1. 11 Why Are Developing Countries so Resistant to the Rule of Law? Barry R. Weingast Stanford University

2. 22 Question Why is it so difficult to promote democracy, markets, and the rule of law in developing countries? To address this question: –Part I: Summarize North, Wallis, and Weingast (2009) –Part II: Apply this to our question about democracy and the rule of law.

3. 33 Part I: Summary of the NWW argument Three distinct social orders The limited access order, or natural state: –The political system manipulates the economic system –Creates rents to sustain order. In open access orders, political, economic, and other forms of competition sustain order.

4. 44 The Concept of a Social Order The concept of the social order provides: –A framework within which we can simultaneously understand the operation of the political, economic, and other social systems. Violence Institutions Organizations Competition.

5. 55 The Logic of the Natural State The Natural State solves the problem of violence by creating rents. Individuals and groups with access to violence have incentives to cooperate. The political system uses rents and limited access to sustain order. Differs from rent-seeking.

6. 66 Natural States (cont.) We call the limited access order system the Natural State. All relationships are personal. Tragic brilliance. Limited adaptive efficiency –Natural states are stable but not static. Examples. –Medieval England, Nigeria, Kenya, Argentina, Mexico, Russia.

7. 77 Open Access Orders All citizens have the ability to form contractual organizations. Open access creates and sustains: –Both economic and political competition. –Rich civil society. Impersonality –Impersonal exchange (North) –Impersonal benefits/ public goods.

8. 8 Open Access Orders (cont.) Some rent-creation –But access to organizations is open –Markets are far more competitive than in natural states. –Role of political parties. Adaptive efficiency (Hayek, North)

9. 99 The Transition/Doorstep Some natural states move to positions in which moves toward open access can be sustained. Doorstep conditions: –DC 1: Rule of law for elites Impersonality for elites –DC 2: Creation of a perpetual state. Necessary for institutions to bind successor coalitions and rulers. –DC 3: Political control of the military

10. 10 Transition (cont.) The transition is difficult to begin. A few developing countries are in the transition –South Korea, Taiwan, possibly the Czech Republic, Hungary, and Poland. Most developing countries remain natural states.

11. 11 Part II: Why Is it So Difficult to Promote Democracy, Markets, and the Rule of Law In Natural States? My purpose today: –Help explain why development has proved so difficult. –Why rights are so hard to sustain in developing countries. –Experience of last 25 years: Few success stories.

12. 12 Natural states vs. Open Access Orders ConceptNatural StateOpen Access Violence Distributed, notConsolidated, controlled PerpetuityNot perpetualPerpetual ImpersonalityPersonal Impersonal Too much of existing reform based on concepts from open access orders.

13. 13 Rule of Law Definition: Rule of law –(a) Certainty or predictability –(b) Citizens are equal before the law Immediate implications: –Rule of law requires impersonality. –Not only what the law is today, but what it will be tomorrow; i.e., perpetuity. –Violence must be controlled.

14. 14 Problems for Most Natural States Rule of law requires: –A perpetual state. Absence implies: Few incentives for leaders to honor today’s rules. Allows leaders to dismantle the constitution and citizen rights. Instability through coups and civil war. –Natural states are personal, not impersonal. –Changes in the dominant coalition often imply changes in institutions, laws, rights, distribution of rents, etc. Cannot create certainty and predictability As the dominant coalition changes, too many “arbitrary” actions, policy changes, including expropriation.

15. 15 Democracy Why does democracy constrain political officials in open access orders but not in natural states? Natural states constrain electoral competition –Often lack of free press –Limited access (for both groups and parties). Condition 1: All successful democracies limit the stakes of politics. –Chile 1973, Spain 1936, Kenya 2007-08. –High stakes: groups support extra-constitutional action. Condition 2: Tragic brilliance. –Elections as a tool of political control rather than choice. Corrupt courts weaken the legislature.

16. 16 Market Reform Economists: Market reform is Pareto Optimal They see developing economies as having too much –“market intervention” –“rent-seeking” (limited access). Implication: market reform Our perspective: –Economists ignore the problem of violence. –Market reform threatens to undo the glue holding natural states together. –Hence reform is typically resisted.

17. 17 Summary of Why Reform Fails Natural states are not sick. Attempts to create market reform, democracy, and rule of law fail to account for the logic of the natural state. –Violence –Lack of perpetuity –Lack of impersonality. These reforms cannot succeed in natural states that lack impersonality and perpetuity.

18. 18 What is to Be Done? No magic bullets. –Development remains a hard problem. Our perspective: need to create the basis for: –Consolidated political control of violence. –Perpetuity –Impersonality.