Constitutional Environments and Economic Growth

Constitutional Environments and Economic Growth

Copyright Date: 1992
Pages: 258
  • Cite this Item
  • Book Info
    Constitutional Environments and Economic Growth
    Book Description:

    In this provocative work, Gerald Scully develops and empirically tests a theory about how a nation's constitutional setting affects its economic growth. Modern growth theory links the rise in the standard of living to capital formation, both physical and human, and to technological progress, and development economists continue to believe that the transformation of the less developed world cannot occur without massive government control of the economy. Scully, on the other hand, maintains that material advancement is as much affected by the choice of the economic, legal, and political institutions under which people live and work as it is by resource endowment and technological progress. Nothing in the neoclassical theory of growth considers the "rules of the game" under which capital is accumulated and innovation is made. Redressing this neglect, Scully proposes ways of measuring the economic, civil, and political freedom within a society's institutional framework, and he reveals that freedom, or the lack thereof, powerfully and demonstrably influences not only economic progress but also income distribution. Politically open societies grow at nearly three times the rate of those where freedom is more circumscribed, and they also have a more equitable distribution of income. Finally, Scully measures the effect of the size of the state on economic progress, showing that the larger the amount of government expenditures out of gross domestic product, the lower the rate of economic progress.

    Originally published in 1992.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6283-2
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Figures and Tables
    (pp. ix-xii)
  4. Preface
    (pp. xiii-xiv)
  5. Acknowledgments
    (pp. xv-2)
  6. CHAPTER 1 Overview
    (pp. 3-12)

    SOME thirty years ago, Robert Heilbroner wrote that it was settled that collective ownership and government allocation and distribution of resources would bring a standard of living and a degree of social justice to mankind that was not possible under capitalism.¹ Recently, he said that the evidence from the seventy-five-year struggle between socialism and capitalism was that capitalism had won.²

    Intellectuals have seen in the de-Stalinization of the Soviet Union, in the agrarian economic reforms of the People’s Republic of China, and in the political revolutions of Eastern Europe the promise of a sharp move away from government to individual...

  7. CHAPTER 2 The Theory of Economic Growth and Economic Policy
    (pp. 13-55)

    AS founded by the Anglo-Saxon classical liberals in the eighteenth and nineteenth centuries, economics was the study of the economy and of the political institutions and policies required to increase material wealth. Such early thinkers as John Locke and Adam Smith lived in an economy made stagnant by the massive intrusion of government into daily economic life. The purpose of government policy (mercantilism) was to develop commerce and industry in the interest not of the material wealth of its citizens but in the interest of national power. To foster the growth of national wealth (that is, the net inflow of...

  8. CHAPTER 3 The Constitutional Setting and the Gains from Exchange
    (pp. 56-79)

    AS an alternative to anarchy, mankind lives under politicolegal regimes of rules and order. The scope and inclusiveness of individual rights and behavior sanctioned under these politicolegal regimes, coupled with the laws of production and distribution, determine the level and distribution of personal well-being. In this chapter, I build on the work of James Buchanan and Gordon Tullock¹ and James Buchanan² to derive a theory of the range of the constitutional setting or the institutional framework based on the assumption of wealth maximization. The discussion that follows is highly abbreviated and assumes that the reader has some familiarity with these...

  9. CHAPTER 4 A Theory of the Evolution of the Constitutional Setting
    (pp. 80-105)

    IN their classic work on the constitutional framework, James Buchanan and Gordon Tullock model the costs of collective decision making and the tendency in representative government with a majority voting rule to concentrate public benefits and diffuse costs.¹ Later, Buchanan developed a theory of the static constitutional contract, in which an agreement of equal and mutually respected rights for all leads to the full exploitation of gains from trade.² The need to enforce the agreement through a body of law and a coercive agent and to exploit further gains from the provision of public goods justifies a minimal state. Absent...

  10. CHAPTER 5 Measures of Liberty
    (pp. 106-147)

    MEASURING the amount of political and civil liberty available to citizens of countries throughout the world has been in the domain of political scientists. Early efforts were made by A. Banks and R. Textor, Robert Dahl, and R. P. Claude.¹ These early studies suffered from limitations on source material and in the comprehensiveness of the freedom measures and of the attributes that made up the indexes.

    The most comprehensive measures available today are those constructed by Raymond Gastil. He has constructed indexes annually, since 1973, of political and civil rights for virtually all nations.² Political rights are ranked from 1...

  11. CHAPTER 6 The Choice of Law and the Extent of Liberty
    (pp. 148-165)

    IN this chapter the concern is not with economic growth but with the effect of the legal system on freedom. There are three main legal traditions found in nations today: civil (codified, continental) law, common law, and socialist law. Other traditions of law, mainly arising from sanctioned custom or religious tenets, exist and influence civil and common law: African tribal law, Oriental law, Hindu law, and Muslim law. Among these, only Muslim law is sufficiently influential and widespread to concern us here. The tradition of civil or codified law governs non-English-speaking Europeans, the former colonies of Europe, and a number...

  12. CHAPTER 7 The Constitutional Setting and Economic Development
    (pp. 166-183)

    HOW much material progress has mankind made in modern times, and how much has this progress been affected by the choice of the constitutional setting designed to bring it about? The Western industrial countries and many of the former colonies chose an institutional framework that gave wide scope to individual initiative, choice, and responsibility. In general, these countries are free market, free enterprise, capitalist, democratic, and committed to the rule of law. Rising nationalism and the independence movement after World War II gave many new nations the opportunity to choose an institutional framework by which they could progress. Soviet-style state...

  13. CHAPTER 8 The Constitutional Setting and the Distribution of Income
    (pp. 184-199)

    THE PROSPECTS that economic growth may have an adverse effect on income distribution is a major theme in the modern development literature.¹ Development strategies have been promoted that address problems of income distribution. These distribution-sensitive strategies greatly affected World Bank lending programs and government-to-government transfers. Many development economists called for massive government intervention in the economy, partly because they believed that it would improve equity. The view that rights regimes that give wide latitude to individual initiative and responsibility have inferior distributional outcomes compared to statist frameworks in which resources are allocated by political considerations of development and equity is...

  14. CHAPTER 9 The Economic Effect of the Size of the State
    (pp. 200-211)

    IN THE eighteenth century and through most of the nineteenth centuiy, the economic resources at the command of government were limited. Government enforced rights, protected property, and provided public goods. Perhaps, beginning with the social welfare programs of Bismarck as a general model, government became much more active in its income distribution function toward the end of the nineteenth centuiy. The resources available for redistribution rose by an order of magnitude with the innovation of progressive income taxation. Now, modern governments provide direct income redistribution and supply a wide array of collective goods and services. The fiscal regime has expanded...

  15. CHAPTER 10 What Is to Be Done? Reform of the Institutional Framework and Economic Policy for Progress
    (pp. 212-220)

    THE NEOCLASSICAL paradigm correctly identifies many of the sources of economic growth. There is strong empirical evidence that capital formation, human capital accumulation, and technical progress contribute positively to economic growth. But the predictions of the neoclassical model have not been borne out. Largely, Western capital does not flow to the less developed countries in pursuit of higher returns. Domestic capital formation in many countries is low. Human capital formation also is low. Frequently, those with high levels of education emigrate to free societies or employ their talents in rent-seeking activities at home. In many nations, relatively little of the...

  16. Notes
    (pp. 221-240)
  17. Index
    (pp. 241-241)