economic activities that make best use of their talents and
skills and that enable individuals to make the choices they
wish. To be inclusive, economic institutions must feature
secure private property, an unbiased system of law, and a
provision of public services that provides a level playing
field in which people can exchange and contract; it also
must permit the entry of new businesses and allow people
to choose their careers.
T HE CONTRAST OF South and North Korea, and of the United
States and Latin America, illustrates a general principle.
Inclusive economic institutions foster economic activity,
productivity growth, and economic prosperity. Secure
private property rights are central, since only those with
such rights will be willing to invest and increase productivity.
A businessman who expects his output to be stolen,
expropriated, or entirely taxed away will have little incentive
to work, let alone any incentive to undertake investments
and innovations. But such rights must exist for the majority
of people in society.
In 1680 the English government conducted a census of
the population of its West Indian colony of Barbados. The
census revealed that of the total population on the island of
around 60,000, almost 39,000 were African slaves who
were the property of the remaining one-third of the
population. Indeed, they were mostly the property of the
largest 175 sugar planters, who also owned most of the
land. These large planters had secure and well-enforced
property rights over their land and even over their slaves. If
one planter wanted to sell slaves to another, he could do so
and expect a court to enforce such a sale or any other
contract he wrote. Why? Of the forty judges and justices of
the peace on the island, twenty-nine of them were large
planters. Also, the eight most senior military officials were
all large planters. Despite well-defined, secure, and
enforced property rights and contracts for the island’s elite,
Barbados did not have inclusive economic institutions,
since two-thirds of the population were slaves with no
access to education or economic opportunities, and no
ability or incentive to use their talents or skills. Inclusive
economic institutions require secure property rights and