Pillars of Prosperity: The Political Economics of Development Clusters

by Timothy Besley, Torsten Persson

How nations can promote peace, prosperity, and stability through cohesive political institutions

"Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things." So wrote Adam Smith a quarter of a millennium ago. Using the tools of modern political economics and combining economic theory with a bird's-eye view of the data, this book reinterprets Smith's pillars of prosperity to explain the existence of development clusters―places that tend to combine effective state institutions, the absence of political violence, and high per-capita incomes.

To achieve peace, the authors stress the avoidance of repressive government and civil conflict. Easy taxes, they argue, refers not to low taxes, but a tax system with widespread compliance that collects taxes at a reasonable cost from a broad base, like income. And a tolerable administration of justice is about legal infrastructure that can support the enforcement of contracts and property rights in line with the rule of law. The authors show that countries tend to enjoy all three pillars of prosperity when they have evolved cohesive political institutions that promote common interests, guaranteeing the provision of public goods. In line with much historical research, international conflict has also been an important force behind effective states by fostering common interests. The absence of common interests and/or cohesive political institutions can explain the existence of very different development clusters in fragile states that are plagued by poverty, violence, and weak state capacity.

Genres: Economics, Nonfiction, Politics

392 pages, Paperback

First published August 8, 2011

Reviews

[Richard Marney]

In Pillars of Prosperity, Besley and Persson construct a rigorous political-economy framework to explain why "development clusters"—the coexistence of peace, prosperity, and capable state institutions—emerge in some nations but not others . The book reinterprets Adam Smith's classic pillars, arguing that modern prosperity rests on two distinct forms of state capacity: fiscal capacity (the ability to raise revenue) and legal capacity (the ability to support markets and enforce contracts) . A central insight is that investments in these capacities are shaped by the cohesiveness of political institutions and the extent of common interests among ruling groups . When political institutions are inclusive and stable, governments have stronger incentives to build state capacity rather than exploit short-term advantages . The work also provides a compelling theory of political violence, demonstrating that conflict arises when weak institutions and low common interests lead both incumbents and oppositions to invest in repression or insurrection . While the formal modeling is elegant and influential, some critics note that the core parameters—such as "common interests"—can feel somewhat underspecified or reduced to abstractions . Nevertheless, this "landmark analysis" has fundamentally reshaped academic and policy debates on fragile states, providing essential tools for understanding how institutional development drives prosperity .

[Gelijn Werner]

Great theoretical exercise in learning about determinants of growth. The authors focus on institutional development just as Acemoglu and Robinson do, while building on richer models, which are build around the idea Adam Smith already brought up: "Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things." The book emphasizes specific factors s.a. repression&conflict, tax compliance and contract enforcement. It distinguishes between endogenous en exogenous factors, and tells a bit on how to test these models. And that is something not easily found on the difficult matter of explaining long term economic growth.