Cambridge University Press has a blog called 1584. They asked me to write something about my book and I thought I’d post it here too:
Economists tend to forget our own countries’ history and make economic development seem much faster and easier than it really is. We forget that it took hundreds of years for Great Britain and the United States to become industrialized, rich, and democratic. As Hernando De Soto noted in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000), we have seemingly forgotten how long and messy the history of property rights was in the US. For instance, when George Washington asked his lawyer how to evict squatters from his Virginia property, the latter advised against eviction, arguing that the squatters would likely return and burn his property down (p. 117). Or the US Supreme Court Justice Joseph Storey who in 1820 bemoaned the fact that US property law was so messy that it would likely “forever remain an unknown code” and never get disentangled (p. 129).
We forget those inconvenient facts and want countries to develop quickly and easily (just like we didn’t do). In the words of Lant Pritchett and Michael Woolcock, we want developing countries to “jump straight to Weber,” which they describe as a strategy that seeks to “quickly reach service delivery performance goals in developing countries by simply mimicking (or adopting through colonial inheritance) the organizational forms of a particular “Denmark”… The form did not emerge from an internal historical process of trial and error and a political struggle (as it did in most European and North American countries).”
Now there is something to the old adage about not reinventing the wheel. But when we urge (or demand or expect) countries to “jump right to Weber,” we are ignoring history and reality.
In our book, we start with something really important that Douglass North recognized in his acceptance speech of the Nobel Prize in Economics in 1993. He argued that “How can one prescribe when one doesn’t understand how economies develop? … In the analysis of economic performance through time it [neoclassical economics] contained two erroneous assumptions: first, that institutions do not matter and, second, that time does not matter.”
We think an ideal way to take institutions and time seriously is to focus on the subject of a long debate among comparative economists on why the economic and political performance of the United States and other similar English colonies was so much better after the independence than that of the Spanish colonies in Latin America.
Obviously the legacy of the colonial past must have affected the performance of the United States and Mexico, at least in the 19th century. Yet, comparative economists often focus on the differences between the colonial policies of England and Spain without examiningg the institutional development of the two powers themselves. In fact, England and Spain were at very similar levels of development in 1000, but by 1500, Spain was over 200 years behind England in creating an effective state. Clearly the level of constraints was reflected in the colonies of the two colonial powers and the policy they were able to follow.
Such a long-term perspective adds a number of important insights to our understanding of the English and Spanish legacy to their respective colonies. But, in addition, the perspective provides the opportunity to study the development of constraints not only in two of the most important powers in Western Europe over an 800-year period, but also in new states that became independent some 200 years ago. For reasons of simplicity, we focus on two of the former colonies, the United States and Mexico. Mexico was the most integrated and best performing Spanish colony, and it raises the question of the difference in performance with the United States most starkly.
We show that economic development of post-colonial US and Mexico was divergent in great part because of the types of market policies established by their mother countries, England and Spain. The former established a system of free trade within its New World colonial system, while the latter tried to highly regulate and bureaucratize trade in its sphere. The key though is that England was able to create such a system because of its high level of political development and centralization. Spain, in turn, adopted such a regulated system because it didn’t have the institutional development to support free trade. These findings have important policy implications for contemporary developing countries.
 The authors’ reference to “Denmark” does not refer to the country but rather to a typical developed country with an effective state and bureaucracy. Lant Pritchett and Michael Woolcock, “Solutions When the Solution is the Problem: Arraying the Disarray in Development,” World Development 32 (2004), 191-212, p. 193 and 201.
 Douglass North, “Economic Performance Through Time,” American Economic Review 84 (1994), 359-68, p. 359.