The failed socialist ideology is reemerging, finding resonance among “caring” social bureaucrats (Friedman, 1994) coalescing with power-hungry Left politicians. This resurgence is evident in the implementation of new, burdensome regulations and a significant decline in the quality of private property protection (evidently manifested in measures like Proposition 47, which effectively prevents the prosecution of thefts below $950 in California, the growing burden of ecological end “anti-discrimination” legislation). As socialism gains ground, the world becomes increasingly inhospitable to independent private businesses.
In the face of this trend, one might wonder if it is still possible to find a business-friendly environment. Studying local rules and rulers (institutions and policies respectively), can shed light on the situation and provide factual data for making informed choices.
Understanding the local institutions and policies can help entrepreneurs make informed decisions, seeking places where they can operate with greater autonomy, protection of property rights, and tolerable business environments.
Institutions matter as well as the historical background thereof
National and regional differences are often deeply rooted in history. Major historic events and phenomena can have very long shadows so sometimes differences they made last for centuries. It is true for Northern America and some other countries (European colonists’ mortality rate as a measure of adaptability of European traditions/institutions in the Western offshoots – Acemoglu, Johnson, Robinson, 2001). It is true for Austria (Ochsner. Roesel, 2017). It is true for Romania (Mendelski, Libman, 2014). It is true for Russia (see Mau, Yanovskiy, 2002 and more our relevant papers on regional studies). These differences could be of incomparably higher significance than famous legal origin and differences between common law and civil law in established democracies (La Porta, Lopez-de-Silanes, Shleifer, 2008). That is why analysis of institutions shaping actors’ (households, firms, elected and unelected governmental officials) incentives should be built on the basis of relevant studies of Economic and Political History.
So, our methodology (Yanovskiy, Ginker, 2017; Yanovskiy, Shulgin, 2013) exploits a range of indicators from the past (like elections and court statistics in 1990-ties – early 2000-ties in Russia) and currently observable (visible manifestations of independent civil activities in the same regions of Russia, to say nothing on other post-socialist countries). These insights can be particularly useful when standard tools like election outcomes are marred by widespread falsifications and even public opinion polls are compromised by fear.
This methodology holds even greater promise for countries and territories where elections are conducted more or less honestly, where the media market is more or less competitive, and where there are minimal Habeas Corpus-type protections against arbitrary arrests.
In contemporary times, even reputable experts evaluating institutional qualities, especially economic freedom, often overlook widespread government assaults on freedom of contract under the pretext of “anti-discrimination” or “positive” discrimination. Few economists nowadays distinguish between truly immoral and illegal governmental discrimination and private discrimination (Block, 2010; Sowell, 2019)—both of which infringe upon personal freedoms (“to make it apply to every act of discrimination which a person may see fit to make as to the guests he will entertain, or as to the people he will take into his coach or cab or car, or admit to his concert or theatre, or deal with in other matters of intercourse or business.” – Civil Rights Cases, 109 U.S. 3 (1883)), freedom of contract, etc. By learning important lessons from modern history, we aim to stay alert to significant developments in this crucial realm of regulations.
Considering the lasting consequences of significant historical events can help businesses make more informed choices when selecting a location for establishment and operation. Our expertise lies in guiding you to avoid excessive risks and ensuring a smoother journey for your enterprise.
Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review, 91 (5): 1369-1401. https://doi.org/10.1257/aer.91.5.1369
Block Walter. (2010). The Case for Discrimination. Auburn, Alabama. Ludwig von Mises Institute. https://mises.org/library/case-discrimination
Friedman Milton. (1994). Cooperation Between Capital-Rich and Labor-Rich Countries. http://fff.org/explore-freedom/article/cooperation-capitalrich-laborrich-countries-part-1/ “By now everybody agrees with two propositions. Proposition one: “Socialism is a failure”. Proposition two: “Capitalism is a success”. To judge from what goes on in Washington, the conclusion that has been drawn is: “Therefore, the U.S. needs more socialism”.
La Porta R., Lopez-de-Silanes F., Shleifer A. The Economic Consequences of Legal Origins. Journal of Economic Literature. 2008. Vol. 46. No. 2. P. 285–332. https://doi.org/10.1257/jel.46.2.285
Mau V., Yanovskiy K. (2002) «Political and Legal Factors of Economic Growth in Russian Regions” “Post-Communist Studies”, Vol.14, No. 3, 2002; https://doi.org/10.1080/1463137022000013403
Mendelski, M., Libman, A. Demand for litigation in the absence of traditions of rule of law: an example of Ottoman and Habsburg legacies in Romania. Const Polit Econ 25, 177–206 (2014). https://doi.org/10.1007/s10602-014-9158-y
Mises Ludwig von. (1949). Human Action: A Treatise on Economics. Edition: Auburn, Alabama, Ludwig von Mises Institute, 1998 has been used for citation, 1st published by Yale University Press, 1949.
Ochsner Christian, Roesel Felix. (2017). Activated History. The Case of the Turkish Sieges of Vienna. CESifo Working Paper Series No. 6586. https://dx.doi.org/10.2139/ssrn.3023816
Sowell Thomas. (2019). Discrimination and Disparities. NY: Basic Books.
Yanovskiy Moshe, Ginker Tim. (2017). A Proposal for a More Objective Measure of De Facto Constitutional Constraints” Journal of Constitutional Political Economy, Volume 28, Issue 4, December 2017 pp. 311-320 https://doi.org/10.1007/s10602-017-9242-1
Yanovskiy K., Shulgin S., (2013) “Institutions, Democracy and Growth in the very Long Run” Acta Oeconomica, Volume 63 Issue 4 2013 pp. 493-510 https://doi.org/10.1556/AOecon.63.2013.4.5. https://www.jstor.org/stable/24857649