#Colonies and Freedom: Why Some Flourish and Others Fail

A brief scrutiny into the living conditions of former colonial nations reveals a perplexing motif: today, nations that abound in resources prized in the past lag behind initially agrarian countries that showed little promise. Economists Kenneth Sokoloff and Stanley Engerman find such contrasts between British offshoots like Jamaica and the United States and French settlements like Canada and Haiti. Even Argentina, whose name captures the original belief that it was lush with silver, was relatively barren compared to its Spanish neighbours, which are presently less developed. The two economists surmount this paradox by observing that regions with a high and immediate productive potential – where, for example, coffee and sugar cane plantations were instituted – are also the places where the highest inequality installed. A thin elite, formed predominantly of settlers, that was solely interested in exporting the harvested commodities back home, concentrated almost the entirety of wealth, with little distribution to lower echelons. This class perpetuated its privileges by shaping institutional arrangements to its advantage, holding to the reins of power and prohibiting cultivators from owning property or selling produce, without conceding any rights. While regimes periodically changed, and elites were replaced, the practices of predecessors continued as new rulers faced little pressure to conduct reforms, leading to inequality that remained puzzlingly persistent up to recent times.

Yet, for the remainder of colonies, where geography was less suited to valuable crops, a new recipe for economic development was devised. As the initial settler population was not large enough to cultivate the large swathes of grassland, the mainland population could only be persuaded to relocate to remote lands by preying on their sense of opportunity. Besides unclaimed land, this opportunity consisted of freedoms that rivalled ones at home, be they related to confession, the enforcement of property rights or equality before the law. Liberal tenets, the cornerstone over which the national institutional framework was later carved out, engendered a type of social organisation that was geared towards satisfying individual needs, rewarded creativity and competency and demanded responsibility over failure. In 1835, philosopher Alexis de Tocqueville published his account of the American society. The United States, an up-and-coming nation, was still greatly overshadowed both economically and militarily by natural hegemons such as Great Britain, France and the soon-to-be Italian and German states. Charged with examining the American penitentiary system, during his nine-month trip abroad, Tocqueville was principally preoccupied with describing the residents’ ethos and political structure. The egalitarian spirit and upholding of fundamental rights, manifest in the relation between parents and offspring and spouses and reflecting in the freedom of communities and states to self-govern, led the Frenchman to conjecture that the United States will inexorably eclipse European might – a premonition come true eight decades later.

Such views gave rise to a recent school of thought that deems institutions as the determinant of long-run, sustainable growth. The term does not refer to organisations holding public authority, but rather to the rules and principles governing society. While the American Constitution or Parliament statutes represent formal institutions, traditions and cultural norms and convention, labelled as informal, are just as important. Institutions, informal in the beginning, determine the type and nature of organisations formed. Hence, for societies that organically adopted the tenets of liberty and fairness, central structures established will embody these values. This is why Tocqueville was perhaps more impressed by the American mindset rather than the legal documents that emanated from the elite. Through their decisions, organisations too influence institutions, creating a cycle that may reinforce virtues or perpetuate vices.

While countries with less developed institutions have escaped this loop, progress is slow and ingrate. Ideas and norms invariably take decades or centuries to spread. To explain violent upheavals like the French Revolution but also peaceful change, anthropologist Gustave le Bon argues that the thinking and behaviour manifested by social groups greatly differs from those of isolated individuals. In le Bon’s view, ideas that compose the collective mindset are not novel, but rather represent influences from the past that remain dormant. The energetic initiatives of leaders awaken these prejudices that animate social groups. The leaders, while undeniably charismatic and perceptive, are not necessarily unconventional or revolutionary thinkers, but simply flag bearers of movements, a product of their era. They are unable to convince their followers of anything other than what they already believe to be true. Then, according to this view, proposals of positive change coming from well-intended intellectuals and leaders will not normally come to fruition during their lifetimes, similar to how works of genius painters and writers are often hailed as visionary years after their passing. This idea is echoed in the lament of a Medieval Moldavian chronicler: “The times are not under man, but the wretched man is under the times”. Regardless, this propagation of virtuous ideas is a prerequisite of institutional development.

Without doubt, the adoption of healthy institutions that advocate liberty and social mobility can also be augmented. The prodigious growth experienced by nations such as Poland, Japan or Korea has been attributed to effective leadership, elites being educated abroad or external political influence. Nonetheless, this swift progress was also attained due to the sophistication of informal institutions already present, a cultural predisposition towards industriousness, entrepreneurship and an outward vision, but also a higher level of probity, trust and more evolved social conventions. Societies adhering to strong social norms have benefitted from higher economic cooperation, even in the absence of legal repercussions. A case is made that this is because persons breaking conventions are reprimanded or ostracised by groups. Then, continued cooperation and maintaining a good reputation is more lucrative than momentary gains from breaching agreements. The development of moral character undeniably made living righteously not a means, but an end more important than financial gains.

Economists in the field of mechanism design attempted to use formal reasoning to examine precisely what features of institutions achieved economic development. Then, through a process of “reverse engineering”, new institutions, that incorporate the strengths of past practices, can be envisaged. Involving mathematical arguments, mechanism design has yielded important conceptual breakthroughs. For example, William Vickrey has created a special auction where the highest bidder wins, but pays the second highest bid submitted. If the bids of other participants are not known, then people face the best results by bidding what they believe the real value of the object is. Understandably, however, the top-down design of institutions has been met with skepticism, especially as real-life situations present features not panned out by models. The Lindy effect stipulates that the longer an idea “has been around” – and has not fallen into obscurity – then the longer that concept is expected to remain a relevant guiding principle. Many institutions invented by civilisations have disappeared especially because such ideas were not the recipe for a sustainable society. Institutions that survived were exposed to pressures for centuries and their flaws have been identified. However, these customs have proven robust compared to others. While progress should not be opposed – and new institutions that are theoretically desirable should be considered, novel customs must stand the test of time (or some sort of experiment) before being hailed an improvement to historical practices.