The Failure of Political and Economic Centralization

R. James Evans

4/4/17

Doctor Isaacs

The Failure of Political and Economic Centralization

        Undoubtedly, one’s level of prosperity relies upon political foundations. Why Nations Fail, by Daron Acemoglu and Institutions, Institutional Change and Economic Performance, by Douglass North, both argue that the foundation for a countries long-run economic growth is based upon the foundations of its institution’s. Furthermore, in order for a nation to achieve long-run economic growth, both political and economic institutions must allow economic activity, productivity, and most of all, economic success.

Acemoglu argues the United States has been successful not only because of its “pluralistic political institutions” but its “Sufficiently centralized and powerful states” (95). I think it’s interesting because if we account for countries such as Somalia, we see no real authority that has any control over what any single individual does (94). This is something one has to think about because without inclusive institutions there is a minimal amount of trade, activity, or even basic securities of an individual. In particular, the state can no longer take place as an enforcer of its country. One issue underdeveloped countries are facing today is the ineffective cooperation of economic and political institutions. Many political institutions concentrate power solely upon the elites. For this reason, economic institutions are made to restructure towards these elite classes which causes a constraint towards productivity. Subsequently, these institutions now have to rely upon these political institutions for existence (96). Acemoglu makes a good point about the results of these actions. The political institutions suppress those trying to prevail in the market by only providing security to those who benefit them most. We see these countries primarily in poor Sub-Saharan areas and countries such as Barbados. By and large, Acemoglu suggests that if a state never fully achieves “political centralization”, society will at one point completely fall apart: Somalia being one of them.

Somalia had a tendency towards pluralistic institutions but they had one problem, fear of change and uncertainty. In addition, Somalia never had a chance to transition to a pluralistic political institution.  Until one is relieved of these constraints, one can never create a more equitable distribution of one’s resources (97). Once these economic institutions begin to benefit, they tend to diminish the ruling of elites. Comparatively, the elites begin to lose ruling of political institutions because they begin to feel competition among the marketplace because property rights become more elaborate.

        Simultaneously, North centralizes the problem of institutions by what exactly institutions are, how they are different across organizations, and “how they influence transaction and production costs” (5). Likewise, North captures the problem of human cooperation which is an issue with institutions today. Especially with the idea that inefficient property rights can continuously be an economic problem. I agree in the idea that “high transaction costs” and “errors” leads to people within markets having little economic growth (28). One can see in underdeveloped countries that when property rights are understated and inefficient, new organizations emerge. Identically, when these organizations begin to prosper, they have no incentive to create more productive economic rules. These organizations continue to thrive on their basis and continue to do so only for private gain which in result, punishes overall economic growth. Nevertheless, North notes that institutions can retain growth through transactions that require “the development of the state as a coercive force able to monitor property rights and enhance contracts effectively”, and that “if the state has coercive force, those who run the state will use that force in their own interest at the expense of the rest of society”(59). Assuredly, political institutions have to likeminded and be willing to allow other institutions to thrive in an economy. In countries such as the U.S. there is an institutional framework that clearly identifies where private lines lay. Thereupon one’s institutional success is the underlying presider of long-term economic growth.