1. Cumulative Causation: Stuck in a Trap Lack of social infrastructure Low payoff to skill  Little skill acquisition  Lack of social infrastructure Lack of skills/lack of means to employ knowledge  Primary production  Primitive techniques  Stagnation  Poverty Trap

2. Cumulative Causation Escaping the Trap: The Elusive Quest for Growth Build social infrastructure Subsidize targeted industries/Tax consumption Coordinate...industrial complex development...assure critical mass Foster “Great expectations”  Self-fulfilling optimism Exploit Technology LEAPS Creation without destruction...when there’s nothing to destroy Take Advantage of Demography Age and vested interest Immigration: the future of the West Harness Creation without Destruction...Pursue Increasing Returns Complementary inventions and technologies – Railroads and the steam engine/The internet and PCs  Increasing Returns

3. Development (per capita income): What Matters? Sala-i-Martin: 2 million regressions testing 59 suspects – Rule of law, accumulation, initial education, openness help – War, political instability, primary goods specialization hurt – Government stance, price distortion, ethnic fractionalization don’t matter Easterly and Levine – Africa’s Growth Tragedy: Ethno linguistic fractionalization – Tropics, Germs, Crops Institutions: protection of property rights index Endowments—geography: Settler mortality, latitude, landlocked, crops, minerals Policies: Openness to trade, overvaluation, inflation Other variables: Ethnic fractionalization, religion, legal origin FINDINGS: Endowments  Institutions  Economic Development Engerman & Sokoloff/Acemoglu, Johnson and Robinson get the ring What about policies? – Once per capita income is explained by institutions, policy variables individually and together are insignificant CONCLUDE: Policies may affect growth over a decade, as found by other studies Bad policies are symptoms of bad institutions INSTITUTIONS MATTER FOR LONG-RUN DEVELOPMENT

4. Endowments – Institutions - Endowments Inequality, cause and effect: Political power  Economic power Reinforce status quo? Promote progress? Why nations fail: Geography hypothesis/Culture hypothesis/Ignorance hypothesis  Prescriptions: Authoritarian growth/Modernization Theory/Washington Consensus Acemoglu and Robinson: Institutions hypothesis Extractive Institutions  Vicious Circles Economic institutions Insecure property rights Slavery/Plantation system Encomienda Mita/Repartimiento Reversal of fortune Monopoly: La Serrata Dual economy Crony capitalism Marketing boards Political institutions Absolutism Infighting/Failed state Ethnic fractionalization Iron Law of Oligarchy Elites: Libro d’Oro Indirect rule Patronage networks Apartheid/Jim Crow

5. Inclusive Institutions  Virtuous Circles Why Nations Fail: Institutions Hypothesis Economic institutions Enforced property rights Patent protection Rule of law Open Markets Commenda Political institutions Pluralism Constraint on executive Secret ballot/Wide suffrage Free media: Muckrakers Creative Destruction (pursuit of transient rents) Theory o f Development Institutional Drift Critical Juncture Contingency Preconditions Centralized State Constraint on executive Pluralistic coalition Critical junctures we have known Neolithic Revolution Fall of Rome Black Plague Atlantic Trade Glorious Revolution Industrial Revolution French Revolution Colonialism The Great War Energy Crisis