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Flashcards in Why Nations Fail Deck (11)
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How does extractive growth compare to inclusive growth? Is it sustainable?

It will not be sustained growth that requires technological change but rather growth based on existing technologies. There is no creative destruction or lack of it in extractive institutions.


The Soviet Union grew rapidly despite not having an efficient economy. Why?

Allowing people to make their own decisions via markets is the best way for a society to efficiently use it's resources. When a state or a narrow elite controls these resources instead, neither the right incentives will be created nor will there be an efficient allocation of the skills and talents of people. But, in some instances the production of labor and capital may be so much higher in one sector that even a top down process under extractive institutions that allocates resources can generate growth.


Why can't extractive institutions generate sustained technological change?

The lack of economic incentives and resistance by the elites.


Creating economic growth requires ________.

A centralized state. To centralize the state, political revolution is often necessary.


What did the Maya experiences illustrate about growth under extractive institutions?

The possibility of growth but also the political instability that emerges and ultimately leads to collapse of both society and state as different groups and people fight to become the extractors.


Why are extractive institutions common in history?

They generate some limited prosperity while at the same time distributing it into the hands of a small elite. For this growth to happen, there must be political centralization. Once this is in place, the state - or the elite controlling the state - typically has incentives to invest and generate wealth, encourage others to invest so that the state can extract resources from them, and even mimic some of the processes that would normally be set in motion by inclusive economic institutions.


Lack of creative destruction and innovation is not the only reason why there are severe limits to growth under extractive institutions. What else could be a reason for this?

As these institutions create significant gains for the elite, there will be strong incentives for others to fight to replace the current elite.


Instability and infighting are thus inherent features of extractive institutions. What happens because of this?

The reverse of political centralization, sometimes even leading to the total breakdown of law and order and descent into chaos.


In Venice, how did the commenda work?

It involved two partners. One stayed in venice and the other one traveled. The sedentary partner put capital into the venture while the traveling partner accompanied the cargo. The profits were split either unilaterally or bilaterally.


What did the economic inclusiveness and the rise of new families force the political system to do?

Become more open. A doge was selected for life by the General Assembly and they made sure he did not have absolute power. Following the institutional change, Venices mercantile and navy power greatly increased. Basically economics and politics were working in tandem.


In 1171, there were even more institutional and reforms in Venice in:______

law, the creation of independent magistrates, courts, a court of appeals, and new private contract and bankruptcy laws. These new Venetian institutions allowed the creation of new legal business forms and new types of contracts.