MAIN IDEA:

This book presents a four-factor model of economic development that seeks to explain the difference between developed nations and nations that failed to develop. The author describes the model as” the framework within which human beings think, interact, and carry on business. This section describes those institutions and lays out how they relate to each other.

Four such institutions stand out as prerequisite for economic growth: 

• Secure property rights, not only for physical property, but also for intellectual property and one’s own person—civil liberties
•  A systematic procedure for examining and interpreting the world—the scientific method 
• A widely available and open source of funding for the development and production of new inventions—the modern capital marketplace 
• The ability to rapidly communicate vital information and transport people and goods

The author describes in great detail how these factors historically developed in the Western countries, starting with the countries of the English-speaking world, and even provides a nice graphic representation of this process:

MY TAKE ON IT:

The multi-factor analysis presented in this book looks like an interesting and productive approach. However, it is mainly a review of the second-level causes of development or lack thereof.  The foundational causes are always people’s behavior and interactions. Humans are animals developed via multilevel evolution when complex interactions between individuals within and without groups produced individuals that always internally conflict between doing what is beneficial for self, even at the expense of a group, or doing what is beneficial for the group, even at the expense to self.  Property rights are just a formal framework within which this conflict is continuously processed. Scientific rationalism, capital markets, and infrastructure more or less developed in one or another society are just derivatives of this process.

In turn, as the foundation of society, property rights are always the product of violence and completely depend on the ability of an individual to protect his/her property directly or via supportive actions of some violent hierarchy of individuals (government) who recognize these rights. The historical development of societies led to different patterns of such recognition when some patterns lead to effective development and prosperity, while others lead to failure of development and misery. The key is to find a Goldilocks spot where individuals can retain a share of the product of their activity sufficient to have an incentive to conduct this activity to the best of their ability, whether this product is the material result of the harvest or the intellectual result of the scientific research.  

If the violent bureaucracy of the group is very strong and transfers too much of the product, individuals direct their activity to minimize the efforts. This is true regardless of whether it is the traditional form of slavery that includes just a master and overseer, or it is the contemporary form of communist/socialist slavery when violent bureaucracy consists of a vast government machine that includes the State Planning Committee and KGB. It could also be a contemporary highly developed state in which the violent bureaucracy, instead of protecting property rights, imposes multiple laws and regulations intended to transfer resources away from productive individuals to members of the bureaucracy to satisfy their needs and wants.  

If the violent bureaucracy is too weak and incapable of protecting individual property, it leads to the need to spend too much effort on self-defense at the expense of productive activities.  Such weakness could be material, leading to gangs of bandits (nation-states including) fighting each other for control over people and locations.  It could also be ideological, leading to the contemporary democratic states in which violent bureaucracy refuses to protect property for ideological reasons.  In either case, failure to protect individual rights leads to failure of development or even to degradation.