The institutional path as the path to development

In regard to "inclusive institutions" and "extractive institutions", to quote the happy distinction made by social scientists Daron Acemoglu and James A. Robinson in their successful book Why Nations Fail (Crown Business, 2012), I would like to offer some reflections in the margins of the work of a nearly unknown economic author. I am referring to the philosopher, economic reformer, politician and historian Melchiorre Delfico.

 Let's assume that by "extractive" Acemoglu and Robinson mean the institutions that imply a social reality based on the exploitation of the population and the creation of monopolies. In so doing, they reduce incentives to and capacity for taking economic initiative of the majority of the population. By "inclusive" they mean those institutions that allow, encourage and promote the participation of the majority of the population in economic activities that leverage talents and abilities, allowing people to realize their intimate life projects.

 Though Melchiorre Delfico was perhaps not a prominent figure in the Italian Neapolitan Enlightenment, yet he has left us some interesting insights. In his “Recollections on Free Trade” (Memoria sulla libertà del commercio), written in 1797, Delfico addresses the issue from a philosophical assumption: freedom is a natural condition, and thus it follows that compliance with the laws of nature is the necessary condition for the achievement of "natural perfection". Delfico aims to support the superiority of a free economy, against an economic system that is bound and,  in his opinion, suffocating and unnatural, like the feudal system. In brief, he proposed "inclusive" institutions, typical of a market economy, against the “extractive” institutions of a feudal economy.

 Delfico, as a good statesman, was aware that the apparatus of the state is an indispensable  reality for civil life; without it not even the market could emerge. Our author would seem to join the rich tradition of “liberalism of rules” (Ordoliberalism) and of the “social market economy”, according to which the state would play a decisive role, as it has the task of crafting (of course in a polyarchycal and subsidiary way), as well guaranteeing the rules of the game. Only a state that is strong in this role would be able to prevent the emergence of public or private monopolistic situations, and prevent the emergence of "extractive institutions" .

 Another aspect worthy of attention is to be found in another of his works, entitled “Reflections on Famine” (Ragionamento su le carestie) of 1818. The essay was inspired by the famine that struck Europe between 1815 and 1817. It is a very interesting essay, as it helps us to understand his argument about the superiority of a free economy compared to a feudal economy. In his “Reflections”, Delfico examines the limits to be applied to absolute freedom, that the  latter may realize all its positive qualities and beneficial effects. Since these limits are set by the state, we can say that the subject of this essay is, ultimately, the relationship between the market and the state.

 “Reflections” begins  from a statement of principle: "true freedom [must] be distinguished from licentiousness, and from any similar excess, and therefore it is subject to those amendments, and moderations, which result in the greater good of society." On the identification of instruments to make the regulation of freedom effective, Delfico states: "I'll answer with a single word. The laws." For the philosopher, there were essentially two basic causes of famine: changes in the weather and "corruption". According to Delfico, the market should be protected from corrupt forces; this would be the state’s main task. Thus, "to prevent, as far as possible, illicit action, and to punish irresponsibility", because only a legislation that could "prevent fraud, and the abuse of power of any kind" and "avoid monopolies [and] fraudulent dissimulations" puts the market in a position to operate correctly and to deploy its beneficial effects on civil society.

 Delfico’s lesson is entirely focused on trust in inclusive institutions and on the need that such an institutional figure be preserved by the rule of law. This position allows his confidence to avoid becoming a utopian escape from reality and his fear from resulting in an authoritarian and totalitarian cynicism. This places him far from the advocates of a laissezfairism that cares little for the historical datum, and is insensitive to the fact that social institutions photograph the modalities, sedimented in history, through which ignorant and fallible men, over the centuries, have attempted to solve problems of allocation, in terms of the distribution of scarce resources, conquest, maintenance and transferring power and, in general, in terms of the acquisition and distribution of knowledge.

 However, that trust in institutions makes him equally distant from the proponents of a certain social pessimism that denies people the ability to create those special works of art that we call inclusive institutions, the characteristics of a free society. Be they political, legal or economic, all flow together so that the ignorance, fallibility, contingency dictated by humankind’s nature as creatures encounter the freedom, creativity, uniqueness and responsibility that mark, together with his limitations, the physical and moral constitution of each person.

 Then, the contingency and limitations of the human person are not overcome in virtue of a utopian impulse, a looming "sun of the future", an ideology that promises necessary "new heavens and a new earth" in this life, nor even by the blind and fierce "will to power" of a revived Leviathan. Contingency and limitations are taken as an antidote against the eternal perfectionist temptation to confuse the kingdom of men with the heavenly Kingdom. In contrast, freedom, creativity and uniqueness are taken as the human characteristics that allow us to lift ourselves from the merely contingent, through the promotion of political, economic and cultural institutions, by leveraging our own limitations, which, if properly oriented, result in the instruments - the only ones, moreover - able to increase our knowledge, since we can only learn from our and others’ mistakes.

 This article is a summary of the third chapter of the book: Flavio Felice, Persona, istituzioni e mercato. La persona nel contesto del liberalismo delle regole (Person, Institutions and Market. The Person in the Context of the Liberalism of the Rules), Rubbettino, 2013.

 Flavio Felice is Adjunct Fellow American Enterprise Institute and President of Tocqueville-Acton Centre Studies (Milan-Rome)

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