Comparison of economic development between China and Britain
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FINALINSTITUTIONS.docxChapter 15 in S Broadberry and K Fukao eds. Cambridge Economic History of the Modern World (forthcoming)
Underlying sources of growth: institutions and the state
James Foreman-Peck and Leslie Hannah
Two characteristics differentiate today’s rich countries from many poor and middle-income ones: they are all market economies run largely by capitalist corporations, and most are representative democracies (oil-rich economies being exceptions)[footnoteRef:1]. However, capitalist democracies have widely differing commitments to tax redistribution, levels of state ownership, health and welfare policies, or the balance between protecting established property rights and interventions to remedy the system’s perceived failings. Autocrats have also promoted economic growth - President Xi of China follows a long tradition - and have sometimes succeeded over a lower range of GDP per head. However, economic growth eventually seems to expand demands for participation: in the later twentieth century military dictatorships of Taiwan, South Korea and Spain liberalized and communist autocrats in eastern Europe conceded free elections. [1: In 2018 no country that was an autocracy (Polity IV definition, see note 10, below) had an income per head of more than $15,000 if it was not heavily dependent on fossil-fuel exports. Countries that were autocratically ruled and did not have the option to export fossil fuels were poor (Roser 2014).]
While democracy, capitalism and wealth are correlated, the possibility and nature of causation among the three is much debated. Major themes in the western literature - pioneered by Nobel-prizewinning economic historian Douglass North and enriched by many others[footnoteRef:2] - are when these correlations emerged and how they are structurally related. We follow this “new institutional economics” approach here. Wealth-maximizing political institutions are hypothesized to be inclusively representative, sometimes leading toward full democracy, combined with respect for minorities. Arguably political and economic ‘open access’ - representative political institutions and ready access to incorporation or similar enterprise forms - are mutually reinforcing and conducive to high living standards, broadly shared (North Wallis and Weingast 2009, hereafter NWW). [2: For instance, North and Thomas 1973; Rosenberg and Birdzell 1986; Ostrom 1990; Engerman and Sokoloff 2012; Acemoglu and Johnson 2005; Haber North and Weingast 2008; Acemoglu and Robinson 2012; Lamoreaux and Wallis 2017; Alston et al 2018.]
Institutions are the patterns of interaction that govern and constrain the relationships of individuals; the ‘rules of the game’. Relevant rules include written laws, formal social conventions, informal norms of behaviour and shared beliefs about the world. This variety ensures that institutions are often difficult to define precisely. The institutional form of some states includes the rule of law, in others the rule of arbitrary terror. Institutions are often hard to create and highly persistent. Institutional economics attempts to understand why and under what conditions they emerge.
Institutions facilitating transitions from limited to open access must allow the circulation of elites. Elites may be elected but in a low income, feudal society such as contemporary Pakistan they can still at best be a ‘selectorate’. New people must be allowed access to power, changing the social structure, but without too much collateral damage to society. Peaceful transitions therefore may entail outgoing elites being permitted to hold on to their wealth, so they abandon power without violence. The condition of peaceful circulation in turn needs acceptance of a rule of law for elites that offers them a form of legal protection. A second condition is that there must be substantial numbers of independent, perpetually lived organizations, such as corporations; these can undertake more economic activities than finite life organizations. Political control of the military is an essential third condition. The failure of the military coups in 1981 and 1982 marked the success of the Spanish transition to open political and economic access. Control is essential to reduce threats of violence and trade disruption and cutting the risk of expropriation by the military increases the benefits of markets. When economies and societies satisfy these three conditions and become wealthier, the open access transition and sustained economic growth are more likely to occur (NWW 2009).
The “Washington consensus” - or the “Manchester School” as similarly free market liberal[footnoteRef:3] ideas were known in the nineteenth century - never goes uncontested (Chang 2002, Stiglitz 2003).[footnoteRef:4] It is now concretely expressed in the World Bank’s detailed policy prescriptions and “Doing Business” index (www.worldbank.org). The “good” institutions it recommends include democracy, an independent judiciary, uncorrupt and efficient bureaucrats, secure property rights, a politically-independent central bank, easy and cheap business registration, transparent and market-orientated corporate governance, and a responsive legal system (with common law systems judged to perform well on this dimension). [3: We use the term “liberal” in its original European - or modern “neo-liberal” - sense to mean anti-authoritarian supporters of individual freedom, free markets and a limited state, not in the modern American English sense (broadly the opposite).] [4: Before 1914, the Manchester School was similarly contested by Marxists, American institutionalists, German Kathedersozialisten, British Fabian socialists and many others.]
A frequent problem in understanding their role today is that institutions have often existed for decades. They have sometimes evolved with minimal formal deliberation (the unwritten British “constitution”) rather than being consciously constructed (the American constitution, though that too evolved). It is sometimes difficult to identify origins, causes and effects separately from those of related institutions, or cultural background, with which they interact. For example, Haber, North and Weingast (2008) contend that correlations between favourable economic outcomes and Anglo-American common law systems are not causal: both the outcomes and common law judgments are triggered by third factors, representative political institutions and tolerably equal economic access.
Some institutions - such as patents, education and demographic norms - are discussed in other chapters. We pay special attention here to the development of business incorporation and its relation to evolving representative government. The capitalist corporate form - and some state-owned substitutes - came to dominate enterprise in almost all post-agrarian societies by the end of the twentieth century and political institutions played a key role in this development. NWW (2009) maintain that under the ‘natural state’ (a coalition of elites), economic growth can take place but will be eventually choked off as the basis of elite power comes under threat. The transition to sustained economic growth requires the transformation of both political and economic institutions, so that they can become mutually supporting. Traditional - feudal, monarchical, established religion, class- or caste-bound – societies usually restrained political and economic open access. Sometimes the move to more representative government occurred because incumbent elites made mistakes that weakened their hold on power (Treisman 2017). For those outside the elite the overthrow of such systems in the name of “modernity” often seemed a prerequisite for growth and development. In that limited sense American and French revolutionaries overthrowing monarchy and aristocracy, Lenin’s execution of the Tsar and attacks on the bourgeoisie, and Maoist revolutionaries undermining Confucianism and the Manchukuo dynasty were all on the same page. All also seriously risked oversimplifying (sometimes murderously) the problematic transition to modernity.
We set the scene with a survey of economic and political institutions in 1870 and the concentration of wealth in Western Europe and North America. We go on to consider the experience and institutional features of the first non-Western moderniser after 1870, Japan. The third section summarises the non-market institutions and state development from 1917 of the Communist alternative states. This is followed by a brief account of the key characteristics of the hybrid state-driven capitalist economies that begin to appear after 1945. In each section we rely heavily, but not uncritically, on the NWW framework to interpret the relationships between economic development and political and economic institutions.
I Economic and Political Institutions in 1870
In 1870 political economists - as institutional economists were then called - had strong views on the characteristics of desirable institutions and were confident they were the cause, not merely the happy result, of prosperity. They used Christianity and “civilisation” as synonyms: “Christendom” meant the developed world (Mulhall 1881). A leading sociologist, Max Weber, and many historians agreed that religion - and especially the Protestant variety - had promoted capitalist prosperity (Weber 1904, Butterfield 1931, Tawney 1964) and there remain today some exponents of the view that “good” or “poor” institutions are rooted in deep national cultural traits such as religion (Landes 1999; Stulz and Williamson 2003; McCloskey 2010; Djankov and Hauck 2016).[footnoteRef:5] Most Islamic countries have experienced difficulties in growing rich (except on oil) and generally have had autocratic governments (Kuran 2011). Yet economic growth is now more widely shared by non-Protestant countries and rich countries have become more agnostic. Religious institutions as causes of national economic growth are accordingly less prominent in today’s institutional economics than they were in the past. [5: For a broader discussion of the interactions between culture (generally learned informally from parents, civil society or churches) and institutions (which are more deliberate -and often political – creations), see Alesina and Giuliano 2015.]
One obvious feature of the world of 1870 was how distant the bulk of humanity were from the NWW ideal of ‘open access’ or ‘inclusive’ institutions. Living standards were already high in much of western Europe, north America and Australasia, where governments fostered widespread (if imperfectly democratic) participation in both dispersed capitalist corporations and representative political assemblies. It was still a matter of heated debate whether some institutions – like limited liability, patents, or democracy - were aids to, or barriers to, economic progress. Not until the early twentieth century did three rich countries – Finland, Australia and New Zealand – introduce a franchise close to that considered democratic today (including women). Some, like France and Switzerland, did not do so until after World War Two. One near approach to a more generous definition of democracy - universal adult male franchise - in the French Second Republic only demonstrated its dangers: it had led in 1852 to the endorseement of the autocratic Napoleon III. In the richest countries, statesmen either judged a wider franchise undesirable, or, accepting it was inevitable, fretted about ensuring broader commitment to the existing polity and social hierarchy. They pressed for wider education, modest social protections, or for restricting radicals, labour unions and (within empires) native independence movements.
Most of the world’s population lived under absolute hereditary rulers, subject to few formal restraints (Russia, China, Japan, Brazil, the Ottomans) or direct rule by a controlling power (British India, French Indo-China, American Alaska). In the developed world, most states (including the UK, Germany, Italy) were monarchies, though with some representative government and serious restraints on the arbitrary exercise of regal power. Only in America (north and south) did republics predominate. Nation states were the basic institutional framework for political and economic development: their governments were the authors of legislation and incubators of formal institutions. People, capital, goods and ideas moved across national borders, but they travelled more easily within those borders, especially borders that enclosed linguistic or culturally homogeneous communities. Newspapers, political activities, social interactions, education systems, transport improvements and laws increasingly reinforced national links. Mill (1861) argued that representative government “was next to impossible in a country made up of different nationalities.” The Hapsburg monarchy, though opting not to merge its nine million German-speakers into the new German confederation of 1870-71, did separate the government of its constituent Austrian and Hungarian kingdoms. Mill’s point was important, as nation states consolidated, but also raised as many questions as it answered: were the Irish British? were Poles and Alsatians German? were Muslims or Buddhists Indian? could one really create a nation out of US polyglot immigrants, when the north disagreed with the south on as fundamental an issue as slavery?
The number of sovereigns had declined as states consolidated and major sovereigns annexed weaker ones and was to decline further, notably with the European “scramble for Africa,” to 54 by 1914.[footnoteRef:6] European empires, which had administered a third of the world’s land surface in 1800, controlled over 84% by 1914 (Fieldhouse 1973). Rich nation states (excluding their empires) in 1870 were about equal in size: populations were 40m (US), 39m (Germany), 38m (France) and 31m (UK). Many more people lived in recognizably poorer countries with autocratic governments (Russia with 83m, the Indian subcontinent with 300m and China with 358m together accounted for 58% of the world’s population). [6: War-induced break-ups were to increase that to 76 by 1949 and later de-colonizations resulted in today’s level of around 200 nation states (Gancia et al 2016, p. 1). ]
International institutions - European empires apart - were almost non-existent. Bodies such as the International Commission on the Danube worked well for riparian states, the International Office of Telegraphy was set up 1869 and the International Bureau of Weights and Measures in 1870. The Hague Tribunal (another forerunner of today’s United Nations for resolving international disputes) had to wait until 1899. Nonetheless international trade (the increasingly protectionist US excepted) was relatively free, facilitated by tariff reduction agreements and acceptance of the “most favoured nation” clause. Communications were improving: the French opened the Suez Canal (speeding communication between Europe and Asia) in 1869 and in the same year the US completed north America’s first transcontinental railway, both expanding trade opportunities. The Victorian “worldwide web” was almost complete, with a working cable across the Atlantic by 1866, India and Singapore connected by 1870 and Australia and major cities on Asia’s Pacific coastline following in 1871 (Foreman-Peck 1995). These achievements left sub-Saharan Africa as the only major region not then linked to rapid telegraphic communication.
The connection that North et al hypothesised between open access in the political and economic spheres might be expected to show up earliest and most clearly in the US, a self-consciously new and different country whose many constituent states were experimenting with open access both politically and economically: extending the franchise and general incorporation laws. The number of corporations per capita in the US was already high by European standards by the middle decades of the nineteenth century (Wright 2014, Hannah 2014). However, there was considerable variation between US states in allowing incorporation with limited liability by simple registration and political open access, with long lags both ways; the changes were slow, difficult and contingent (Hilt 2017). Few believed that opening access to organizations of all kinds could both spark sustained economic growth and enhance the workings of democratic politics (Lamoreaux and Wallis 2017).
A more sharply mixed pattern can be seen globally. China, Japan, many un-colonized Asian and African states, the Russian and Ottoman Empires and much of south eastern Europe lacked general incorporation statutes in 1870 and for several more decades. On the other hand, most rich countries with some form of representative government had a general incorporation statute then or soon after: for example, France in 1867, Germany in 1871. It is difficult to discern a clear or deliberate link between moves to open access politically and economically. Britain had relatively easy access to a variety of company forms even before its registration statutes of 1844 and 1855, already offering individual charters liberally for turnpikes, banks, canals and railways. It had a long tradition of parliamentary government but extended the democratic franchise only slowly in four major steps between the reforms of 1832 and full adult suffrage in 1929. British colonies, even those autocratically ruled rather than self-governing, had open access to limited liability (based on the British legislation, with local variants) decades before they approached representative government. India’s incorporation statute dates from 1857, while its first taste of national elections (with a franchise as restricted as early nineteenth century Britain’s) was as late as 1920.
Germany soon regretted the liberality of its 1871 corporate registration statute: regulatory oversight was tightened in 1884 and 1896 and there remained considerable suspicion of limited liability and stock exchange speculation. In 1910 Germany still had one of the lowest level of corporations per capita in the rich world. By contrast, Norway had no incorporation statute until 1910, but its government did not outlaw free contracts for corporate forms; Norwegians actually contracted extensively and competently, achieving the highest levels of corporations per head in Europe before they had a general incorporation statute. The Czar insisted on corporations being individually chartered in Russia proper until his abdication in 1917. Yet, within the Russian Empire, the Grand Duchy of Finland, despite limits on its representative institutions, had long allowed incorporation liberally by registration (Hannah 2015, Foreman-Peck and Hannah 2015).
Corporations served many purposes and one clearly related to economic growth was the provision of capital by many small shareholders, giving a wider range of citizens a stake in business profits through stock exchange investments, while permitting the achievement of economies of scale and integration or network benefits by large listed businesses (Williamson 1981, Rosenberg and Birdzell 1986). There was no stock exchange in 1870 in the whole of East Asia nor in much of Latin America and Africa, but there were £6.8b of securities on the main European stock exchanges and £0.6b on the New York Stock Exchange (Medbery 1870, Nash 1871, Moreau-Néret 1939). On both sides of the Atlantic government securities dominated, the main exceptions being railways raising the unprecedentedly large and lumpy development funds that this new technology required. In 1870 the largest railway corporations were in France, Britain and India; US railways were smaller, but rapidly catching up (Investor’s Monthly Manual 1870; Annuaire Chaix 1870; Poor 1870). Most of the world’s population - including China and Japan - had yet to see a railway: 93% of 1870 railway mileage was then in Europe and north America, with most of the rest in India (Woytinsky 1955). Railways were also a proxy indicator of the global application of steam power: 70% was then used on railways, the rest in steamships or as a power source in modern factories (Mulhall 1884).
Many countries without railways were determined to catch up with this symbol of modernity. The insecure Hapsburg and Russian emperors had once feared railways for spreading revolution, but increasingly understood their military and economic value and offered state guarantees and investments. The Qing in Peking resisted incursions of this western business and technology, but soon Chinese modernizers were seeing that as grounds not for national self-congratulation but for plotting the revolutionary overthrow of the Qing dynasty. Some countries that lagged in permitting open access to incorporation for railways made alternative arrangements. Gerschenkron (1962) argued that both governments and banks could be effective institutional substitutes for securities markets in funding development. This is echoed by modern economists conscious that banks and state guidance have played a similar role in later successful growth spurts in Japan, South Korea and elsewhere (Chang 2002, Levine 1997). Prussian mutual savings banks funded early railways (Lehmann and Wahl 2018) and state railways later became dominant in Germany, with the 1880s nationalizations of private lines. The French government planned the development of its rail system and, from 1859, guaranteed returns for investors to accelerate development. Even state-owned railways often relied on stock markets to raise capital. Later scholarship has emphasized that relations among securities markets, banks and the state were more complex than Gerschenkron allowed and not solely driven by backwardness (Forsyth and Verdier 2003). It is now more common to emphasize that banks and securities markets can be complements as much as substitutes: within a broad range the balance between the two is arguably inconsequential (Beck and Levine 2002, Fohlin 2016, though compare Carlin and Mayer 2003, Hall and Soskice 2001).
Indian railway development required state aid - supported even by ideologues advocating laissez-faire in Britain (Barrington 1915) – and the self-governing colonists in Australasia and Canada also favoured nationalized or state-aided railways. Britain itself was the only major country which provided little but open access charter rights in support of railways, relying entirely on private enterprise, with only modest regulation even when monopolies developed (Farrer 1871). Even in the US most investment in canals and more than a quarter of rail investment had been state-supported before the civil war and the federal government still subsidized transcontinental railroads. Although de Tocqueville considered US citizens (relative to the French) unusually adept at forming associations (and that was correct for small corporations), one British commentator put various American government interventions down to a deficiency in the “habits of association and enterprise” (Thorold Rogers, cited in Goodrich 1960). However, the US moved decisively toward private enterprise from the 1870s, with budget surpluses repaying government debts and “crowding in” investments in private railroad bonds and equities. The US then tolerated high rates of railroad bankruptcies - on a scale that in Germany led to a reining in of private enterprise - firmly resetting America’s path toward the private capitalism of which it is now considered a primary exponent. One French commentator noted that the US had less capital than “sterile” France but used it more effectively for business because of its move to open access institutions (Coquelin 1873).
II Japan
The underdeveloped economy of 1870 that most successfully modernized over the next century was Japan. Marx (1867) believed that “the industrially more developed country presents to the less developed country a picture of the latter’s future,” a view (unusually) shared by Japanese elite reformers. Among those who had travelled to San Francisco with Japan’s 1859 mission, Yukichi Fukuzawa had been impressed by Americans’ equality, freedom from government controls and cultural superstitions, generosity to foreigners, and coaches drawn by horses (not men), but was less impressed by Americans’ propensity to keep on dirty shoes indoors and overt republicanism (Fukuzawa 1875 and 1898-9). He wanted to preserve but modernize an enlightened monarchy
Elite opinion-formers like Fukuzawa wanted to change their country but also to protect it from the European and American colonialism that was encroaching on independent Asian nations. It was essential to copy western technology and institutions so that Japan could match the West’s wealth and ultimately its military power, facilitated by businessmen, technologists and academics recruited from the West. The Japanese are sometimes pictured as having wisely chosen foreign institutional models: the British navy and Post Office, the Prussian army, the Belgian central bank, German civil law, and so on. In fact, the process of deciding what to copy and the question of how to adapt them to Japanese needs was far from simple. Was the Belgian central bank really the world’s best? Was it sensible to copy the British peerage and House of Lords? Acemoglu and Robinson (2012) note that the Japanese drive for modernization was comparable with what happened in Britain and Germany, where the nonindustrial elites maintained their political power despite the process of industrialization. The strategy was to industrialize while also reducing the chances of counter-revolution by ensuring the cooperation of most of the existing power centres and developing central government military power. Berkowitz et al. (2003) and Pistor et al. (2003) stress the importance of receptivity for the success of transplanted legal systems and German civil law attracted the Japanese elite because it was more certain and top-down than common law. Having first adopted an American style banking system, Japan soon found continental European models more congenial and in 1899 finally adopted a version of German corporate law, but developed it as an open access institution more liberally than Germany (Hannah and Kasuya 2016).
Political choices were also complex and changing: the Meiji Constitution was initially autocratic but Japan flexed to more democratically elected and representative cabinets in the 1920s, before descending in the 1930s to autocratic military control. State business initiatives were also flexible. After the pioneering government-run Tokyo-Yokohama line, railways were mainly developed by the private sector, as the state lacked the fiscal capacity to undertake large investments, but many were then nationalized in 1906. Industrial pilot plants - initially government-owned - were gradually privatized, as capitalist groups developed a capacity to finance and manage them. This complexity has led some historians to claim Japan as a triumphant example of capitalist markets; others to extol its state-led planning. In fact, Japan was a complex and diverse economy, with both governments and markets at different times driving development with varying success. The Japanese elite selectively copied and modified western institutions to promote economic development. However, restoring political open access to complement economic open access on the NWW model was the work of post-1945 US occupiers, enforcing elite acceptance of more democratic norms.
III. Communist Alternatives
In Russia Kerensky’s reformist government supplanted the autocratic Tsar in 1917 and immediately replaced the restrictive corporation law with economic open access. However, after Lenin’s October Revolution, the Bolsheviks made more radical attempts to change institutions and drive industrialization faster. They aimed comprehensively to overthrow old elites and change the distribution of power. While Japan embraced trade with the West and social stability at home, the USSR pursued a quite different course. The Bolsheviks suppressed much trade with capitalist nations in favour of self-sufficiency, repudiated the foreign debts the Tsar had incurred to finance industrialization and wars, and brutally enforced a more ‘socialist’ society.
Despite this setback by the later 1930s Stalin’s Soviet Union had achieved GDP per capita levels similar to those that would have been achieved if Tsarist growth rates had continued uninterrupted. It was again near to the output levels of the poorer European powers and had overtaken a capitalist eastern Europe divided by the post-1918 peace agreements into inefficiently small and protectionist nations. Stalin’s five-year plans forced a shift of labour and, especially capital, in a “big push” of heavy industrialization, focused on military and capital goods not consumption or productivity improvements. The aims of the planning system were primarily security and military superiority. The payoff came with the military achievement of the Soviet Union in defeating Nazi Germany by 1945. Among the costs in the 1930s were the oppression of kulaks (the most enterprising peasants) and forced collectivization of agriculture that triggered a famine, killing millions; a further million were murdered in Stalin’s purges of 1937-8. In eastern Europe after 1945 the regime also suppressed democracy (or nationalist autocracy) in countries occupied by Soviet armed forces.
The USSR’s impressive post-1945 capacity to maintain growth and channel innovation into successful technical developments such as nuclear weapons and the 1957 Sputnik satellite caused some to expect the Soviet bloc to overtake the West. By the 1970s, however, the absence of market signals and the incentive problems of the centrally planned economy were obviously slowing economic growth, but were resistant to periodic reform efforts, even as more attention was given to supplying consumer goods. More adventurous reformers in eastern Europe were suppressed by the Soviet military. Resources devoted to the military continued to be a high, but - even to the planners themselves - opaque proportion of GDP. A modest estimate is that in 1980 one fifth of Soviet GDP was absorbed in this way.
Production was de-centralized in separate organizations, but these were typically much larger than capitalist corporations (even in industries with only modest scale economies) and had little planning autonomy (Pryor 1973). Poor innovative capacity in such bureaucracies (notably in services and information technology) and increasing stagnation frustrated managers and bureaucrats as well as consumers. The Soviet Union failed to develop the computer technology that might have increased the effectiveness of the planning system and western computers remained on the Cold War embargo list of NATO powers and Japan. The ‘fixer’, fraud and corruption became essential means of achieving enterprise plan targets. Soviet bloc economies of eastern Europe were generally less dominated by the state; the extreme case being Yugoslavia that decentralised to worker-managed firms ‘guided’ by the Communist Party. Nonetheless these economies appear to have converged on higher US living standards at a slower rate than non-communist economies with comparable (initial) productivities (Crafts and Toniolo 2010).
President Gorbachev, recognising the repeated failure of economic reform in the face of vested interests, concluded that political reform must come first. He permitted private business ownership from 1988, and soon after, the collapse of the political monopoly of European communist autocracies, symbolized by the breaches of the Berlin Wall in 1989. In the centrally planned economies the over-developed branches of industry typically had low productivity and their products were uncompetitive in world markets. In consequence, one of the main tasks of transition from a command/war economy to a market one was the reallocation of resources within manufacturing to competitive sectors and from industry to services.
This required gradualism, yet the western neo-liberal doctrine prevailing in the 1990s rather favoured a programme of rapidly introduced, comprehensive reforms that included price liberalization, mass privatisation, foreign trade liberalization, and currency convertibility (Blanchard et al 1994). In retrospect one of the most critical omissions from this doctrine was the role of institutions in coordinating the activity of market economies. Consequently, despite democratic elections and capitalist markets, the new Russian core struggled with poor performance under ‘crony capitalism’. There was rather more impressive catch-up in parts of eastern Europe. Open access political and economic orders were more successfully implemented, enabling some post-communist states to join the European Union. In other offshoots of the former Soviet Union, notably the central Asian republics and Belarus, autocrats remained in power. Russian interventions and their own crony capitalist developments rendered democracy in Ukraine and Georgia precarious and economic performances generally worse than Russia’s. When strong parliamentary systems were adopted, they countered the adverse effects of inherited autocratic institutions on economic evolution. Yet the adoption of open access democracy was apparently more difficult than adopting capitalism, thanks to history and ethnicity (Djankov and Hauck 2016).
Chinese communists extended their rule over China by 1949. Mao’s People’s Republic was one of the world’s poorest countries: earlier development had been weak outside foreign enclaves like Shanghai. After the formation of a republic in 1912, warlordism, civil war, the Japanese invasion of 1937 and corruption weakened areas controlled by Chinese capitalists and communists alike. In 1949 the expectation of life at birth was only forty years and China’s GDP per head was only 70% of India’s, about a fifth of the world average and 15% of the USSR’s (Maddison 2001). Under Mao, the newly-unified country was increasingly resistant to foreign influences, good and bad. Life expectancy slightly improved but otherwise there was no catching up with the living standards of the rest of the world or the Soviets.[footnoteRef:7] [7: In 1973 its GDP per head was still only 21% of the world average and had fallen slightly to 14% of the USSR’s (Maddison 2001), while modernising countries in that era generally grew faster than more advanced countries (Crafts and Toniolo 2010).]
Initially the new regime showed familiar Stalinist features. Mao eliminated many landlords, rich peasants and “counter-revolutionaries” and his “Great Leap Forward” (1958-62) collectivised agriculture and attempted to stimulate rural industrialization. This policy resulted in perhaps tens of millions of deaths (the precise figures are unknown) through famine, taking national output backward, not forward. Then in the “Cultural Revolution” (1966-76) the Red Guards murdered intellectuals and political dissidents, while others were forced out of cities into manual labour, destroying expertise and compromising output in the name of purging capitalist remnants and enforcing Maoist doctrine. By the time Mao died in 1976, Chinese living standards had fallen even further behind the USSR, though the communist party remained firmly in political control.
Mao’s communist successors were markedly more successful in catching up with the Soviets, achieving higher living standards by careful management of the transition to capitalist markets. They extensively re-engaged with the international system of trading, expanding western technology adoption and multinationals’ inward investments well above 1949 levels. By contrast, relaxations of restrictions on private property, on currency and on capital controls were gradual and selective, ensuring the communist party’s political and economic controls were maintained. Popular support for the policy revisions came from the relief of survivors escaping the horrors of Maoism and the embrace by the young of a more consumerist and educated, if increasingly inegalitarian, society.
Paradoxically Mao’s disastrous policies, by devolving more responsibility to local cadres rather than central planners, laid some of the groundwork for China’s transition. Cadres were encouraged to compete economically against other provinces. China’s choices were also driven by its limited resources: it could not subsidize cronies and buy popularity with oil revenues as much as did better-endowed Russia. Moreover, China’s vast expanse, in 1973 encompassing 22.5% of world population compared with the USSR’s 6.4%, made greater devolution of control a natural response (Lardy 1975). Explicit policy choices to foster open access to capitalist organizations and markets were, however, critical innovations, intensified under the leadership of Deng Xiaoping in 1978-89 and his successors, aided by modernisers in agriculture, industry, science, and defence), with a transition from collective agriculture back to family farming under the ‘household responsibility system’ (Harrison 2014). The reform process deepened in the 1980s with the expansion of locally owned ‘township and village enterprises’ and in the 1990s with sweeping privatization of state-owned industry, though the communist elite retained considerable controls over capital allocation and governance. State-owned enterprises were reduced from producing four-fifths of output in the 1980s to one-fifth today, but still dominate sectors from transport to power. By 2016, China’s GDP per capita at PPP of $15,399 nearly equaled the increased world average of $16,318. Much of the gap with Russia ($26,490)[footnoteRef:8] had been reduced and China was well ahead of India ($6,616). However, it was still well behind countries of Chinese culture which had escaped the curse of Maoism: Taiwan ($48,111), Hong Kong ($58,322) and Singapore ($87,855). [8: In terms of life expectancy (which is now over 70) China has done better than Russia, where life expectancy at birth peaked at 65 in the 1960s and has since declined.]
In a NWW (2009) society the two forms of ‘open access’ - economic and political - go hand in hand. Despite some lags and reversals, they are mutually reinforcing in the richest societies. Communist China has become the foremost modern example of promoting economic growth through encouraging reasonably open access to economic institutions, while maintaining closed access politically, though China still has some way to go to qualify as a rich society. According to North et al, at some future point it will open up politically or economic growth will cease. An alternative view is that the efficiency of tools of authoritarian rule have been transformed by the internet revolution, and its economic success will continue to offer legitimacy to an authoritarian political regime able to benefit from capitalist markets and competitive quasi-open access corporate organizations.
IV State-driven Development of Capitalist Markets
China is not the only exponent of State-driven development under one-party rule. Many capitalist countries and nations liberated from colonial empires in the decades following 1945, succumbed to their own authoritarian strongmen, adopting severe restrictions on capitalist “open access” economic institutions, through expropriations, nationalizations, tariffs, licensing and controls. But as figure 1 shows, the big drop in the population under autocracy is the end of Qing dynasty in China in 1911 and the arrival of Sun Yat Sen’s pseudo-democratic republic. The sudden fall in the population in colonies in the late nineteen forties and the rise in the spread of democracies is driven by the independence of India and Pakistan. 1989 was a critical year for the ending of autocratic communist regimes with the collapse of the Soviet empire.
Figure 1. World Population under Democratic and Autocratic Rule.
Source: calculated from Roser (2018). These are the Polity IV categories.[footnoteRef:9] [9: The Polity Score captures a ‘regime authority spectrum’ on a 21-point scale ranging from -10 (hereditary monarchy) to +10 (consolidated democracy). The Polity scores can also be converted into regime categories in a tripartite categorisation of "autocracies" (-10 to -6), "anocracies" (-5 to +5) and "democracies" (+6 to +10). The democracy indicator is derived from assessments of the competitiveness of political participation, the openness and competitiveness of executive recruitment, and constraints on the chief executive. Autocracies are defined as authorities that sharply restrict or suppress competitive political participation. Their chief executives are chosen in a regularised process of selection within the political elite, and once in office they exercise power with few institutional constraints (Marshall et al 2017). ]
The largest capitalist developing nation was India. The Indian subcontinent was less disadvantaged by war than nominally independent China, but its colonial government was increasingly perceived as illegitimate both within India and by the Left in Britain. Britain’s Labour government in 1947 conceded independence, with Muslim Pakistan seceding from the new secular Indian republic, creating a refugee crisis and millions of deaths. India’s economic growth then accelerated under the favourable global macroeconomic conditions. Its representative parliamentary institutions, restricted to a narrow franchise under the British (only 12% of Indians could vote in 1937), expanded to a broad democracy. The Congress Party accepted changes of government through electoral defeat, from an early stage in the provinces and in the late 1970s nationally: no small achievement given the early records of other third world offshoots of the British empire (Pakistan, Bangladesh, Burma and almost all African ex-colonies). However, under Jawarharlal Nehru (prime minister 1947-64 and an admirer of Russian industrialization) and his daughter Indira Gandhi (prime minister 1966-77 and 1980-84) India experienced poor growth rates in GDP per head, even compared to Mao’s China, and its acceleration in recent decades has also been less impressive than China’s.
Was Indian experience a failure of capitalism? There was certainly much more market activity and private capital among Indian peasants and small businesses than in China. But, as in many ex-colonies, liberation from European rule was taken to mean liberation from free trade, laissez-faire and open-access policies. These were blamed for backwardness, not celebrated as a means for overcoming it. The Congress Party pursued broadly socialist polices of extending nationalization to banks, insurance companies and other industries. They protected favoured local producers by tariffs and licensing, also backtracking on open-ness to modern machinery imports (Roy 2018). The number of joint-stock companies had been steadily expanding under colonial “open access” policies, in absolute and per capita terms, powered by an exuberantly capitalist native bourgeoisie in major coastal cities. Then for nearly three decades after independence, extant companies per million people declined and reached a postwar low even in absolute terms in 1962.
Only with the relaxation of this “license Raj” did economic “open access” flourish. The number of corporations per million people expanded from 54 per million people in 1970 - a lower level than under British rule or than the capitalist international norm - to 83 in 1980, 241 in 1990, 538 in 2000 and 707 in 2010 (www.mca.gov.in). Even so, public sector employment accounted for 71 per cent of the total in the ‘organized’ sector in 1991, and 69 per cent in 2000 (Tomlinson 2013). With liberalization, Indian growth rates reached respectable levels. From an annual average of 1.25 per cent over the years 1960 to 1980, per capita growth reached 3.68 per cent in 1980–2004 and was even higher over the following decade.[footnoteRef:10] However, relative to China, India’s poor infrastructure investment, limits on global integration, and greater personal freedoms (notably for bearing children and voting) arguably held back per capita GDP growth. Moreover, the continuation of some aspects of the ‘License Raj’ limited the growth of larger factories: factories employing more than 200 now account for only a tenth of the manufacturing workforce, compared with over a half in China (Joshi 2017). Political and bureaucratic corruption - violation of law by public officials for private gain - also ranked India behind China (respectively 87th and 78th out of the 178 countries) in the Transparency International Corruption Perception Index in 2010. Corruption reduces the efficiency of both the public sector and private enterprise. One estimate of the ‘underground economy’ of India in the late 2000s was that it accounted for 50 per cent of the official GDP and there were many illicit capital outflows. Soon to become the most populous country in the world, India has more “open access”, both politically and economically, than most developing countries. But the jury is still out on whether she will be able successfully to close the present gap with China, Russia, or, more distantly, with the West. [10: Calculated from https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?locations=IN ]
More autocratically capitalist economies than India experienced rapid economic growth and the transition to ‘open access’ politics after 1960. The Korean military dictator President Park Chung-Hee threw the country's leading businessmen in jail when he came to power in 1961 (Rodrik 1997). They were released only after Park extracted promises from them that they would each undertake specific industrial investments. Given how the Korean economy prospered, these businessmen may well have been better off for these forced investments. The critical change (as in China) was not a transformation in the structure of power, but the absorption of new ideas by those in power. Reform happened not when vested interests were defeated, but when different strategies were used to pursue those interests, or when interests themselves were redefined.
This may explain why sometimes autocracy produces better economic results than democracy. Authoritarian regimes can impose ‘open access’ or liberal economic policies, being freer than those who are subject to democratic control to introduce unpopular policies that produce short-term pains and long-term gains. Good autocracy is a “selectorate” where incumbents can be changed if they do not work well (Besley and Kudumatsu 1998). Britain in the 18th century and China today might be so classified, but African dictatorships and North Korea are at the other end of the spectrum. East Asian selectorates after 1945 might include Indonesia, Singapore, South Korea, Taiwan and Thailand. Poland and Romania performed tolerably under communism (until the 1980s) and Spain under Franco or Chile under Pinochet also experienced rapid economic growth. These regimes show that market competition can be promoted while maintaining autocratic control, though, most of them, unlike China, have become democratic since becoming wealthier.
Extractive African institutions were poor at providing public goods but adept at siphoning off state revenues for elites and post-independence autocracies were little better (or even worse) than some colonial governments (Acemoglu and Robinson 2012). From the 1980s more pro-market structural adjustments were introduced. The erratic economic performance of modern Latin America is often attributed to the institutions embedded under the Spanish and Portuguese empires. Governments with limited fiscal capacity failed to deliver public goods and to distribute the costs and benefits of independence equitably (Irigoin 2016). By increasing indirect taxes, debt and money creation, elite governments transferred fiscal burdens to non-elite constituents or to future generations. Taxpayers favoured a low and regressive taxation. However, Costa Rica shows that the persistence of poor imperial institutions was not inevitable. From 1890 the country maintained the highest Polity IV democracy score, and is a low crime area with a gdp per head triple that of neighbouring Nicaragua (World Bank https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD).
Source: Prados de la Escosura (2016) with updated dataset at https://espacioinvestiga.org/hiel-eng/?lang=en.
Why were open access, or inclusive institutions, not more widely adopted? The answer of NWW (2009) is that elite power would or could have been threatened. Many nineteenth-century elites did not want these institutions at all: in Afghanistan, Thailand and Ethiopia, they did not believe that aping successful western economies was good for their societies, fearing a loss of national identity, as well as power. After World War Two, the success of capitalism induced more emulators, both democratic and autocratic.
VI Conclusion
By 2000 the most dramatic institutional changes still being digested were in those countries that had made a transition from one political party controlling a centralized, state-owned, planned economy to a market economy[footnoteRef:12] with an open access democratic political system. India’s recent history broadly fits this transition and the end of European communism is also a striking example. Early on, the principal strategic transition options were the “big bang” and “gradualism”. Those in favour of gradualist transition urged caution because they recognized the difficulties of creating new institutions and anchoring new patterns of behavior, while “Big bang” advocates judged the forces of reaction would lack the time to build up their resistance. Poland was one of the effective states establishing new institutions quickly, while Russia proved to be among the least successful. In Russia, macroeconomic stabilization was jeopardized by failures to collect taxes, industrial restructuring was hamstrung by inadequate legal safeguards for private property, competition policy was blocked by regulatory capture and development of adequate social safety nets was stillborn. Eventually Vladimir Putin, a former-KGB officer with a populist flair, re-asserted the importance of state institutions (or their crony capitalist heirs), while ceasing to respect some democratic norms. [12: Predominantly privately owned, decentralized and governed by market mechanisms.]
Linear development or convergence towards open access societies cannot be taken for granted; rather oscillation between limited access and open societies in response to major shocks, such as those of the nineteen thirties, has been the norm. More recently Venezuela slid from a high level of democracy on the Polity IV measure in the 1970s and 1980s to almost the lowest level of ‘open access’ by 2009[footnoteRef:13]. [13: Germany fell from an index number of 6 to 0 between 1932 and 1933, and Venezuela more recently declined from 9 to I. See footnote 10 for Polity IV ratings. ]
Institutions are usually deeply rooted and highly persistent. But numerous influential human agents have been willing to try to change them: as historical examples from Fukuzawa through Lenin, Hitler, Roosevelt and Mao to Deng and Thatcher indicate, sometimes with disastrous, sometimes with favourable, consequences. The net result of these and other human agents working against the power of established institutions - good and bad - is that the world is now richer and more people have access to open economic and political orders than ever before. Yet many remain without such access and, even in the rich world, there are broader discontents with the inegalitarian or environmental features of the present economic and political order.
Schumpeter (1942) was wrong about the demise of capitalism and democracy. So was Francis Fukuyama (1992) when he prematurely announced the “End of History,” the universalization of liberal democracy as the final form of human government. He under-rated the political reaction of groups suffering from globalization (Rodrik 1997, Djankov and Hauck 2016). Liberal democracy is not admired by the Islamic Republic of Iran, the Chinese Communist Party, or the “Bolivarian” Venezuelan revolution but their alternatives have so far had limited appeal. The prosperity and freedom open access orders offer remain the most attractive option for those changing country today, whether refugees (who often have good reason to distrust autocrats) or economic migrants. With German reunification in 1990, barriers between the communist east and the capitalist west were completely dismantled: capital moved east and people moved west, but people won hands down because it is easier for people to prosper with good institutions. Re-establishing institutions throughout eastern Europe to make capital and democracy prosper was a slower and more difficult, uncertain process: such is the power of institutional conditioning. History suggests that the existence of workably attractive capitalist democracies is unlikely to prevent nationalist, revolutionary and populist leaders continuing to fashion alternatives, whether by force or democratic debate.
Figure 2. Indices of Economic Liberty in OECD Countries 1870-2007
Unweighted MA(5) Index 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 7.7739315867006749 7.7757030346968872 7.7634669220568524 7.7433091815572812 7.7748059915044934 7.8633765638702755 7.9348353006391736 8.0377142627788452 8.1112241644934606 8.1424297225462787 8.1754857398229639 8.2055793468622902 8.2345491674181623 8.2721616707669625 8.3195603011428574 8.3383566354256313 8.354487406940482 8.3638290046996442 8.3653880239963563 8.3610827998292425 8.3655315923680629 8.3678507161565925 8.3643823454982176 8.3666293004759851 8.3805014115805569 8.4021249744888848 8.4180515868064667 8.4280205871419511 8.4448776263605314 8.4519974672986713 8.4599542157434957 8.4707769871343714 8.4923109805595516 8.5163309683128858 8.5351907296187992 8.5539167310420545 8.5660603645597906 8.5638354880892251 8.5678853551150862 8.5763980798469195 8.5803444426704978 8.5963713046864054 8.6286749039320707 8.6640435934656548 8.59186945 68224421 8.0847056490489351 7.4841154100027438 6.7912976399545117 6.0332571061692608 5.5314989827162773 5.6426146882418298 5.8697351445378843 6.1802500695830052 6.6019836709642714 6.9354042356413981 7.1797529442777615 7.4056016392148081 7.6749963061204483 7.9085616512902392 8.0983841564588808 8.1768049309648259 8.2092423305418016 8.1612255683684065 8.0624170174330043 7.9446946345731133 7.8358533549797809 7.7118052527538881 7.5820068049410363 7.4596896925408647 7.2798080458305607 6.8805806378239991 6.4684260258669379 6.0799940365815974 5.7156890146315309 5.4059463848639426 5.3109429097901488 5.3411978850790263 5.4461811347819946 5.6388878044792516 5.9070238079048014 6.2897928592458499 6.6058427544541569 6.9501727497210819 7.2530630218068044 7.5007361723812638 7.6593907438798343 7.8431453752928393 7.9513440674876978 8.0049362261024246 8.0641015285133282 8.1314784069163082 8.178972473749095 8.2174704562030296 8.2563240727453753 8.272774386454822 8.257712477996666 8.2476795204078943 8.2321272011191056 8.2203218533776869 8.2116040237950525 8.2165615323034675 8.2068528388136439 8.195704453049828 8.1526100217476252 8.078633385605384 7.9956716564461434 7.9532149768534355 7.9386999023641325 7.9703331836347218 8.0444650874953894 8.1240569687122726 8.1724564502697739 8.2087484461587295 8.2372110591074907 8.2668647089239418 8.3160760623721437 8.3877486299220188 8.4577911678362092 8.5264702513951427 8.587757451044757 8.6401487288918872 8.671914730074068 8.7115388197285277 8.741835547206005 8.7763344 109173325 8.8074938933314026 8.855160764691357 8.900928772207152 8.9475484876318649 8.9799370749647807 9.0173191179908461 9.0272416548958674 9.0244589367866848 9.0191253966936245 9.022459148362751 9.018052226745235 9.0364966743841162 9.0617599933405462 Population weighted MA(5) index 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 7.538701719977932 7.5688411633830999 7.6200891275573159 7.6292909887865905 7.6582435465813701 7.7555665515730805 7.8405643234055109 7.9389389837988631 8.0288815637358031 8.073570842663214 8.1308010797099772 8.1731371719628338 8.2177780842450101 8.2559768985627962 8.3076248438663889 8.3421450704873337 8.3754777840075043 8.3958527402173111 8.4132509962482995 8.4112502961600164 8.4174576174286226 8.4227243111664798 8.4217658953492869 8.4230287525563821 8.4376415727279817 8.4464801679265555 8.4501917117403345 8.4530458879600907 8.4740268931563403 8.4876332109937991 8.5076702636462702 8.520764306954641 8.5524198938977527 8.5700796315471948 8.5973880287075684 8.6184805197472141 8.6419374791796209 8.6529315181994306 8.6635354078989053 8.6757462927893307 8.6877189985627119 8.697918660607348 8.7190343449910639 8.7547813791567037 8.6744574679898019 8.1856524059715277 7.5952587000407972 6.8566448846617591 6.0472414784854518 5.5123027819349115 5.5265443557638516 5.7188542180835968 6.0376875651250339 6.4471020805565029 6.7764148205900909 7.0747688467077072 7.32017136386398 7.6098570921831792 7.8865780206742127 8.0986272777962505 8.1871623064460373 8.2098842205102667 8.1446988630824695 7.9870578343415186 7.8387749955931367 7.693340338985176 7.5368370820385495 7.3882524768788134 7.2958737 463839354 7.1277073691640354 6.8397435987818298 6.5609087717638435 6.2833538787868797 5.9775004254849131 5.6719275506826614 5.3936067895784374 5.2229881138956333 5.1790107192483541 5.3080911008529048 5.6049868789091271 6.1278372393211153 6.5919741646360688 7.0582796938757069 7.4600432468165279 7.7562676376085893 7.9319601809262554 8.1452354322119476 8.2706101611625336 8.3170296032200177 8.3697991967400132 8.4384041007893664 8.4661765711870025 8.4889581707932944 8.5264445484324032 8.5464815867691009 8.5360840368337954 8.5310959483703126 8.5340673427376483 8.5353076898694695 8.5359770004553734 8.545898195478232 8.5398052160912723 8.5322997441552353 8.5047271056875129 8.4428130309713847 8.3593990681158665 8.319524013880585 8.2998597584184832 8.30912011 35460402 8.3650066990949199 8.4443827424223965 8.5070315148293272 8.5540186752255636 8.597109810834505 8.6296994618437903 8.6741255482581323 8.7179064410969662 8.7613681064336788 8.8033132989563576 8.8435528088667823 8.8723563972562154 8.889850225071859 8.9069171461851813 8.9154648780859471 8.9256666114550764 8.937529352651671 8.9642223357402475 9.0002120365983309 9.0434474762647881 9.0778786572821453 9.1233234530800722 9.1443804545776839 9.1424322551857919 9.130584138086288 9.1226775622042293 9.1054365438088407 9.1118546279234014 9.1353881834600301
1989
0
1
2
4
3
B
i
l
l
i
o
n
18001850190019502000
Year
Population of ColoniesPopulation of Democracies
Population of Autocracies
Peacetime Capitalist
U.S.S.R. Peacetime
Command
Decision Making
Structure
DecentralisedCentralised
Mechanisms for
Information and
Coordination
Primarily Market, but
with State
Regulation
Compulsory Plans,
Restricted Labour
and Retail Markets
Property RightsPrimarily Private
Ownership
State Ownership of
All Productive Assets
Incentives and
Corporate
Governance (CG)
Material (cash) and
Moral (social trust,
civil norms). CG
based on Equity
Markets.
Material (cash,
privileges), Moral
(communist
ideology), Coercion.
CG based on State.
Features of Capitalist and U.S.S.R. Economic Systems
Source: Adapted from Gregory and Stuart (1995), pg. 27, and Davis (1999a)
Feature
Sheet1
| Features of Capitalist and U.S.S.R. Economic Systems | ||
| Feature | ||
| Peacetime Capitalist | U.S.S.R. Peacetime Command | |
| Decision Making Structure | Decentralised | Centralised |
| Mechanisms for Information and Coordination | Primarily Market, but with State Regulation | Compulsory Plans, Restricted Labour and Retail Markets |
| Property Rights | Primarily Private Ownership | State Ownership of All Productive Assets |
| Incentives and Corporate Governance (CG) | Material (cash) and Moral (social trust, civil norms). CG based on Equity Markets. | Material (cash, privileges), Moral (communist ideology), Coercion. CG based on State. |
| Source: Adapted from Gregory and Stuart (1995), pg. 27, and Davis (1999a) |
