This essay explores how inclusive institutions have political and economic institutions that support technological innovation due to the centralisation of power and providing citizens incentives like patents and property rights.
TECHNOLOGICAL
INNOVATION AND
INCLUSIVE
INSTITUTIONS
Professor Janis van der Westhuizen & Mrs. L Kotze
16 October 2022
Kayla Jayshreen Marais, 25379976
, 1. Introduction
According to Acemoglu and Robinson, technological innovation is more frequent in inclusive
institutions than extractive institutions. These institutions in society play an important role in
the economy and ultimately facilitate or discourage technological innovation. This essay will
discuss what are extractive and inclusive institutions and why they are important when talking
about the economy, how the printing press invention shows how the different institutions deal
with creative destruction and technological innovation, and why Britain’s institutional shift
was significant for the Industrial Revolution.
2. Economic and Political institutions
Economic institutions are created by society and these institutions reflect different peoples
interests and objectives. The way in which people choose the rules that will govern them is
politics. Politics is relevant when talking about institutions due to the fact that inclusive
institutions may benefit the economic prosperity of a country and extractive institutions may
benefit specific groups of people like the elite. These political institutions are important in
society as they are the rules in which incentives are governed in politics and how the
government is formed (Acemoglu et al, 2012: 79).
When the distribution of power is unconstrained and narrow where only a few people harness
the power within a society, then the political institutions are considered absolutist with the
examples of the monarchies throughout history. These political institutions which are absolutist
allow for those who harness the political power to set up economic institutions in which they
will benefit from it and enrich themselves at the cost of the majority. Like the Spanish in Latin
America. Whereas in politically inclusive institutions are pluralistic as power is distributed
across society and not in a single group (Acemoglu et al, 2012: 80).
There is a close link between inclusive economic institutions and pluralism of power, but
another key factor is centralisation of power and a strong state. To understand this, we need to
look at Somalia. In Somalia power is broadly distributed making it almost pluralistic. However,
the state is weak and there is no proper real authority to regulate what society does. There are
deeply antagonistic clans in which the society is divided into who cannot overcome one
another. The one clan’s power is only constrained by the armed capabilities of the other
Acemoglu et al, 2012: 80). This leads to chaos instead of inclusive institutions as any laws
cannot be enforced due to the lack of centralisation of power. Which prevents the smallest
amount of law and order needed to support activity in the economy, trade or even safety of
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