Persistence of Power, Elites and Institutions

TLDR: In this article, the authors construct a model to study the implications of changes in political insti? tutions for economic institutions and provide conditions under which economic or policy outcomes will be invariant to changes in the political institutions, and economic institutions them? selves will persist over time.

Abstract: We construct a model to study the implications of changes in political insti? tutions for economic institutions. A change in political institutions alters the distribution of de jure political power, but creates incentives for investments in de facto political power to partially or even fully offset change in de jure power. The model can imply a pattern of captured democracy, whereby a democratic regime may survive but choose economic institutions favoring an elite. The model provides conditions under which economic or policy outcomes will be invariant to changes in political institutions, and economic institutions them? selves will persist over time. (JEL D02, D72) The domination of an organized minority ... over the unor? ganized majority is inevitable. The power of any minority is irresistible as against each single individual in the majority, who stands alone before the totality of the organized minor? ity. At the same time, the minority is organized for the very reason that it is a minority.

Figures

Figure 1: Central American Presidents Related to the Conquistador Cristóbal de Alfaro

Figure 3: Social Relations and Political appointees of President Tubman in 1960

Table 1: The persistence of the landed elite in three “Black Belt” counties of Alabama

Figure 2: Central American Presidents Related to the Conquistador Juan Vázquez de Coronado

Full text

NBER WORKING PAPER SERIES
PERSISTENCE OF POWER, ELITES AND INSTITUTIONS
Daron Acemoglu
James A. Robinson
Working Paper 12108
http://www.nber.org/papers/w12108
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
March 2006
We thank Alexandre Debs for excellent research assistance and Lee Alston, Timothy Besley, Alexandre
Debs, Stanley Engerman, Michael Munger, Nathan Nunn, Torsten Persson, Konstantin Sonin, GavinWright
and Pierre Yared and seminar participants at Clemson, ITAM, Princeton, Rochester, and the American
Economic Association Annual Meetings for comments. Acemoglu gratefully acknowledges financial support
from the National Science Foundation. The views expressed herein are those of the author(s) and do not
necessarily reflect the views of the National Bureau of Economic Research.
©2006 by Daron Acemoglu and James A. Robinson. All rights reserved. Short sections of text, not to exceed
two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is
given to the source.

Persistence of Power, Elites and Institutions
Daron Acemoglu and James A. Robinson
NBER Working Paper No. 12108
March 2006
JEL No. H2, N10, N40, P16
ABSTRACT
We construct a model of simultaneous change and persistence in institutions. The model consists of
landowning elites and workers, and the key economic decision concerns the form of economic
institutions regulating the transaction of labor (e.g., competitive markets versus labor repression).
The main idea is that equilibrium economic institutions are a result of the exercise of de jure and de
facto political power. A change in political institutions, for example a move from nondemocracy to
democracy, alters the distribution of de jure political power, but the elite can intensify their
investments in de facto political power, such as lobbying or the use of paramilitary forces, to partially
or fully offset their loss of de jure power. In the baseline model, equilibrium changes in political
institutions have no effect on the (stochastic) equilibrium distribution of economic institutions,
leading to a particular form of persistence in equilibrium institutions, which we refer to as
invariance. When the model is enriched to allow for limits on the exercise of de facto power by the
elite in democracy or for costs of changing economic institutions, the equilibrium takes the form of
a Markov regime-switching process with state dependence. Finally, when we allow for the possibility
that changing political institutions is more difficult than altering economic institutions, the model
leads to a pattern of captured democracy, whereby a democratic regime may survive, but choose
economic institutions favoring the elite. The main ideas featuring in the model are illustrated using
historical examples from the U.S. South, Latin America and Liberia.
Daron Acemoglu
Department of Economics
MIT, E52-380B
50 Memorial Drive
Cambridge, MA 02142-1347
and NBER
daron@mit.edu
James A. Robinson
Harvard University
Department of Government
N309, 1737 Cambridge Street
Cambridge, MA 02138
and NBER
jrobinson@gov.harvard.edu

“Plus ça change plus c’est la même chose.” French Proverb.
“The domination of an organized minority ... over the unorganized majority is inevitable.
The power of any minority is irresistible as against each single individual in the majority,
who stands alone before the totality of the organized minority. At the same time, the
minorit y is organized for the very reason that it is a minority.” Gaetano Mosca (1939, p.
53).
1Introduction
Current em pirical wo rk and theoretical discussions of the impact of institutions on economic
development either implicitly or explicitly assume that institutions persist (e.g., North, 1990,
Engerman and Sokoloff, 1997, Acemoglu, Johnson and Robinson, 2001, 2002). In fact, some of
the most popular empirical strategies in gauging the effect of institutions on economic perfor-
mance use the persistence of institutions o ver centuries as part of their conceptual approach
and identification strategy. But many aspects of “institutions” show substantial change over
periods much shorter than a century. Many less-developed countries, especially those in Latin
America and Africa, have changed their political institutions all too often over the past 100
years, with frequen t switc hes between democracy and dictatorship (see, e.g., Acemoglu and
Robinson, 2006a) and multiple changes in constitutions.
1
The same pattern also emerges when we turn to economic institutions. For example, while
many historians and economists trace the economic problems of Latin America to colonial labor
practices such as the encomienda or the mita, and those of the Caribbean to slavery and to the
plantation complex, all of these economic institutions vanished long ago.
2
Beneath this pattern
of chan ge, however, economic systems often show surprising continuity. The form of agricul-
tural labor relations in many of the Latin American and Caribbean countries changed little
after colonialism, and perhaps relatedly, these societies continued to suffer various economic
problems, slow growth, and economic and political instability throughout the 20th century.
Another interesting example comes from the U.S. South. Even though slavery was abolished
at the end of the Civil War, the U.S. South maintained a remarkably similar agricultural sys-
tem, based on large plan tations and low-wage uneducated labor, and remained relatively poor
1
For instance, Colombia had 8 constitutions in the 19th century (Gibson, 1948), while Bolivia had 11 (Trigo,
1958) and Peru 9 (Palacios and Guillergua, 2003).
2
In Latin A m erica, t he last form of official forced labor, pongueaje, was abolished in Bolivia in 1952 (Klein,
1992, Chapter 8). Unpaid labor services lasted in Guatemala until 1945 (McCreery, 1994). Slaves were gradually
freed, for example in 1850 in Colombia. In the British Caribb ean slavery was abolished after 1834, though it
lasted until in 1886 in Cuba and 1888 in Brazil.
1

until the middle of the 20th century.
In this paper, we provide a possible explanation for this paradoxical pattern of the coexis-
tence of frequent changes in political institutions with the persistence in certain (important)
aspects of economic institutions.
3
Our approach illustrates the possibility of two different types
of persistence. The baseline model leads to a pattern which we refer to as invariance,whereby
a change in political institutions from nondemocracy to democracy leads to no change in the
(stoch astic) equilibrium process of economic institutions and of the distribution of resources
in society. Simple extensions of our baseline model lead to a richer form of persistence, which
we refer to as state dependence; the probability that a society will be democratic (and have
pro-citizen economic institutions) tomorrow is a function of whether it is democratic today.
4
The underlying idea of our approach is that equilibrium economic institutions emerge from
the in teraction between political institutions, which allocate de jure political power,andthe
distribution of de facto political power across social groups (see Acemoglu and Robinson, 2006a,
and Acemoglu, Johnson and Robinson, 2005b). De Facto power is power that is not allocated
by institutions (such as elections), but rather is possessed by groups as a result of their wealth,
weapons or ability to solve the collective action problem. A change in political institutions
that modifies the distribution of de jure po wer need not lead to a change in the equilibrium
process for economic institutions if it is associated with an offsetting change in the distribution
of de facto political power (e.g., in the form of bribery, capture of the political parties, or use of
paramilitaries). The central argument in this paper is that there is a natural reason to expect
changes in the distribution of de facto political power to partially or entirely offset changes
in de jure power brought about by reforms in specific political institutions as long as these
reforms do not radically alter the political structure of society, the identity of the elites, or the
source of economic rents for the elites.
To make these ideas precise, we develop a model consisting of two groups, a landed elite
and the citizens. The key economic institution concerns the organization of the labor mar-
3
Throughout, persistence refers to the continuity of a clu ster of institu tions, for example, the extent of
enforcement of prop erty rights for a broad cross-section of society. Lack of property rights enforcement may have
its roots in quite d ifferent specific e conom ic institutions, for exam ple, risk of expropriation by the government
or elites; extreme corruption; economic systems such as serfdom or slavery preventing large segments of the
p op ulation from selling their lab o r free ly or from investing in most economic activities; legal rules m aking it
imp ossible for those without political conn ection s to have their contracts enforced ; or entry barriers creating a
non-level p laying field.
4
We refer to this type of persisten ce as “state dependence” since the probability distribution over equilibrium
p olitical and economic institutions tomorrow depends on the “state” of the system, which is political institutions
to day. See Page (2006) for a discussion of richer forms of persistence in political systems, where the past entire
sequence of events, rather than simply a low-dimensional state vector, might influ ence future outcomes.
2

ket, in particular, whether wages are competitive or are repressed below this level.
5
In the
model, economic institutions are decided either b y the landed elite or the citizens (workers)
depending on who has more political power. Political power, in turn, is determined by both
political institutions that allocate de jure power and the distribution of de facto power, which
is deriv ed, at least partly, from a social group’s ability to solve their collective action problem.
A key observation is that landowners, by virtue of their smaller numbers and their established
position, have a comparative advantage in solving the collective action problem (Mosca, 1939,
Olson, 1965). This implies that the amoun t of de facto political po wer of the elite is an equi-
librium outcome, and responds to incentives. Neverth eless, political institutions and de jure
political power also matter for equilibrium outcomes. For example, in democracy de jure po-
litical power is allocated to the majority, so the balance of power is tilted towards the citizens
(see Acemoglu and Robinson, 2006a). In addition, freedom of political organization and the
existence of political parties may help the citizens in solving their collective action problem
more effectively, thus facilitating their exercise of de facto political power.
In the model society, in every period there is a “contest” between the elite and the citizens,
and political institutions (democracy versus nondemocracy) determine how level the playing
field is in this contest. Those with greater political power determine economic institutions
today and political institutions tomorrow. The most int eresting result of our framework is
that, because the elite’s de facto political power is an equilibrium outcome, it will partly or
entirely offset the effect of changes in political institutions. In particular, the elite will in vest
more in their de facto political power in democracy than in nondemocracy.
In the baseline model, this effect is sufficiently strong that the distribution of equilibrium
economic institutions is identical in democracy and nondemocracy–thus leading to the pattern
of invariance defined above.
6
This pattern shows that it could be mistaken to infer from
frequent changes in certain dimensions of political institutions that there is little institutional
persistence. The result also starkly illustrates how changes in some specificdimensionsof
political institutions can be undone by the greater exercise of de facto political power b y the
elite.
Even though in this baseline model the equilibrium probabilit y distribution of economic
institutions is independent of whether the society is democratic or nondemocratic, this prob-
ability distribution is still affected by economic fundamentals. The comparative static results
5
Although this setup is natural from the view point of Latin American history, it is not essential to the
results.
6
To be p recise , there are changes in economic institutions, but the equilibrium distribution of economic
institutions is invariant to political institutions.
3

Frequently asked questions

Q1. What have the authors contributed in "Nber working paper series persistence of power, elites and institutions" ?

Acemoglu et al. this paper construct a model of simultaneous change and persistence in institutions, and the key economic decision concerns the form of economic institutions regulating the transaction of labor ( e.g., competitive markets versus labor repression ). 

Q2. What are the future works mentioned in the paper "Nber working paper series persistence of power, elites and institutions" ?

To illustrate this mechanism in its starkest form, their baseline model assumed that the technology of generating de facto political power for the elite is the same in democracy and nondemocracy, and demonstrated the possibility of invariance, that is, a pattern where the equilibrium distribution of economic institutions is independent of whether the society is democratic or not–despite the fact that democracy creates a real shift in the distribution of de jure power towards the citizens. Most ambitiously, future research may strive towards a unified model that can explain the composition of elites, when existing elites persist, when elites change but institutions persist, and when institutions truly change. In fact, in this model, paradoxically, the probability of labor repressive economic institutions in agriculture may be higher in democracy than in nondemocracy. These patterns show the coexistence of change and persistence in institutions in the U. S. South, Latin America and Africa, and how traditional elites may be able to control democratic politics and maintain their favorite economic institutions. 

Q3. What are the two important factors for comparative statics?

In particular, both the additive shift of the distribution function of ω in democracy and the fact that (13) is linear are important for these comparative statics. 

Q4. How did Firestone obtain the exclusive rights upon the land selected?

Firestone obtained a one million acre concession for a 99-year period (roughly corresponding to 10% of what was considered arable land in Liberia), was granted the exclusive rights upon the lands selected, and became–with small, exceptions–exempted of all present and future taxes. 

Q5. What is the reason why the elite may choose to spend a positive amount on such activities?

The reason why the elite may choose to spend a positive amount on such activities is that there is a finite number, M , of them, so each of them will take into account that their own contribution to total spending, Zt, will have an effect on equilibrium outcomes. 

Q6. What are the other assumptions that are important for the invariance result?

Other assumptions implicit in their analysis that are important for the invariance result are: (1) that democracy shifts the power of the citizens additively (rather than ω being drawn from general distributions FN in nondemocracy and FD in democracy, with FD firstorder stochastically dominating FN); (2) that the technology of de facto power for the elite, equation (13), is linear. 

Q7. What is the reason why the elite is more likely to invest in their political power?

Contributing to de facto political power is a form of investment, and some of the returns accrue to the elite in the future (when they secure nondemocracy instead of democracy). 

Q8. What is the obvious form of political capture?

The most obvious form of political capture is the actual running of political parties and offices by members of the landed elite. 

Q9. What is the key to the persistence of the institutions of the South after the Civil War?

In his seminal study of the politics of the South after World War II, Key (1949, p. 9) sums up the pattern of persistence of the institutions of the South both before and after the Civil War as the “extraordinary achievement of a relatively small minority–the whites of the areas of heavy Negro population. 

Q10. What is the effect of introducing additional costs from labor repressive institutions?

it is possible to introduce additional costs from labor repressive economic institutions, which may include standard monopsony distortions or other costs involved in monitoring and forcing laborers to work at below marketclearing wages (such as wasteful expenditures on monitoring, paramilitaries, or lower efficiency of workers because of the lower payments they receive). 

Q11. What would have been the reason why the South was relatively backward in 1865?

If the organization of the slave economy had been the reason why the South had been relatively backward in 1865, one might have imagined that the abolition of slavery in 1865 would have removed this blockage to Southern prosperity. 

Q12. What is the reason why the model in the previous section yielded stark results?

The model in the previous section yielded stark results, which were partly driven by the assumptions that the elite had the same technology to generate de facto political power in both regimes and were able to change economic institutions immediately after they took control (in addition to the functional form assumption noted in footnote 26). 

Q13. What is the probability of labor repressive economic institutions in agriculture?

In fact, in this model, paradoxically, the probability of labor repressive economic institutions in agriculture may be higher in democracy than in nondemocracy. 

Q14. What is the result of the fact that p (D) = p (N)?

The fact that p (D) = p (N) < 1 follows from Assumption 2, which imposes that F is strictly increasing throughout its support, so for any interior θ (D) and θ (N), F (φMθ (D)− η) = F (φMθ (N)) < 1. 

Q15. What is the reason why the comparative statics are not definite?

The reason why J may not be negative definite is that 29 In fact, as is well known, when there are multiple equilibria, the comparative static results will typically be reversed for some intermediate equilibria; see, for example, Milgrom and Roberts (1994) for supermodular games. 

Q16. What is the firstorder condition for contributions in nondemocracy?

The value function in nondemocracy is unchanged and is given by (16), and the firstorder condition for contributions is given by (17), with the policy correspondence given by ΓN (θ (N) , θ (D)). 

Q17. What is the value of an elite agent in nondemocracy?

The function V (N | θ (N) , θ (D)) recursively defines the value of an elite agent in nondemocracy when all other elite agents choose contributions θ (N) in nondemocracy and θ (D) in democracy.