Introduction

Valuable as they are, conventional economic models have not succeeded in explaining the great differences in economic performance in different countries or historical periods. The ‘old’ growth theory is called into question by the absence of the convergence in per-capita income levels across the globe that it leads one to expect. The ‘new’ growth theory readily accommodates continuing differences in per-capita incomes across countries, but does not yet provide much insight into why the particular countries that became rich were the ones that grew. Neither does it explain why a few poor countries have led the world in economic growth at the same time that the poor countries as a whole have not been catching up.

In a book, The Rise and Decline of Nations, some article-length publications that foreshadowed it, and some subsequent papers and publications that focused on Eastern Europe and on the Third World, I presented a theory that combines the insights of familiar neoclassical economic models with a model of collective choice. The model of collective choice enables the theory to comprehend certain aspects of political and organizational life. The theory succeeds in explaining the most dramatic and puzzling variations in economic performance across countries. The present chapter will differ from the aforementioned book and articles in two ways.

First, this chapter will attempt to show how the same fundamental forces that influence economic performance everywhere show up in a very different forms in countries with different initial conditions.