Political Institutions and their Effect on Economic Policy essays

Political Institutions and their Effect on Economic Policy essays Political Institutions and their Effect on Economic Policy Imagine, if you will, a country with no political institutions. A country ruled by anarchy. What kind of economic policy would this country have or would it have one at all? Now imagine a country with highly powerful and regimented political institutions. What kind of economic policy would this country have? The two fictitious countries mentioned above would certainly have very different economic policies. The first would probably be lucky to even have an economic policy at all. Its citizens would live in a world of economic uncertainty, never knowing what their future may hold. On the other hand, the citizens of the second country, although possibly unhappy with their ruler, would at least have a pretty good idea of their economic future. These citizens would be able to place their money in banks and exchange it in international markets. They could save for their future without the fear of having everything taken from them at any given moment. What is it though that makes the economic policies of these countries so different? While there are clearly many factors that affect a country's economic policy, in this paper I would like to argue that the most important one is the presence or lack of strong political institutions. In the beginning large nations or political states did not exist. The law of the land was every man for himself. As time went on small bands of people began to form. In the beginning membership in such groups was voluntary, but those who joined soon learned of the benefits of cooperation. With time these bands became larger and larger and it was apparent that some groups were stronger than others. The strongest of these groups became what is known as "roving bandits". (Olson 1993,568). If the "roving bandits" can be seen as the first form of political institution then the ...