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Institutions and Small Settler Economies: A Comparative Study of New Zealand and Uruguay, 1870−2008

Author(s):Schlueter, Andre
Reviewer(s):Bértola, Luis

Published by EH.Net (August 2016)

Andre Schlueter, Institutions and Small Settler Economies: A Comparative Study of New Zealand and Uruguay, 1870−2008.  New York: Palgrave MacMillan, 2014. xvi + 290 pp. $115 (hardcover), ISBN: 978-1-137-44828-6.

Reviewed for EH.Net by Luis Bértola, Department of Economic and Social History, Universidad de la República (Uruguay).

The aim of the book, based on a doctoral dissertation, is to test whether the social order approach developed by North, Wallis and Weingast (NWW) (2009), fits the particular development of two small settler societies, New Zealand and Uruguay, which otherwise were not considered in the referred authors’ work.

The book presents the problem in chapter 1, discusses the research strategy in chapter 2 and discusses three different periods in chapters 3-5 (“The Golden Age of the Two Settler Economies” up to the 1920s; “The Great Divergence between New Zealand and Uruguay,” the period 1930-1970; and “Decades of Stop and Go” since the 1970s). Chapter 6 concludes and adds some references to later research on social orders in a somewhat confusing way. This discussion should be placed in the introduction, or in chapter 2.

The book attempts to provide further answers to the question “Why the West?,” considering that “the transfer of institutions from the European core to overseas colonies before the industrial revolution facilitates a natural experiment concerning the impact of initial institutional frameworks on long-term economic development.” New Zealand represents the British institutional framework, and Uruguay the Spanish.

The research strategy, presented in the second chapter is as follows. As North, Wallis and Weingast’s verbal model “needs to be applied more consistently in order to remedy its perceived disadvantages in comparison with other more formal theories” (p. 45), the author summarizes a set of key hypotheses with the help of which ideal types are constructed. The historical cases are then read in the light of these ideal types searching for similarities and anomalies.  The stories must find the stylized causality: beliefs → institutions → organizations → policies → outcomes.

The analysis is performed at two levels, both in a comparative way. First, and for the general propositions to hold, New Zealand should show higher and more stable growth rates and levels of per capita income than Uruguay. The former should also show a more sophisticated institutional framework and higher degrees of national organized violence than the latter. These aspects are studied in the following chapters with use of macroeconomic data and different proxies for institutional quality and violence.

While the first level of analysis is somewhat descriptive of the main features of both societies, the second level presents the historical narrative in order to find the causality between organizations, policies and outcomes. The narrative tries to identify the three doorstep conditions for the transition from Limited Access Society to an Open Access one:  1) the rule of law for elites; 2) perpetual forms of public and private elite organizations, including the state itself; and 3) consolidated political control of the military.

Schlueter concludes that, in broad terms, the general approach is valid. However, he finds some anomalies that seem to contradict some hypotheses. For instance, New Zealand achieved some features that should allow for the transition to the Open Access Order much later than expected, and, her relative economic decline after the 1960s is not something to expect. Thus, the author proposes making some adjustments and addenda to the discussed approach. “The reasons for the deviations of both settler societies from their theoretical ideal types lay within and outside of their national borders. NWW’s framework needs further amendments to account for local adaptations to inherited social structures, that is, a theoretically idealized British heritage, as well as for complex influences of exogenous powers on the rules of the game, its players, and their interaction” (pp. 203-05).

The book is well-written and interesting. The author makes an important effort to understand the history of these two countries. He is, however, open to criticism on several details of his interpretation. My main criticism is two-fold, or even contradictory. In the first place, he misses the opportunity to criticize at least two aspects of the NWW approach. One the one hand, he ignores problems in NWW´s approach to international relations and the formal and informal institutions at that level. In NWW´s approach, external forces act only at time zero, establishing the local institutional environment that later reproduces itself, while the international sphere almost completely disappears from the analysis, even when it experiences radical changes. On the other hand, the book is missing a more critical discussion of the deterministic way in which causal relations are considered and a more serious evaluation of alternative explanations. An example is the use of contract-intensive money as a proxy for institutional stability. At least in the case of Uruguay, this proxy does not explain economic stagnation, but is the result of it. This is just an example of the need for a more in-depth discussion of causal relations, which are presented in a very deterministic way. Nevertheless, my second criticism goes in the other direction; I want to make a defense of NWW. It seems somewhat unfair to 1) criticize these authors for being vague and imprecise, 2) reduce their approach to a set of testable hypothesis, and 3) show that the facts do not completely fit the testable hypothesis. From my point of view, NWW had very good reasons for not being too precise. And this is because they have tried to understand real historical processes. Their courageous attempt to construct a comprehensive conceptual framework, even if subject to many criticisms, requires a flexible approach that tries to explain a wide variety of particular developments. Maybe the right question to ask is how these authors would have tried to explain these anomalies.

Reference:

Douglass C. North, John J. Wallis and Barry Weingast (2009), Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, New York: Cambridge University Press.
Luis Bértola is the author of “An Overview of the Economic History of Uruguay since the 1870s” in the EH.Net Encyclopedia of Economic and Business History at https://eh.net/encyclopedia/bertola-uruguay-final/.
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Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Australia/New Zealand, incl. Pacific Islands
Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII