5.
“ I’ VE SEEN THE FUTURE, AND IT WORKS”: GROWTH UNDER EXTRACTIVE INSTITUTIONS
I’ VE SEEN THE FUTURE
INSTITUTIONAL DIFFERENCES PLAY the critical role in explaining
economic growth throughout the ages. But if most societies in history are based on extractive political and economic institutions, does this imply that growth never takes place? Obviously not. Extractive institutions, by their very logic, must create wealth so that it can be extracted. A ruler monopolizing political power and in control of a centralized state can introduce some degree of law and order and a system of rules, and stimulate economic activity. But growth under extractive institutions differs in nature from growth brought forth by inclusive institutions. Most important, it will be not sustained growth that requires technological change, but rather growth based on existing technologies. The economic trajectory of the Soviet Union provides a vivid illustration of how the authority and incentives provided by the state can spearhead rapid economic growth under extractive institutions and how this type of growth ultimately comes to an end and collapses.
THE FIRST WORLD WAR had ended and the victorious and the vanquished powers met in the great palace of Versailles, outside Paris, to decide on the parameters of the peace. Prominent among the attendees was Woodrow Wilson, president of the United States. Noticeable by its absence was any representation from Russia. The old tsarist regime had been overthrown by the Bolsheviks in October 1917. A civil war then raged between the Reds( the Bolsheviks) and the Whites. The English, French, and Americans sent an expeditionary force to fight against the Bolsheviks. A mission led by a young diplomat, William