Arnold Kling  

Juntas vs. Open Societies

An Idea only an Economist Coul... Schooling and Health...

Douglass C. North, John Joseph Wallis, and Barry R. Weingast have a new paper, immodestly titled, "A Conceptual Framework for Interpreting Recorded Human History." I will excerpt from it in the extended entry.

An earlier paper (from 2005) may be accessed without paying a toll to the NBER. This paper says,

Primitive orders do not possess governments, and the degree of specialization and division of labor in their economies is extremely limited. The civilizations that first begin to appear 10,000 years ago, what we call “natural states,” represent major achievements that allow humans to capture the productivity benefits of the first revolution. Natural states support a range of economic specialization, including a readily identifiable group who compose the government. The natural state strictly limits access to positions of power within political, economic, and religious systems. What we call “open access orders,” began to develop around 1700. These societies are characterized by open political and economic competition, rather than the limited political and economic privileges enjoyed solely by elites in natural states.

...our theory implies that natural states cannot develop [economically]. Open access competitive markets are fundamentally at variance with the natural state’s political logic. Political insecurity drives natural state’s to control markets, not control competitive ones. They may exhibit some growth by creating the basis for some specialization and exchange or by adopting new technologies from elsewhere, but they cannot create thriving markets with open access and generalized incentives for all citizens to make investments.

The main implication of this point is that the label, “developing countries,” is a misnomer. These countries are not developing; indeed, our perspective implies they are anti-development.

But my favorite quote from the 2005 paper is

For much of the world, the relevant alternative to the natural state is not an open access order like the United States or France, but a descent into the hell of disorder.

Reading this made me think of a contemporary example. Without revealing which country it reminded me of, let me just say that it starts with I and ends with q.

Here are some excerpts from the new paper. Perhaps best to start with the conclusion.

All developed countries in the world today have both competitive democracies and competitive market economies. This connection strongly suggests that theories of economics that take politics as exogenous and theories of politics that take economics as exogenous are incapable of explaining the process of modern social development. Our framework integrates both. It suggests three major conclusions. First, limited access orders have been the default option for human societies over the last ten thousand years. We have termed the political and economic structure of the limited access order the natural state for a reason: it is the natural form of human society. The implications for development policy are enormous. Natural states are not failed states, they are typically not produced by evil men with evil intentions, and they are not the result of pathologies in the structure of these societies. Nothing is unnatural about natural states. And because natural states are not sick, policy medicine will not cure them.

Limited access orders manipulate the economy to produce rents and then systematically use those rents to create political stability. The result is a modicum of social order, an increase in specialization and division of labor, and economic growth. Natural states vary enormously. In terms of politics, economics, violence, and culture, some limited access orders are more successful than others. No forces inherent in the logic, social structure, or historical dynamics of limited access orders inevitably lead them to become open access orders. Because natural states have internal forces built on exclusion, privilege, and rent-creation, they are stable orders. They are therefore extremely difficult to transform.

Second, open access orders maintain open access to political, economic, and other social organizations. Access to organizations vitalizes competition in all systems, and competition sustains the social order. Economic and political systems are just as intimately connected in an open access order as in a limited access order, but the connections lie at a deeper level. In an open access order, economics appears to be independent of politics. This seeming independence is reflected both the famous classical liberal dictum about limited government and in neoclassic economic’s view that markets are antecedent to government and that the government intervenes into markets. A competitive economy requires not only a state that maintains open access, entry, defines property rights, and enforces competition, it also requires a state that is capable of providing the social infrastructure that sustains perpetually lived and extremely sophisticated and complicated organizations. The modern business enterprises and thriving modern markets cannot exist outside the institutional framework provided by open access polities.

Similarly, political scientists have ignored the critical role that a competitive open access economy plays in sustaining open access politics and competitive democracies. Modern western democracies could not exist without being embedded in competitive market economies characterized by competition as Schumpeter described it: creative destruction resulting from competition between large, well organized, and technologically innovative economic entities. Modern social science is as far from understanding how open access social orders work as they are from understanding how limited access social orders work.

Third, our perspective redefines the problem of economic development. In contrast to the perspective in modern economics, our framework suggests that economic development is not an incremental process, such as gaining more education, capital, and making marginal improvements in the rule of law. Each of these can improve a developing limited access order by moving it a bit toward the doorstep conditions, but these incremental changes can take a limited access order only so far: they are not the process of development.

The process of economic development is instead the movement from a limited access order to an open access order. This process is very difficult to engineer. Despite the massive attention to economic development by international donor agencies, only eight countries have made this transformation since WWII. Our approach implies that development requires a transformation in society from a limited access to an open access basis. This transformation takes place through what we have called creating the doorstep conditions, which represent a radical change in both the state and society: rule of law for elites; perpetual life for organizations, including the state; and political control of the military. Each of these changes increases the gains from specialization and exchange; they also create mechanisms that underpin impersonal exchange. For this reason, natural state on the doorstep are wealthier. Moreover, the doorstep conditions create incentives to make incremental increases in open access that can transform a natural state on the doorstep into an open access state.

Some other excerpts:

the formation of the state provides a first order solution to the problem of limiting violence by inducing the most powerful members of society to create arrangements that reduce their potential gains from using violence. This form of state does not induce the powerful to disarm or refrain from threatening violence, nor does it eliminate violence. The internal structure of relationships among members of the state – the state’s industrial organization if you will – is what constrains violence.

...the natural state does not eliminate violence. The internal dynamics of the dominant coalition are based on continuous assessment of the strength of individual members. Part of what holds the natural state together is the threat of violence by coalition members.

...The limited access order is a social equilibrium. The equilibria share common characteristics:
1) Control of violence through elite privileges.
2) Limits on access to trade.
3) Relatively strong property right protection for elites and relatively weak property right protection for non-elites. To the extent a natural state is characterized by the rule of law, it is for elites.
4) Restrictions on entry into and exit from economic, political, religious, educational, and military organizations.

...Rents exist in an open access order just as they do in a limited access order. What differs is the way the political system manipulates the creation of rents in the economic system in order to order the political system. In an open access order, rents serve as an inducement to Schumpeterian competition. In a limited access order, rents exist because Schumpeterian competition is inhibited or not allowed to function.

...transitions [from limitede-access to open-access orders] occur in a period of time that are quite short by historical standards, something on the order of fifty years or less. In the twentieth century Taiwan, South Korea, Ireland, and Spain appear to have made very rapid transitions. In the late eighteenth and early 19th century, Britain, France, the Dutch, and the United States made transitions that took roughly fifty years.

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COMMENTS (15 to date)

The North et. al. paper may have parallels to a paper of mine, in what it attempts to explain. My paper draws its central idea from Isabel Paterson's The God of the Machine. This idea can explain the wealth and power of great empires (Roman, British, American) many of which existed long before 1700. Whereas the North paper may not offer such an explanation (But I have not read the North paper).

The title of my paper The History of Free Nations is also rather immodest. I expect to pare that title down to something like "A Theory about the Development and Life Span of Great and Prosperous States".

Bruce G Charlton writes:

The link to the 2005 paper doesn't seem to work...

Thanks for this pointer and summary - this looks like very important work indeed. Sadly, I can't access NBER.

Steve Sailer writes:

It would be interesting to hear North et al's explanation of China's vast growth in recent decades, which combines a fairly open access economy with a closed access political system.

Matthew Cromer writes:

Good catch, Steve.

The first thing my buddy at work said when I forwarded this blog entry to him was "China."

Hasan Jafri writes:

Judging from the conclusion (I couldn't access NBER) this paper suffers from what the late Edward Said would have called "orientalism." It's missing several (perdictably Asian) pieces.

China and Vietnam both combine closed political systems with great economic success. While we're on the subject, let us not forget Iraq's politically successful and economically well-run neighbor, the United Arab Emirates (UAE). It's the only OPEC nation to diversify successfully from an economy dependent on oil to one rooted firmly in international trade. It too is not an "open access society" in the literal sense. Then there's Qatar, home of Al-Jazeera. The most media-savvy state in the Middle East also is an autocratic one.

My point is not that "open access" is irrelevant. Rather, the cultural and political contexts within which new global business and economic models evolve now often are non-western, and rooted less in Enlightenment values than we imagine. This doesn't mean they're all bad. They're just different.

The UAE and Qatar both are stable, affluent states. They are ruled like corporations by authoritarian business-educated sheiks with the help of trained managers. As for China and Vietnam, they already are viewed by developing nations as economic success models to replicate.

Edgardo Barandiaran writes:

A few short points:
1. I understand that the old version of this paper was just a first draft. The NBER version is still a draft: too many ideas are not clearly developed, explained or presented.
2. China and Vietnam are still poor countries, regardless of how high their growth rates have been in the past 25 years. They will continue to be poor countries for a long time. Much more important, the relevant question is why it took them so many centuries to start to get out of poverty. Indeed, despite its importance, the paper's analysis of transitional issues is still quite limited.
3. As Hasan Jafri notes, UAE and Qatar are like corporations (I'd add they are part of a much larger world economy) and they may have a hard time to survive the exhaustion of their oil deposits. Anyway, the paper discusses only large countries and it is not clear how to analize the evolution of small economies, especially those that depend heavily on a natural resource.

Ron Davison writes:

The really good news, for whatever its flaws, is that this is another stab at explaining social evolution and development. Iraq is relevant here simply because our media and government has seemed to largely ignore any attempt to analyze the social dynamics there and what that suggests about realistic expectations for government. North has done some great work on institutions and this link between economic development and institutional development (e.g., tribes vs. nation-state) is another oddly ignored area of study.

Globalization will force us to pay more attention to these topics and I suspect that over the next couple of decades social evolution will emerge as a very important subject.

jaim klein writes:

It would be helpful to indicate what is "closed" and what is "open" in the context.

Sailer is wrong regarding China 2007. China is ruled by the Chinese Communist Party, which is a very large body of people. I could easily become a card-carrying party cell secretary, and in my case I dont even need a Chinese passport since as a Jew, I am considered to belong to an overseas Chinese minority. A few years ago I may have been rejected because of my comprador/burgeois class origins, but not today.

Moreover, I cant seem to be able to identify a really closed ruling class. In the Parashat Hashavua (the weekly portion) we learn about Joseph who, in a meteoric career, went from foreign slave boy to Lieutenant Pharaon of all Egypt. Then went on to acquire Egypt's all farm lands. Was Egypt closed or open?

From Rome's very foundation, anyone could join the city (no questions asked) and after attachment to a patron, became a voting Roman citizen. The Roman Army was always open to any healthy boy, and any person with writing skills could hold any administrative post in the Empire. Its inheritor, the Roman Catholic Church, is obviously Catholic i.e. universal. Anyone is welcome and has intrinsic Pope-potential.

According to the Venezian Marco Polo, who worked for the genocidical Mongols, they ran an administration wide open to foreign talent.

In fact, I cannot find a truely "closed" example. I havent read the book so it may well be that I am totally misinterpreting its thesis. Meando fuera de la maceta, as they say in Buenos Aires.

Edgardo writes:

Jaim Klein, you are "meando fuera del tarro" (así se dice en Buenos Aires, no fuera de la maceta). Please read the paper (it is not a book) before commenting on it.

jaim klein writes:

Querido Edgardo,

You are right, any book should be read before commenting.

You are wrong about the lunfa expression. We, lo choma, do it in macetas and never in tarros, which are an anachronism.

Since you seem knowledgeable about tarros, you may have also set a foot on Primera Junta, a subway station in Floresta, which carries the name of the the original and the paradigm of all the juntas to come. The question never came up in primero inferior but it seems that it was a prime example of an open governing body. It included foreigners such as Liniers, peninsulars like Saavedra, clerics like Alberdi and freethinkers like Rivadavia, with representatives of all the classes and orders of society. And the Primera Junta was very successful, routing General Beresford's forces and raising vast monetary resources. May be the gringos think juntas (as imagined by Hollywood) were "closed", but what they know?

Fundamentalist writes:

This is fascinating. I've been a fan of North's for several years and he keeps getting better.

This would be a good read for Hans Hermann-Hoppe, the UNLV anarchist prof who thinks monarchies did so much better at protecting liberty than do modern democracies.

Silviu writes:

The entire paper strikes me as very Tullock-ian. Democracies ("open systems") are an abnormality... dictatorships ("closed systems") are the historical norm ("natural state")... because of increasing returns to organized violence ("order")... which makes them a more stable form of government. Autocracy still makes for a fun read.

Edgardo writes:

Jaim Klein, I can see that you like "mear fuera del tarro" (see dictionaries of "lunfardo" available in Internet). I don't know where and how you got your knowledge of Primera Junta, but your comment reminds me of my school classmates (in the 40s and 50s in La Plata, Argentina) that could name all the "figuritas", but didn't know why these people had become "figuritas". I'm sure you'd had had a hard time to approve the courses in Argentinian Economic History that I used to teach in Universidad Católica Argentina in the 1960s.

jaim klein writes:

Dr Edgardo Dear, Are you sending an authentic choma from the frigorificos of Mataderos to the an internet lunfardo dictionary? I am a

of some of those dictionaries. I cant see how you can be proud of having trained some of Argentina's economists, who were so successful in developing Argentina into the case study of a defaulter ("A country that stole Italian unmarried mothers's savings" Mas claro, soda).

Having read the paper, I feel its thesis is unverifiable in any remotely experimental situation, includes no figures I can compare and verify, its terminology is obscure and unclear, making it utterly undebatable. So I grabbed the word "Junta" from the title, because in Argentina we know what it means, which the authors apparently do not.

Regarding the "figurita" comment, what is your meaning, Edgardo? The Primera Junta represented the people (soberanía popular), invited other bodies to join (principio representativo y federal), divided itself in competing departments (división de poderes) and strived for transparency (publicidad de los actos de gobierno). It established a school for officers (Escuela de Matematicas) and an Army, which beat Beresford. Figuritas, indeed.

John S Bolton writes:

Leaving aside Argentina, and looking at the juxtaposition of the title:
Juntas vs.Open Societies...
Is this known not to be a false dilemma?
Even if it were, which is doubtful,
isn't it most certain that, the more open a society is, the more open it must also be to the establishment of even the most monstrous junta, and the more open it must be to mass murder of even the greatest volume ever practiced?
Openness is not known to be a decent quality in a political circumstance; otherwise more openness to worse outrages would be called better.

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