Douglas North, John Wallis, and Barry Weingast believe that economists do not properly include controlling violence in models that explain economic growth. Barry Weingast explains their theory on the EconTalk podcast, “Weingast on Violence, Power and a Theory of Nearly Everything.”
They divide countries into three types of societies or orders. The first is the hunter-gatherer or primitive order. It has very little specialization, an engine of economic growth, and a great deal of violence. Primitive orders are poor, producing less than $400 per capita GDP.
The next order is the limited access order and it solves the problem of violence by trading economic favors to specialists in violence for foregoing violence. The size of the payoff is directly related to the ability of commit violence. The government creates monopoly rents and uses the power of the state to quell competition. Per capital GDP in these orders ranges between $400 and $8,000. The limited access order is similar to Hernando DeSoto’s mercantilist society. North, Wallis and Weingast include countries as diverse as Bolivia, India and Russia as limited access orders.
The final order is the open access order. Economic competition is over price and quality, not violence. In an open access order, Schumpeterian competition through creative destruction permits new groups to spontaneously form to exploit new ideas, products and organizational forms. Open access orders are maintained by open access to a plethora of organizations including economic, political, social and religious. Normative beliefs in these societies promote the inclusion of new groups, and equality before the law. Constitutions that limit government power are also important. Open access societies begin at $8,000 per capita GDP, and goes up from there. In fact, the average per capita GDP exceeds $20,000.
Why don’t the limited access orders reform, adopting rules that will make them more like open access orders? Attempts to reform invite violence from previously favored groups that might be losing privilege. Reform would bring greater wealth over time if violence was avoided. But avoidance is not a given. The government might attempt to buy out the privileged, but this is also a difficult policy to implement. Can you promise the privileged a bigger payoff than they already realize? Furthermore, other groups may demand reform without payoffs, escalating the probability of violence.
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1 year ago
Payoff- full payment of a salary or wages. According to your blog you ask if groups could go without bribing and if the violence would eventually escalate. In my opinion violence will escalate in the economic area because of so many changes- one group goes out of business the partner group expects to pick up all of their business. These days the economy is having diminishing returns, the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases. The limited will have it better off in the long run due to the catch-up effect meaning the limited grows at a faster rate than the richer countries.
ReplyDeletearianna rodriguez
Violence in the economy is going to get worse as time goes on regardless. It is a ruthless fight to be the best and be on the top of the ecomnomic ladder. The limited access group could adopt new rules but I dont think it will help out much in the long run. There is still going to be violence no matter what you do. There is no winning when it comes to the competions of the economy.
ReplyDeleteKrislyn Combs
The productivity of the limited access order would greatly increase if they reformed and eliminated violence. First human capital would increase because more time could be spent on education, training, and work experience instead of self-defence. Also Technological knowledge would increase because people would share their ideas with a win-win situation instead of reverting to violence. The increase of these two variables would inevitable increase the productivity and therefore the GPD per capita. While eliminating violence would be hard and costly it is undoubtedly the best course in the long-run for any society.\
ReplyDeleteMadie Harper
I believe there are factors other than economic factors that determine what kind of (economic) society a country has. A country with a government who has excessive control over people's lives (like having control over what the people wear, what religion they are, etc.)or where all people are not equal cannot be a country that has free economic policies where everyone is equal.
ReplyDeleteViolence is a difficult cycle to stop; when someone sees that they are able to gain complete control, they are going to do it. And then, someone who disagrees with them will fight them and try to gain complete control. It isn't possible to try to convince someone who has absolute control that if they relinquished that control, everyone would be better off...it's against human nature. Economic ideas such as a "pay off" cannot account for emotions and human nature. Emotions and human nature are not equal to a certain amount of money.
You said "pay off" but I believe what you are trying to say it that people respond to incentives. Give an incentive the violence rate deminishes. But a payoff being the full payment of a salary or of wages will result in the economy being able to use the catch up effect. The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich will decline the violence problems. As stated in the book poor countries lack the most rudimentary tools and as a result have low productivity, but richer economies have all the tools needed which adds to political and economical turmoil that leads to violent acts. The catch up effect allows the poorer countries to come in a distance from the rich and lessen the political and economical stresses.
ReplyDeleteGwen Doyen - Bruceville-Eddy
For productivity to increase and the overall situation of the economy to clear up, reform is necessary. If there is abuse and overwhelming it must be overthrown, whether from within or with the help of another country. Only then can people have the freedom to create and sell goods for profit. The problem is that establishing a new institution is very expensive. Without the help of outside countries it would be very difficult for a struggling and inhibiting country to turn itself around alone. Also, because of a low level of education, which causes a low productivity rate, such countries lack the tools or resources they need.
ReplyDeleteEven if North, Wallis, and Weingast did take violence into account for economic growth, it would be incredibly difficult to keep track of the it's rising and falling rates. When I read this article, I get the feeling it's saying that problems with the economy are the only thing thats causing any violence anywhere, and I don't believe that is the case. Furthermore, I think classifying countries into different orders is a little impertinent. Not every "hunter-gatherer" is ALWAYS going to be classified into the primitive order, especially when the economy is booming.
ReplyDeleteSarah K. G.
I do not believe that violence will get worse as time goes on. If the economy grows and gives jobs to people, those people will at their jobs working, not committing acts of violence. However if an economy shrinks and jobs are lost, people will be begin to become restless. They will either have to go out and get a new job or find another way to get what they need.Since these people do not have job, they will have to find other ways of getting money or items needed for survival.
ReplyDeleteAll competition isn't violent. You don't see CEOs of companies duking it out to see which company is better. The decision is left the consumers and other market factor. How a market performs usually dictates how violent a society is.
Sara Mac Aulay
Violence is a difficult thing to stop, but it is possible. In order for a country to stop the violence, it must have help from outside countries. At the same time, the country must be willing to accecpt the help and use it. The country's economy will need support in taking this action of stopping the violence.
ReplyDelete-Cara H.
The big question is how much violence is too much violence in order to stimulate and reform the different societies. In the case of the primitive society, violence is going to continue until there is a reform but there is a possiblity that violence could escalate immensely in the case of a reform. In the limited access society there seems to be a balance that discourages violence. The form of the pay-off directly varies with the ability of violence and this keeps society happy. In the open-access society, there also seems to be a pretty neat balance. The normative beliefs cause members in the society to fight for equality, but what makes the different firms equal? That is the question that may result in violence. In my opinion, in order to change we have to understand that there is a high probability of violence. But are we willing to take that risk in any of these societies?
ReplyDeleteDevin Smith
Bruceville-Eddy
This presents a normative problem in ethics. When society is ruled by random choice of households and firms, like the Ant Colony in one of your previous posts, violence can still be correlated with economic prosperity. Those who are not prosperous within the society view those who are similarly to the monopolies. The incentive is not high enough to go from one extreme to another. The role of violence is played up in the "primitive" societies and played down in the higher societies.
ReplyDeleteChelsea Schermerhorn
Bruceville-Eddy
As time progresses on, violence will continue to increase. Violence is not that easy to get rid of. I agree with limited access order because it helps the most by assisting to end the violence. Competing in the economy will not end anytime soon.
ReplyDeleteRaven Lewis
Connally High School
This is an endless war of violence. You can't just get rid of it because even with trying to get rid of you are using violence, you can't avoid it. The competitions in the economy will never end either because everyone has their own opinion on everything.
ReplyDeleteAmber Hensley-Chilton
The study of political situations form an economics standpoint have certainly affected my outlook in life. Many of the policies that I had been against in the past I can honestly say I have reconsidered.
ReplyDeleteAs far as violence is concerned in an economy, it is hard to visualize this when one does not have direct contact with the situation. But I have seen this in comparason with high and low income neighborhoods. Often, when the income levels are low in an area, one tends to see more crime and fight for control of territories through violence, where in high income neighborhoods tend to see more competition through quantity and prices.
The violence we face is without a doubt harming our economic stability. As the gap between the rich and poor steadily grows, so does the difference in violence in these two areas. Some say that the amount of violence is causing our economy to worsen, but I think it is the other way around. The bad state of the economy is causing more and more violence to errupt. As the economy corrects itself and people have a chance at bettering their lives, violence will decrease.
ReplyDelete-Monica Pantea, CHS
There is of course the adage of "violence is not the answer', however, it would seem that even in today's technological society where leaders are advanced educationally, violence always seems to turn up. The state of the economy causes stress to all citizens and when the economy is on a downward spiral, citizens feel that stress even greater. Some may lose their jobs, fear they'll lose their job, or have increasing pressure from their job to ensure the companies safety for a good long future. Any of these things can create tension in employees and increase the hostility of the work force. I do feel though that as the markets seem to be leveling and slowly begin climbing that violence will decrease, but unfortunately nations will probably never be without a certain level of adversity and hostility.
ReplyDeleteLauren Ragan
Violence within the United States will continually be very harmful and from the looks of war its not getting any better or going away. Violence will continue to corrupt economic growth! In order for the amount of voilence to change, people must change first! People must improve within their education, personality, and then change mentally!
ReplyDeleteJameela Thomas from Chilton
This comment explains violence in a very good way. I was able to come to a valid conclusion on violence. Violence will continue to get worse as time goes on regardless. I really don't think people can do anything about it. As long as everybody has their own mind and opinion then some will influence violence and some will try to stop it.
ReplyDeleteSorry I forgot to put my name. Amber Anderson from Chilton commented the previous blog post.
ReplyDelete