Colonialism, Inequality, and Long-Run Paths of Development

Over the last few years, colonialism, especially as pursued by Europeans, has enjoyed a revival in interest among both scholars and the general public. Although a number of new accounts cast colonial empires in a more favorable light than has generally been customary, others contend that colonial powers often leveraged their imbalance in power to impose institutional arrangements on the colonies that were adverse to long-term development. We argue here, however, that one of the most fundamental impacts of European colonization may have been in altering the composition of the populations in the areas colonized. The efforts of the Europeans often involved implanting ongoing communities who were greatly advantaged over natives in terms of human capital and legal status. Because the paths of institutional development were sensitive to the incidence of extreme inequality which resulted, their activity had long lingering effects. More study is needed to identify all of the mechanisms at work, but the evidence from the colonies in the Americas suggests that it was those that began with extreme inequality and population heterogeneity that came to exhibit persistence over time in evolving institutions that restricted access to economic opportunities and generated lower rates of public investment in schools and other infrastructure considered conducive to growth. These patterns may help to explain why a great many societies with legacies as colonies with extreme inequality have suffered from poor development experiences.

The Evolution of Suffrage Institutions in the New World

Most analysis of how the distribution of political power affects the patterns of growth has been confined to the late-twentieth century. One problem associated with a focus on the modern record is that processes that take place over the long run are not examined. We may all agree that institutions concerned with the distribution of political power have an impact on growth, but our interpretation of the relationship will vary with our understanding of where institutions come from: to what degree are institutions exogenous, and to what degree are they endogenous. This paper contributes to our knowledge of where institutions have come from by examining how the rules governing the extension of suffrage, a key measure of the distribution of political influence, evolved over time within the United States and across the societies of the Americas. We have previously argued that there was enormous variation in the initial extent of inequality across the New World colonial societies established by the Europeans because of differences in their factor endowments present early in their histories. Moreover, these initial differences in inequality may have persisted over time if they affected the ability of elites to obtain disproportionate political leverage, and to shape legal frameworks and state policies to advantage themselves relative to others in terms of access to economic and other opportunities. In this paper, we show that the early patterns of the extension of the franchise, the proportions of the respective populations voting, and other aspects of the conduct of elections are indeed generally consistent with the notion that the extent of initial inequality and population heterogeneity was associated across societies -- even within the United States -- with the nature of the political institutions that evolved. Specifically, where there was greater inequality, the proportion of the population that had the right to vote was generally lower, and the timing of the extensions of this right from elite groups to a broad population generally later, than in areas where there was relative homogeneity in the population.

Digging the Dirt at Public Expense: Governance in the Building of the Erie Canal and Other Public Works

The Erie Canal was a mammoth public works project undertaken largely because the scope of the investment was beyond what a private firm could manage during the early 19th century. As with most public works, there were ample opportunities for public officials to realize private gains from the effort, and many did. On the whole, however, the construction of the Erie Canal (and most other major public works projects of the era) appears to have been well conceived and executed; it not only paid off more than its costs through tolls, but also generated substantial welfare improvements for the residents of the state of New York in the form of producer and consumer surplus and a wide range of positive externalities. Although there was obviously some fraud and mismanagement, the public authorities carried out the work at costs relatively close to those projected at the point of authorization. In an effort to try to place this episode in a broader perspective, we compare the ratio of actual expenditures on construction relative to the estimated costs at the time of authorization for the Erie Canal, to those for a range of other public works over American history up to the present day. It is our contention that this measure, albeit quite narrow in focus, is informative about the quality of governance of public resources. We highlight how, by this standard, the governance of public resources during the canal era stands up well in comparison with what we have seen since. Indeed, the cost overrun ratios have risen sharply over the last half-century, coinciding with both a marked increase in the relative size of the government sector as well as sustained economic growth. These patterns suggest how important it is that better measures and other means of systematically studying how the prevalence and effects of corruption vary across different contexts be developed.

Factor Endowments, Inequality, and Paths of Development Among New World Economics

Whereas traditional explanations of differences in long-run paths of development across the Americas generally point to the significance of differences in national heritage or religion, we highlight the relevance of stark contrasts in the degree of inequality in wealth, human capital, and political power in accounting for how fundamental economic institutions evolved over time. We argue, moreover, that the roots of these disparities in the extent of inequality lay in differences in the initial factor endowments (dating back to the era of European colonization). We document -- through comparative studies of suffrage, public land, and schooling policies -- systematic patterns by which societies in the Americas that began with more extreme inequality or heterogeneity in the population were more likely to develop institutional structures that greatly advantaged members of elite classes (and disadvantaging the bulk of the population) by providing them with more political influence and access to economic opportunities. The clear implication is that institutions should not be presumed to be exogenous; economists need to learn more about where they come from to understand their relation to economic development. Our findings not only contribute to our knowledge of why extreme differences in the extent of inequality across New World economies have persisted for centuries, but also to the study of processes of long-run economic growth past and present.

Institutional and Non-Institutional Explanations of Economic Differences

Although we cannot conceive of processes of economic growth that do not involve institutional change, in this essay we outline some reasons why one should be cautious about grounding a theory of growth on institutions. We emphasize how very different institutional structures have often been found to be reasonable substitutes for each other, both in dissimilar as well as similar contexts. The historical record, therefore, does not seem to support the notion that any particular institution, narrowly defined, is indispensable for growth. Moreover, we discuss how the evidence that there are systematic patterns to the ways institutions evolve undercuts the idea that exogenous change in institutions is what powers growth. Institutions matter, but our thinking of how they matter should recognize that they are profoundly influenced by the political and economic environment, and that if any aspect of institutions is crucial for growth, it is that institutions change over time as circumstances change.

Cotton and Race in the Making of America: The Human Costs of Economic Power

A New Look at Race and Economics Gene Dattel grew up in the cotton area of the Mississippi Delta, studied history at Yale and law at Vanderbilt before a twenty-year career in financial capital markets. He has long been interested in the role of the cotton economy in influencing racial ...