Coordination, Cooperation, and Control by Randall G. Holcombe

Author:Randall G. Holcombe
Language: eng
Format: epub
ISBN: 9783030486679
Publisher: Springer International Publishing

Natural Factors That Influence Institutional Development

Commerce developed in various places in the world, at different times, and commercial societies have emerged and then reverted back to institutions in which political power came to dominate economic power. History does not draw a straight line in which one institutional structure evolves into another, and shows frequent reversals in institutional structures. Commenting on the development of commercial societies, Bruce Campbell says, “Institutional and organizational innovation bore fruit in a veritable commercial revolution, during which more people became dependent for more of their livelihoods upon engagement with increasingly active commodity, land, labour and capital markets.”31 One characteristic of commercial and industrial societies is that people become dependent on commerce for their survival.

Campbell notes an increasing reliance on markets, which facilitates the separation of economic from political power, but also places heavy emphasis on climate and disease. The bubonic plague resulted in a decline in Europe’s population of about a third in the mid-1300s, increasing the value of labor and thus giving serfs and other working-class individuals more bargaining power. Meanwhile, a cooling climate beginning around 1400 hindered agricultural production and may have held back economic development because of reduced productivity.32

Jared Diamond similarly argues that geographical factors led to differences in economic development in various regions around the globe.33 Climate factors that affected the spread of disease, the availability of different types of domesticatable plants and livestock in different areas, in addition to institutional differences that emerged because of natural conditions, affect the abilities of societies to adopt more economically productive institutions.

While looking at institutional changes that affect political and economic power, natural factors like climate and disease must be recognized for their impacts on institutional change. Campbell places heavy emphasis on these natural factors, but also recognizes the significance of institutional development—of the influence of the Church, the development of Western legal traditions, the emergence of guilds, and international fairs that facilitated commerce. Campbell says, “It was these institutions that shaped European development for centuries to come.”34 Similarly, Daron Acemoglu and James Robinson also place heavy emphasis on institutional differences across countries as an explanation of cross-country differences in prosperity.35

Campbell echoes Diamond’s emphasis on natural factors when he says, “To do justice to a complex past and the dynamism of the natural world in which people lived, worked and reproduced it is necessary to understand how climate and society, ecology and biology, microbes and humans, acting separately and in combination with each other, shaped the course of history.”36 Natural factors are largely beyond the control of individuals, whereas institutions are the result of human action, and often the result of human design.

Institutional development occurs when changing conditions require more sophisticated institutions. The agricultural revolution provides an example, and institutional development advanced more rapidly in areas where agricultural communities increased their dependence on commerce. Commerce can exist within a society, but commerce advances more rapidly when trade occurs among societies, over longer distances. As Adam Smith said, the division of labor is limited by the extent of the market.

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