On the Colonial Origins of Comparative Development

by Alan S. Cajes, PhD

Institutions that protect property rights and provide equitable policies are likely to promote meritocracy, thus invest more in physical and human capital development as drivers for increased income. Such institutions, at least in previously colonized countries, persist because the colonizers were able to settle. As such, they replicated their European institutions that promote ownership of private property, as well as checks and balance in government. The models of this approach are Australia, New Zealand, Canada, and the United States.

The same institutions are not likely to be established in colonized countries that discouraged the colonists to settle. What the colonists set up in the counties where they encountered high death rates, for instance, were extractive institutions that are still persisting. An example of such extractive institutions was exemplified by the Belgian colonization of the Congo – ownership of private property was not protected, there were no checks against government expropriation, and the institutions became instruments for the transfer of wealth from the colony to the colonizer.

The quality of institutions is important for the development and prosperity of national economies. The authors cited the different levels of well being between the North and South Korea, as well as the East and West Germany where one country stagnated due to extractive institutions that harbor central planning and collective ownership, while the other has high income driven by free market capitalism. 

Institutions play a critical role in the success or failure of nations. In colonized countries like the Philippines, extractive institutions still persist. This happened due to the exploitation of the colonizers using a small number of landowners, who provided the plantations that produced exports for the colonizers. This class of entrepreneurs acquired the rights to extract minerals and harvest timber from the country’s natural resources. They also became the traders, bankers, and professionals that serve the export-import industries.

Such extractive institutions persisted even after the Second World War with the Philippines adopting an internal colonization mode of agricultural development. In this model, the Filipino elites replaced the colonizers and kept the plantation, natural resources-extractive, export-oriented, and import dependent economy. This small Filipino elites amass wealth, wield political power, and entrench themselves in government through regulatory capture. Thus, some political leaders unknowingly become puppets of these elites.

Reference

The Colonial Origins of Comparative Development: An Empirical Investigation Author(s): Daron Acemoglu, Simon Johnson, James A. Robinson Source: The American Economic Review, Vol. 91, No. 5 (Dec., 2001), pp. 1369-1401 Published by: American Economic Association