(Wednesday, 21st May 2008)
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Legalizing economic freedom requires effective protection of property, contracts, and investments. According to double-trust theory, legalizing economic freedom causes entrepreneurial innovation and growth. Effective protection of property and contracts by the state seems to be a precondition for becoming a rich country. Effective protection comes from social norms and state legal institutions, especially independent courts, as in central Europe.
Effective protection can also come from a stable state administration that is committed to growth, as in East Asia.
The institutional particularity that prompts growth varies widely by time and place. Institutions might be home grown or transplanted, formal or informal, judicial or bureaucratic. We cannot say exactly what they will be. Whatever their particular forms, however, they must solve the double trust problem in order to produce sustained growth. We see no way to solve this problem except by security of property, contract, and investments, which is what we mean by effective law for growth.
Bibliographical references :
Must read reference : Robert D. Cooter & Hans-Bernd Schäfer on "law and the poverty of nations" (2008), manuscript.
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