Today seems to be an institutions blogging day.
She says countries adopt liberal representative institutions (meaning democracy) when labor is scarce. When it is in abundance, there are more chances of extractive institutions.
Under what circumstances do democratic as opposed to authoritarian institutions emerge? Although a large literature has tackled this question (see Acemoglu et al. 2001, Acemoglu and Robinson 2012, Engerman and Sokoloff 2000), we still have an imperfect knowledge of how representative institutions originate and change. Political institutions are difficult to study not only because they are usually endogenous to other variables, such as inequality, culture, or geography, but also because institutional change is rare or may happen very gradually.
In a recent paper (Nikolova 2012), I argue that institutional change depends on labour market conditions: elites opt for liberal representative institutions when labour is scarce, and vice versa.
Her natural experiment is British American colonies:
I use a unique data set covering a period of relatively rapid change in representative institutions in the thirteen British American colonies from their very establishment to the American Revolution. In contrast to theories arguing that inequality is the primary determinant of the quality of political institutions (Boix 2003, Acemoglu and Robinson 2005), I show that liberal representative institutions may arise even in cases of high inequality, as the positive impact of labour scarcity outweighs the usual negative relationship between inequality and democracy. The relative fluidity of political institutions in this setting and time period also questions the validity of arguments linking institutions to historical persistence.
Instis remained democratic in south American colonies vs. north. Why? Because labor supply was scarce in south and sufficient in North. So more liberal instis were adopted to attract labour:
A first salient fact related to the early colonial period is that the American South – which had high land inequality and an unfavourable disease environment – actually enjoyed quite democratic political institutions, at least compared to the North (Figures 1 and 2). In the South, even settlers who were not free (such as indentured servants) or those without land or possessions could vote. The Southern landowners, who depended on the poor to produce labour-intensive export crops such as tobacco and rice, established liberal representative institutions to attract poor white migrants from Europe. The data show that suffrage conditions in the South responded quickly to the slavery shock in the late 1600s and early 1700s.1 Representative institutions became restrictive once rich planters had access to cheap labour and thus did not need to grant any political concessions to poor white voters.
Instead, the temperate climate of the North appealed to migrant families who wanted to settle permanently there, and population increase through reproduction was sufficient to satisfy labour demand. The region was mainly suitable for growing wheat, which could be effectively produced on small family farms. As a result, stricter franchise regulations (such as a religious restriction) were introduced to curb any additional immigration that could not be supported given the limited opportunities to grow export crops. Since the slavery shock had a limited impact on labour markets, political institutions remained largely unchanged.
How about current times? Very interestingly, she says US and Europe allowed female enfranchisement after World War I. As male workers became short in supply due to war, it was important to make instis more liberal towards women and allow them to vote. Even today, when countries open up to more skilled immigrants the idea is the same – labor scarcity.
But just how relevant is the political experience of these colonies for explaining more recent institutional change? Female enfranchisement in Western Europe and the US coincided with the end of the First World War, which made male workers scarce (see Braun and Kvasnicka 2011). Similarly, countries with a labour shortage in particular occupations have point-based immigration schemes that grant citizenship and the associated political rights to qualified candidates. For instance, Canada and Australia have special programmes giving permanent residence to highly skilled immigrants. Therefore, the findings of my research provide a different angle to the debate in the literature on what pushes institutional change.
Though, this means China will push more more democracy when it faces labor shortages:
In terms of implications for contemporary countries, the theory predicts that as autocratic regimes – such as China – face more binding labour constraints, democracy will be more likely to emerge.
This immediately brings attention to India. Why did India choose democracy right at time of independence despite having labor in surplus? As Sen shows India was highly populated even before independence. Some might say India adopted democratic institutions just for namesake (de jure). In reality, it was all exclusive and authoritarian (de facto)…
The research on instis seems to have got a leg up following Why Nations Fail…