; violence; competition
JEL Codes: A0; K0; K22; N0; N4; O1; O4; P0; P1; P16; P2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| limited access social orders (P31) | control violence (D74) |
| control violence (D74) | greater production through specialization and exchange (L23) |
| limited access social orders (P31) | economic rents (D33) |
| economic rents (D33) | stabilize political system (P16) |
| limited access social orders (P31) | limit violence (D74) |
| transition from limited access to open access social orders (P39) | sustained economic development (O29) |
| open access social orders (L17) | promote competition (L49) |
| open access social orders (L17) | broader access to economic and political organizations (P39) |
| political stability (P26) | economic performance (P17) |
| economically developed countries (O52) | politically developed countries (O57) |