The Importance of Expectations in Economic Development

What factors and processes influence the wealth of nations? This is the central question addressed by Professor North and his colleagues John Wallis and Barry Weingast (NWW) (2009) in their framework for “interpreting recorded human history.” In attempting to address this question, NWW develop a conceptual framework for understanding how institutions shape the organizations necessary for cooperation and economic development. While a small number of countries have been able to develop the institutions necessary for sustainable economic development, in most countries this outcome has been elusive. Moreover, our understanding of the process of institutional change and development is still in its early stages. From this standpoint, the NWW framework is a welcome and important contribution. It provides clarity to our understanding of different types of social orders and offers insights into the requirements for movement between different orders. NWW differentiate between three distinct social orders. The first type of order, the “primitive social order,” is a hunter-gather society. The second type of order is a “limited access order” or what the authors call the “natural state.” The natural state is an order where political institutions restrict entry to the