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September 2, 2013
In their Why Nations Fail Daron Acemoglu and James A. Robinson point out that when there is conflict over institutions, the resolution depends on which people or groups win out in the game of politics – who can get more support, obtain additional resources and form more effective alliances. In short, who wins depends on the distribution of political power in society. They add:
The political institutions of a society are a key determinant of the outcome of this game. They are the rules that govern incentives in politics. They determine how the government is chosen and which part of the government has the right to do what. Political institutions determine who has power in society and to what ends that power will be used.
If the distribution of power is narrow and unconstrained, then the political institutions are absolutist. In contrast, political institutions that distribute power broadly and subject it to constraints are pluralist in nature. Instead of being vested in a single individual or a narrow group, political power rests with a broad coalition or a plurality of groups.
By vesting power broadly, inclusive institu- tions tend to uproot economic institutions that expropriate the resources of the many, to erect entry barriers and to suppress the func- tioning of markets so that only a few benefit.
This synergy between extractive economic and political institutions creates a strong feed- back loop: political institutions enable the elites controlling power to choose economic institutions with few constraints or opposing forces. They also enable the elites to structure political institutions and their evolution. Extractive economic institutions, in turn, enrich the same elites, and their economic wealth and power help to consolidate their political dominance.
Inclusive economic institutions, in turn, are forged on foundations laid by inclusive po- litical institutions, which broadly distribute power and constrain its arbitrary exercise. These political institutions also make it harder for others to usurp power and to undermine the foundations of inclusive institutions. Those controlling political power cannot easily use it to set up extractive economic institutions for their own benefit
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