Dynamic Economic Growth as a Constraint on Elite Behavior

Institutional economics has produced a string of findings about the importance of good institutions for economic growth and development. While consensus is lacking about how important institutions are, few scholars argue that institutions have no impact whatsoever. Yet, for all the knowledge produced, the results of institutional reforms are meager. This is not surprising as a central theme in the institutional literature is that poor institutions persist not from lack of knowledge, but a lack of will from those with the power to shape institutions. In the words of Paul Collier, about the persistence of poor institutions, ‘[o]ne evident reason is that not everybody loses from it’ (2007, p. 66). For institutional reforms to succeed, these elites have to be constrained; this chapter addresses the question of what such a constraint might be. North, Wallis and Weingast (NWW) (2009) as well as Acemoglu and Robinson (A&R) (2012) offer broad accounts of how this might happen. I argue that these accounts are lacking as they do not adjust for the fact that elites are pursuing an interest defined in terms of power rather than wealth, and that shifting focus from wealth to power would add to our understanding of constraints on elite behavior. I argue that reforms of institutional quality/institutional inclusiveness increase the chances for economic growth and diversification; in turn, diversification and the creative destruction it brings make it harder to form elite coalitions as the actor-set is continuously upset.