Institutions matter
▶ Institutions do not change often and in general they cannot be changed at will. They matter not only for elections, democracy, human rights etc. but also for literacy, human capital, economic development and innovativeness. ‘Thou shalt innovate’ should be the motto.
▶ Institutions also come in other, less benign varieties. Could slavery be conceived as the rational and mutually beneficial choice of slaves and slave-owners alike, and depicted as a Pareto-optimal scheme? Yet it is an institution and it endured a few millennia.
▶ Still it does not necessarily entail any argument as to efficiency writ large, since even though slave production could have been profitable in itself, it could also have impeded economy-wide economic development through negative externalities.
▶ Furthermore, labour repression and slavery are more often than not conducive to a highly unequal and hierarchical society, and that in turn might discourage innovativeness, entrepreneurship and so on.
▶ Rent-seeking is the key concept here. If you “produce” through slave labour sugarcane and cotton while sitting on your veranda sipping bourbon, you do not have much of an incentive to innovate.
▶ But there are also historic, epoch-making moments. Daron Acemoğlu and his colleagues already sorted out that Napoleonic wars had instituted economic progress into the European heartland and that revolution from above could be successful just as grass-root ground-taking or slow reformist tinkering could. Perhaps just one example, but it might matter.
▶ Maybe you do not necessarily have to wait for a century so some institutional innovation slowly takes root. There are times when a not so benevolent an institution such as slavery is abruptly pinned down to the social fabric and you suffer from its consequences for centuries to come.
▶ Not so natural an order this thing called the market either. Just the same, neither slavery nor serfdom was natural either. They are all instituted processes, and as such they prerequisite a change in values, choice, and preferences in one way or another. ‘Thou shalt change your preferences if you want to innovate’.