Why are Developing Countries so Resistant to the Rule of Law?

Abstract

This paper draws on my new book (North, Wallis, and Weingast 2009) to provide a new explanation for why it is so difficult to transplant institutions, such as markets and democracy, from developed societies into developing ones. This framework divides societies into two different types of social order, natural states (which include most developing countries) and open access orders (which include the developed ones). Missing from traditional approaches is how societies reduce or control the problem of violence. Natural states solve the problem of violence through rent-creation, granting powerful individuals and groups valuable rights and privileges so that they have incentives to cooperate rather than fight. The resulting rents, limits on competition, and limited access to organizations hinder long-term economic development. In contrast, open access orders use competition, open access to organizations, and institutions to control violence and are characterized by rent-erosion and long-term economic growth. I focus on two aspects of the rule of law: certainty and equality before the law; and that the law must not only hold today but also tomorrow. I show that rule of law requires that the state treat people impersonally in the sense that in a large group of citizens all are treated alike; and that the state is perpetual in the sense that state institutions do not depend on the identity of the current rulers or supporting coalition. The problem is that few natural states are impersonal or perpetual. Therefore they cannot exhibit the rule of law. No matter how attractive are today's institutions or rights, they are no good in the long-term if tomorrow's regime can alter them at will. The absence of impersonality and a perpetual state prevents natural states from creating the rule of law.