The theory of social orders and the great divergence between New Zealand and Uruguay after 1930

The theory of social orders and the great divergence between New Zealand and Uruguay after 1930


On 14 September, the Centre for Comparative History and Political Studies hosted a seminar by Andre Schlueter, titled "The theory of social orders and the great divergence between New Zealand and Uruguay after 1930."

In his research Andre Schlueter verifies D.North, J.Wallis and B.Weingast (NWW) theory about social order (“Violence and Social Orders”, 2009) with the case studies of New Zealand and Uruguay at hand. Dr Schlueter tests the validity of NWW’s explanation for the socio-economic dynamics in these countries for the period between 1930 and 1973, stressing in particular the role of institutions for economic growth as well as the two settler economies’ ideal prerequisites for NWW’s dichotomy of open access orders (OAOs) and limited access orders (LAO's). The OAO relies on competition, open access to organizations and the rule of law to hold the society together. The LAO creates limits on access to political and economic functions as a way to generate rents. NWW present Britain and the USA as prototypes for the early evolution of open access orders. The roots for LAOs lie in Spain and Italy.

According to Dr Schlueter, the comparative analysis of New Zealand and Uruguay’s social and economic development gives an opportunity to trace the instituttionsinherited from Britain and Spain and to realise the special role of the New World in explaining the rise of the West. Their different institutional origins facilitate a natural experiment concerning the impact of initial institutional frameworks for long-term economic development. Furthermore, these two modern settler economies shared similar factor endowments and levels of material prosperity at the end of the 1920s. However, less than half a century later, the gap in national income per capita between the two countries had risen to almost its highest levels in their common history. On one hand, it indirectly confirms the influence of the British institutional design, which includes: the rule of law for elites; perpetually lived forms of organizations, including the state itself; and the political control of the military, early in their history. On the other hand, it proves that former Spanish colonies in Latin America still share a common, colonially inherited legacy of domestic military coups, macroeconomic imbalances, budget crises and selective property rights, and thus continue to be politically and economically less successful. In other words, the contrasting socio-economic trajectories of New Zealand and Uruguay provide an extraordinary opportunity to examine core hypotheses of NWW’s theory.

Dr Schlueter’s research bases on the model which includes three components and six subcomponents: general assessment (economic development and institutional sophistication), economic policies (provision of public goods and fiscal spending) and economic outcomes (export sector and productivity). All of these variables were measured through empirical data. Andre Schlueter claims that the model enables him to figure out to what degree New Zealand and Uruguay take a course of path dependence and if they are influenced by the British or Spanish heritage.

The analysis demonstrated the positive relationship between political and economic markets; a credible connection was found between national institutions, organizations, policies and outcome. The trajectories of New Zealand and Uruguay also confirmed the majority of the characteristics of their respective ideal types, but the empirical findings describe the case of the latter more accurately than the case of the former. NWW’s picture of OAOs as freely competitive or egalitarian societies, for instance, was not a signature mark of New Zealand between 1930 and the early 1970s. It also needs to be stressed more clearly that any OAO is not a mere copy of inherited rules and norms, and adapts to local conditions—sometimes decisively—over time. A considerable number of LAO elements might result in a more nuanced picture of OAOs than NWW’s pure black or white painting.