Main argument

Institutions are the fundamental cause of economic growth

• Looking beyond resources, capital and technology the authors were looking at a more fundamental cause of economic growth in rich and poor countries
• They argue that institutions are the fundamental cause behind economic growth
• AND that with this understanding we can start to dig into why and how institutions are different across countries and illustrate the pitfalls of institutional reforms in attempts to drive economic change
• They pick apart Douglass North’s definition of an institution, suggesting that this broad definition is both a blessing a curse.
• It gives us something tangible to understand but it doesn’t appreciate the context of power within institutions.

There are different kinds of political power – de facto & de jure

• The authors argue that because there will always be conflicts of interest within an institution, political power becomes a key determinant in their evolution – in which there are two variables.
• De jure; legal power that comes from a political institution in society and,
• De facto; the power of a group through collective action and the resources available to them. The examples used revolts, arms, violence.

Reforming institutions (political or economic) won't always lead to economic growth

• It creates this idea that while political institutions maintain and control legal powers - de jure - the rich are able to use their de facto powers and push for favourable economic and political institutions.
• This is something highlighted really well in the examples in the paper and essentially tells us that the while the reformation of institutions may not always lead to economic growth, the gradual redistribution of power (in favour of those who want push said change) may.