Editing Economic growth (section)

===Political institutions===
{{see also|Great Divergence#Property rights|Great Divergence#Efficiency of markets and state intervention|Great Divergence#State prohibition of new technology}}

<blockquote>"As institutions influence behavior and incentives in real life, they forge the success or failure of nations."<ref name="Acemoglu&Robinson">{{harvnb|Acemoglu|Robinson|2012|page= [https://archive.org/details/whynationsfailor0000acem/page/43 43]}}.</ref></blockquote>

In economics and economic history, the transition from earlier economic systems to [[capitalism]] was facilitated by the adoption of government policies which fostered  [[commerce]] and gave individuals more personal and economic freedom. These included new laws favorable to the establishment of business, including [[contract law]], laws providing for the protection of [[private property]], and the abolishment of anti-usury laws.<ref>
{{cite book
|title=History of Economic Thought: A Critical Perspective
|last1=Hunt	
|first1= E. K.
|last2=Lautzenheiser
|first2=Mark
|year= 2014 |publisher =PHI Learning
|isbn= 978-0765625991 
}}
</ref><ref>
{{cite book
|title=The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
 |last=Landes	
 |first= David. S.
|year= 1969|publisher =Press Syndicate of the University of Cambridge
|location= Cambridge, New York
|isbn=  978-0-521-09418-4|pages=8–18
}}
</ref>

Much of the literature on economic growth refers to the success story of the British state after the [[Glorious Revolution]] of 1688, in which high fiscal capacity combined with constraints on the power of the king generated some respect for the rule of law.<ref>{{cite journal |last1=North |first1=Douglass C. |author-link=Douglass North |first2=Barry |last2=Weingast |s2cid=3198200 |title=Constitutions and Commitment: the Evolutions of Institutions Governing Public Choice in Seventeenth Century England |journal=Journal of Economic History |year=1989 |volume=49 |issue=4 |pages=803–32 |doi=10.1017/S0022050700009451 }}</ref><ref>{{cite book |last=Barker |first=J. H. |chapter=Personal Liberty under Common Law of England, 1200–1600 |editor-first=R. W. |editor-last=Davis |title=The Origins of Modern Freedom in the West |publisher=Stanford University Press |location=Stanford |year=1995 |pages=[https://archive.org/details/originsofmodernf0000unse/page/178 178–202] |isbn=978-0-8047-2474-6 |chapter-url=https://archive.org/details/originsofmodernf0000unse/page/178 }}</ref><ref>{{cite book |last1=Acemoglu |first1=Daron |first2=Simon |last2=Johnson |first3=James A. |last3=Robinson |chapter=Institutions as a Fundamental Cause of Long-Run Growth |editor-first=Philippe |editor-last=Aghion |editor2-first=Steven |editor2-last=Durlauf |title=Handbook of Economic Growth |series=Vol. 1, Part A |publisher=Elsevier |year=2005 |pages=385–472 |doi=10.1016/S1574-0684(05)01006-3 |isbn=9780444520418 }}</ref><ref name="Acemoglu&Robinson"/> However, others have questioned that this institutional formula is not so easily replicable elsewhere as a change in the Constitution—and the type of institutions created by that change—does not necessarily create a change in political power if the economic powers of that society are not aligned with the new set of rule of law institutions.<ref>{{cite book |last1=Rajan |first1=R. |first2=L. |last2=Zingales |title=Saving Capitalism from the Capitalists |publisher=Random House |location=New York |year=2003 |isbn=978-0-7126-2131-1 }}</ref> In England, a dramatic increase in the state's fiscal capacity followed the creation of constraints on the crown, but elsewhere in Europe increases in [[state capacity]] happened before major rule of law reforms.<ref name=":0">{{cite journal |last1=Johnson |first1=Noel D. |first2=Mark |last2=Koyama |title=States and Economic Growth: Capacity and Constraints |year=2017 |journal=Explorations in Economic History |volume=64 |pages=1–20 |doi=10.1016/j.eeh.2016.11.002 }}</ref>

There are many different ways through which states achieved state (fiscal) capacity and this different capacity accelerated or hindered their economic development. Thanks to the underlying homogeneity of its land and people, England was able to achieve a unified legal and fiscal system since the Middle Ages that enabled it to substantially increase the taxes it raised after 1689.<ref name=":0" /> On the other hand, the French experience of state building faced much stronger resistance from local feudal powers keeping it legally and fiscally fragmented until the French Revolution despite significant increases in state capacity during the seventeenth century.<ref>{{cite journal |last=Johnson |first=Noel D. |s2cid=73630821 |title=Banking on the King: The Evolution of the Royal Revenue Farms in Old Regime France |journal=Journal of Economic History |year=2006 |volume=66 |issue=4 |pages=963–991 |doi=10.1017/S0022050706000398 }}</ref><ref>{{cite journal |last1=Johnson |first1=Noel D. |first2=Mark |last2=Koyama |title=Tax Farming and the Origins of State Capacity in England and France |journal=Explorations in Economic History |year=2014 |volume=51 |issue=1 |pages=1–20 |doi=10.1016/j.eeh.2013.07.005 }}</ref> Furthermore, Prussia and the Habsburg empire—much more heterogeneous states than England—were able to increase state capacity during the eighteenth century without constraining the powers of the executive.<ref name=":0" /> Nevertheless, it is unlikely that a country will generate institutions that respect property rights and the rule of law without having had first intermediate fiscal and political institutions that create incentives for elites to support them. Many of these intermediate level institutions relied on informal private-order arrangements that combined with public-order institutions associated with states, to lay the foundations of modern rule of law states.<ref name=":0" />

In many poor and developing countries much land and housing are held outside the formal or legal property ownership registration system. In many urban areas the poor "invade" private or government land to build their houses, so they do not hold title to these properties. Much unregistered property is held in informal form through various property associations and other arrangements. Reasons for extra-legal ownership include excessive bureaucratic red tape in buying property and building; failures to notarize transaction documents; or having documents notarized but failing to have them recorded with the official agency.<ref name="Desoto_2000">{{cite book |title     = The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else
 |last      = De Soto
 |first     = Hernando
 |year      = 2000
 |publisher = Basic Books
 |isbn      = 978-0465016143
 |url       = https://archive.org/details/mysteryofcapital00soto
}}
</ref> According to Hernando De Soto, unclear property rights limits economic growth, as people cannot use land as collateral to secure loans, depriving many poor countries of one of their most important potential sources of capital. Unregistered businesses and lack of accepted accounting methods are other factors that limit potential capital.<ref name="Desoto_2000" /> Businesses and individuals participating in unreported business activity and owners of unregistered property face costs such as bribes and pay-offs that offset much of any taxes avoided.<ref name="Desoto_2000" />

"Democracy Does Cause Growth", according to Acemoglu ''et al.'' Specifically, they state that "democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public goods provision, and reducing social unrest".<ref>{{cite journal |last1=Acemoglu |first1=Daron |last2=Naidu |first2=Suresh |last3=Restrepo |first3=Pascual |last4=Robinson |first4=James A. |title=Democracy Does Cause Growth |journal=NBER Working Paper No. 20004 |doi=10.3386/w20004 |date=March 2014 |doi-access=free}}</ref> [[UNESCO]] and the [[United Nations]] also consider that [[cultural property]] protection, high-quality education, cultural diversity and social cohesion in armed conflicts are particularly necessary for qualitative growth.<ref>Jyot Hosagrahar „Culture: at the heart of SDGs“, [[UNESCO Courier|UNESCO-Kurier]], April–June 2017.</ref>

According to [[Daron Acemoglu]], [[Simon Johnson (economist)|Simon Johnson]] and [[James A. Robinson (Harvard University)|James Robinson]], the positive correlation between high income and cold climate is a by-product of history. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e.g., due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e.g. those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands. In these 'neo-Europes' better institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and geopolitical boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts that hinder development. In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large.<ref>{{cite journal |last1=Acemoglu|first1=Daron|last2=Johnson|first2=Simon|last3=Robinson|first3=James A.|year=2001|title=The Colonial Origins of Comparative Development: An Empirical Investigation|journal=[[American Economic Review]]|volume=91 |issue=5|pages=1369–401|doi=10.1257/aer.91.5.1369|citeseerx=10.1.1.313.7172}}</ref>

In ''Why Nations Fail'', Acemoglu and Robinson said that the English in North America started by trying to repeat the success of the Spanish [[Conquistador]]s in extracting wealth (especially gold and silver) from the countries they had conquered. This system repeatedly failed for the English. Their successes rested on giving land and a voice in the government to every male settler to incentivize productive labor. In Virginia it took twelve years and many deaths from starvation before the governor decided to try democracy.{{sfn|Acemoglu|Robinson|2012|p=26}}

Economic growth, its sustainability and its distribution remain central aspects of government policy. For example, the [[UK Government]] recognises that "Government can play an important role in supporting economic growth by helping to level the playing field through the way it [[government procurement|buys public goods, works and services]]",<ref>Crown Commercial Service, [https://assets.publishing.service.gov.uk/media/5a7f8126e5274a2e8ab4c92f/Balanced_Scorecard_paper.pdf Procuring Growth: Balanced Scorecard], published October 2016, accessed 17 April 2024</ref> and "Post-[[COVID-19 pandemic|Pandemic]] Economic Growth" has been featured in a series of inquiries undertaken by the parliamentary [[Business, Energy and Industrial Strategy Committee]], which argues that the UK Government "has a big job to do in helping businesses survive, stimulating economic growth and encouraging the creation of well-paid meaningful jobs".<ref>Business, Energy and Industrial Strategy Committee, [https://committees.parliament.uk/work/342/postpandemic-economic-growth/news/115838/postpandemic-economic-growth-superinquiry-launched-by-beis-committee/ Post-Pandemic Economic Growth super-inquiry launched by BEIS Committee], published 3 June 2020, accessed 17 April 2024</ref>