Chapter 7: Intra-European divergences at the time of the crumbling welfare state
Major works of traditional economic historians, as well as those representing the ‘new economic history’, such as Nobel Prize winner Douglass C. North, point out that good, that is, efficient, institutions have been a rarity in human history. Various states chose as a rule bad institutions (and, let me add, within institutions chose even more often bad policies). Answers to the question why this has been the case have concentrated on the structure of incentives. The assumption has rightly been made that it is in the interest of the ruler or a ruling elite to establish institutions (rules of the game) that benefit first of all those who rule, as well as those who are the pillars of their rule. And these choices have been made in full consciousness of the fact that other institutions could create more wealth. The problem is that, although concentration on the structure of incentives has impeccable credentials in economic theory, there is ample, if not actually overwhelming, evidence that quite often ruling politicians made choices that were actually injurious to their own important interests. More than that! The choices they made of these (bad) institutions were widely supported by both the intellectual elite and the masses.
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