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« Why did Pirates Choose Democracy?, and Some Thoughts on the “Efficient Institutions View” | Main | Implications of Machlup's Interpretation of Mises's Epistemology »


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To make the claim of institutional efficiency meaningful, it must be a pattern prediction, not a point prediction. However, given the example of North and South Korea, not to mention China and Taiwan, and Singapore, such a pattern prediction does not seem to hold. While I agree a countries institutional opportunities set is constrained, there seems to be a very real possibility of multiple equilibria.

Back in the 1950s, there was an incredibly dirt-poor sub-Saharan-Africa-level country called Korea; resource-poor and ravaged by war, it was noticeably poorer than its other half, which was successfully industrializing (whose propaganda directed at its poorer controlled sibling made no bones of that either), ruled by a tyrant propped up by foreign aid from an interested empire and receiving direct military reinforcements from said empire when necessary combined with official corruption favoring empire-building elements of that society, and attacking any elements of a civil society like churches or newspapers while constantly proclaiming the need to defend against foreign subversion and invasion from the other richer Korea, backing up his propaganda with absurdly harsh laws like prison for anyone caught in possession of propaganda from the other, richer, Korea (and his secret police were notorious for using torture and often killing people), and one of the largest militaries in the world with a coercive draft long after many other countries abandoned it (the Koreans who managed to flee to America would sometimes discover the state considered them draftdodgers and they didn't dare set foot in their homeland).

With such a starting point, who could hold out any hope for this Korea? Whatever tyrannical & extractive institutions were 'efficient' in this scenario must be far from what one could hope for, and if we jumped forward to look at this Korea in 2013, who could hope that things would've improved substantially? After all:

> institutional constraints can prevent some societies from adopting “superior” institutions that generate higher incomes: their “inferior” institutional regimes can reflect constrained institutional optima.

The Korea I have been discussing is, of course, South Korea; the foreign empire America; the rich rival Korea was North Korea before it stagnated; and the dictator is Syngman Rhee.

Their views are not that different after all! Institutions are context dependent (Leeson) and one such context is the power structure in society (Acemoglu, Robinson). In other words,North Korea does not undergo institutional change because the power structure restricts its choice set.

The pirate ship sounds like a company after a worker buyout. What is the international experience of firms owned by the workers?

Remember the Yugo? It was produced in a worker-owned factory. There don't seem to be many examples, though.

Hernando de Soto pointed out in one of his books that most states in S America copied US institutions, such as the separation of powers and the Constitution when they won freedom from Spain, but the result has been very different. The culture has to embrace the institutions; they can't be tacked on.

Harrison and Huntington argue for the importance of the culture in making institutions work in "Culture Matters."

@Gwern: that is fascinating. I did not know that history.

Nice analysis of when democracy works!

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