Inclusive institutions

economic-dictionary

Inclusive institutions are those that encourage the participation of all citizens in economic production and political work.

In other words, inclusive institutions are those that encourage and facilitate that people can generate wealth. In addition, they ensure that all individuals are considered in government decisions.

It should be remembered that an institution is a public or private organization, created to fulfill a certain function; this being political, cultural, social, economic, military, etc. It is characterized by having a structure and a group of people who are related to each other.

Inclusive institutions are the opposite of extractive institutions.

Origin of the term "inclusive institution"

The term inclusive institution was raised in the book "Why do countries fail?" by Daron Acemoglu and James A. Robinson. In this work it is discussed why some nations are rich and others poor, and what are the variables that determine economic development.

The aforementioned book concludes that it is the countries with inclusive institutions that generate the most prosperity.

Acemoglu and Robinson refer particularly to political and economic institutions related to aspects such as the protection of private property, education, basic public services, free trade, among others.

The authors argue that the difference between rich and poor countries is in the quality of their institutions and not, for example, in geography. This, because there are developed countries that do not have natural resources, but have managed to generate wealth. Take, for example, Switzerland.

Similarly, Acemoglu and Robinson question that development depends on culture, since there are very close populations that share values, and that, even so, have different levels of development. Consider, for example, the territories located on the border between the United States and Mexico.

Types of inclusive institutions

After seeing the concept explained and knowing its origin, it is important to know the two types that exist:

  • Inclusive political institutions: They ensure that power is not distributed in a limited way and propose a plural society. For example, representative democracies.
  • Inclusive economic institutions: They accept competition and do not prevent other organizations from demonstrating their skills and abilities. For example, through antitrust laws.

However, it may happen that a country has extractive political institutions and, at the same time, inclusive economic institutions and vice versa. In fact, the book written by Daron Acemoglu claims that China presents a peculiar situation.

On the one hand, it has extractive political institutions, which are based on immutable ideas. And, on the other hand, it has inclusive economic institutions thanks to its growing trade openness with the rest of the world.

Difference between inclusive institutions and extractive institutions

On "Why do countries fail?»The concept of inclusive institutions is contrasted with that of extractive institutions. The latter are, according to the book, those designed so that only an elite benefit from the wealth that a country has.

What is stated in the aforementioned work is that inclusive institutions are those that favor more people to achieve economic development and participate in the decisions of the State. Instead, extractive institutions exclude and hold wealth in a few hands.

Acemoglu and Robinson's approach can be applicable to the analysis of different countries, such as those in Latin America, where inequality could be explained by the lack of inclusive institutions.

It should be noted that in the article we have referred to rich and poor nations. However, perhaps it is more appropriate to refer to the concept of development. This considers not only the level of income, as it implements other indicators such as health and education.

An example of this type of synthetic indicator could be the Human Development Index (HDI).

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