5.7 Time, Order, and Institutional Forms

of parliament declared their willingness to defend their prerogatives against the king’s abuse.

Events quickly revealed the effects of parliament’s perpetual life, particularly after the creation of the Bank of England in 1694. The personal nature of sovereign debt in a natural state meant that all early modern European sovereigns were credit rationed, and the Stuart kings could not raise much money to finance their governments (North and Weingast, 1989; Veitch, 1986). After the Revolution of 1688, sovereign debt became the impersonal liability of parliament. To issue or alter debt now required a law of parliament. The king could no longer unilaterally alter the terms of debt (e.g., reduce interest payments, fail to pay creditors, or default) without first obtaining a new law from parliament. The new commitment mechanisms greatly increased the creditworthiness of the English state. Debt rose by an order of magnitude in less than a decade, from around 5 percent of estimated Gross National Product to 40 percent (North and Weingast, 1989). The enhanced financial wherewithal of the British gave them and their international coalition partners a critical advantage in their ongoing wars with France.

As the British Navy discussion suggests, the Glorious Revolution is one step among many in a long series of steps of the British transition from a natural state to an open access order. The British victory in 1763 tipped the balance of power within Western Europe toward Britain and set its American colonies on the road to revolution (Anderson, 2000). Financing the Americans put the French monarchy in perilous condition, which provided the spark to a French revolution and led to the Napoleonic Wars in which Britain emerged victorious. At the close of the Napoleonic period, the British – along with the French, the Dutch, and the Americans – were on the verge of creating fully open access orders.

5.7 Time, Order, and Institutional Forms

We have suggested that the three doorstep conditions built on one another. Rule of law for elites helps support perpetually lived organizations for elites, which helps shape conditions that enabled consolidated control of the military. As this chapter makes clear, however, nothing necessitates a particular order of development for these conditions. Elements of different doorstep conditions can arise at different times in different societies. For example, Haber et al. (2008) demonstrate that rule of law for elites is problematic in modern Mexico, even for perpetually lived elite organizations

such as banks. The doorstep conditions do not follow an inevitable ordering in time.

Time also plays an important role in the process of institutional change. The first societies to move to the doorstep conditions and then to the transition proper changed forever the conditions facing other societies. All of the institutional forms adopted in Europe as societies moved toward the doorstep conditions in the seventeenth and eighteenth centuries had to be consistent with the logic of the natural state. The institutional forms – for example, courts, corporations, armies, and navies – can therefore be adopted by other natural states. Once these institutions developed in Western Europe, they could be used throughout the world as a legal form of organization. However, adopting Western institutions, such as corporations, does not necessarily produce open access. Nor does it necessarily create perpetually lived organizations: in many fragile and basic natural states, the granting of a corporate charter to an elite group means the existence of the corporation as an organization continues to depend on the goodwill of the government. These corporations are not perpetually lived. Similarly, adopting a European legal code does not guarantee rule of law for elites.

Time also complicates how we interpret the intentionality of elite decisions. Elite groups in eighteenth-century Europe could not have intended to produce a transition to open access because no one knew an open access society was a viable alternative, much less how to construct it. In the modern world, in contrast, intentional decisions by elites to open access, such as those envisioned by Acemoglu and Robinson, are possible. Leaders in natural states can look to the developed world and see how open access produces enough output to make everyone, elite and non-elite, better off. The failure of most societies to make that transition – even when the path to open access is laid out for them by the historical experience of other societies – suggests that the problem lies deeper than the will of elites to share their power.

The three doorstep conditions illuminate the circumstances under which elites in natural states have incentives to create institutions that formalize their relationships, creating impersonal relationships between elites. The central insight is that when elites institutionalize their own impersonal intra-elite relationships, they lower the costs of expanding the size of the coalition covered by these institutions. Extending impersonality also holds the possibility of significantly expanding the size of gains from exchange.

The doorstep conditions are necessary, but not sufficient conditions for a transition from a natural state to an open access order. States attaining the doorstep conditions may have incentives to expand the citizenry covered by rule-of-law institutions, but nothing about the doorstep conditions implies success in the transition. States on the doorstep may well fail to succeed in the transition or may fall back to being a natural state.

only did these two types of organizations change during the transition proper, but they are fundamentally important to it. Critically, ideas that factions, parties, and corporations were dangerous and needed to be contained by institutional constraints help us understand beliefs held around 1800 in all three countries. However, those ideas alone do not explain the transition. These societies made transitions because they stopped limiting access to political and economic organizations. How did these societies move to institutions that allowed open access for both formally organized political parties and economic corporations by 1880?

The bulk of the chapter is couched in historical terms, both because it is easier to grasp the concepts when they are illustrated and because our concern is to explain the first transitions. The conceptual issues are clear. Once the doorstep conditions enable impersonal relationships among elites to grow, a transition proper can begin when elites transform personal elite privileges into impersonal elite rights. The transformation of privileges into rights occurs when elites in general perceive that their privileges will be more secure from intra-elite competition when those privileges are defined as commonly shared rights rather than personal prerogatives. As long as the ability to form organizations remains a privilege, access is not open. Open access does not require universal access, nor does it require complete elimination of all privileges; but it does require that a sufficiently large portion of the population be able to create political, economic, and other organizations at will. The extension of elite rights to larger groups in the population follows quickly once citizens’ rights are defined and enforced. Once the rights of citizens are impersonally defined, the logic of open access suggests that those rights will be easier to sustain under conditions of wider political and economic competition.

Conceptually, a key idea in Western political thought is that the balance of interests in the polity protects rights. Madison famously argued this point in Federalist No. 10. In Britain, the balance of interests among the king, lords, and commons checked one another. For Aristotle, it was the interests of the one, the few, and the many that had to be kept in balance. Limits on access in all natural states create interests, and those political, economic, and military interests are balanced against each other within the dominant coalition. Historically, as late as 1790 parties and corporations were thought to be a threat to republican society in British, French, and American societies because organized interests threatened the balance of interests within the coalition. While the British Whigs, French Republicans, and American founders were trying to create societies with formal and

informal checks and balances as a way to protect elite rights, few, if any of them, argued for open access.

The unique feature of the first transitions is that, by the middle of the nineteenth century, the very same parties and corporations that were feared in 1790 came to be seen as important elements in maintaining stability. In the transition proper, societies transform elite privileges based on personal identities to elite rights based on impersonally defined citizenship. Competitive political parties and open access to economic organizations become an inherent part of protecting citizen rights. In later transitions, beliefs in the inherent danger of political parties and corporations would be altered by the example of Britain, France, and the United States, which we call the first movers because they were the first to make the transition.

The transformation in thinking about organizations and the institutions that support organizations did not arise from eighteenth-century republican political theories. Earlier theories were based on a sophisticated analysis of natural states, which valued political balance and feared that political factions and the use of economic privilege for political ends would unbalance the constitutional equipoise of forces within society. The new elite ideas and institutions arose from changing experience and a new interpretation of that experience. In an interesting evolution, most of the vocabulary of the older republican theory persisted, particularly the overriding concern with balance, but parties and corporations were transformed into forces that could maintain balance rather than corrupt it. Parties and corporations can only maintain a balance of interests, however, under conditions of open access and competition, a set of conditions that had not existed prior to the nineteenth century and that the eighteenth-century republican theorists could not have observed or foreseen.

As we argued in Chapter 4, open access sustains and protects a much more flexible balance within the polity and the economy. Access, however, does not result from having balanced interests in a society. All natural states have a balance of interests without open access. A new understanding developed in the early nineteenth century that enabling open access could be a way to ensure a balance of interests in the polity and economy. This was often stated in the language of rights – that allowing citizens the right to participate was the best way to ensure the civil and economic rights all citizens enjoyed. The logic of the argument is the logic of open access orders: open access protects and sustains a dynamic balance of interests within society.

By 1880, competitive political parties and open access to corporate forms in many areas of economic and social life were prominent features of all three first movers. Nonetheless, the evolving institutional structure of these

countries followed divergent paths. No clear, simple, and unique recipe of specific institutions produced the transition. Britain moved toward a congenial parliamentary sovereignty with few explicit checks or balances. France went through eighty years of constitutional instability ranging from republics with universal male suffrage to monarchies, but also legislative tyranny. The United States developed an election-intensive federal system with a stable national constitution and state governments that continued to experiment with their institutions.

Once the transition proper was underway after 1830, access continued to open, and non-elites began using organizational forms to pursue their own agendas. In contrast to any earlier period in European history, in the late nineteenth century non-elite organizations were neither suppressed nor prohibited in the first movers. Full citizenship involved more than the right to vote; it enabled non-elites to form organizations. Trade unions, socialists, churches, and suffragists all began building bases in economic and social organizations that they used as launching pads for political movements. The commitment to open access held; the growth of new organizations was not suppressed. Political and economic competition grew in scope and intensity.

The extension of citizenship to a wider share of the population was an important element of intensified political competition. Governments began to provide public goods – infrastructure, education, and social insurance – and distribute them on the basis of impersonal criteria, foregoing the manipulation of those public goods for political gains. Impersonal citizenship expanded on the extensive margin as suffrage broadened and more people were included among those who selected governments. Impersonal citizenship also expanded on the intensive margin as government capacity grew and began delivering public goods without regard to faction or party (or, in modern American terms, without respect to sex, race, creed, color, or age).

Our historical emphasis on Britain, France, and the United States in the early nineteenth century opens us up to the charge that our Euro-American focus leads to narrow inferences from historically unique conditions that are inappropriate for other societies. We agree that many of the specific contingent historical paths taken by the three countries will not be duplicated in subsequent transitions, not the least because the experience of the first transitions changed the way we think about the world.

Nonetheless, our focus has compensating virtues. A framework for understanding the transition must be consistent with the experience of the first movers. Examining Britain, France, and the United States addresses that