Righting Reform

Most economists now agree that institutional quality holds the key to prosperity. Rich countries are places where investors feel secure in their property rights, the rule of law prevails, private incentives are aligned with social objectives, monetary and fiscal policies are solidly grounded, risks are mediated through social insurance, and citizens have recourse to civil liberties and political representation. Poor countries are where these arrangements are absent or ill-formed.

Compare Russia and China. In Russia, an investor has in principle the full protection of a private property-rights regime enforced by an independent judiciary. In China, there is no such protection, because private property was not legally recognized until recently, and the court system is not independent.

Yet during the mid-to late-1990's, investors consistently gave China higher marks than Russia on the rule of law. That investors evidently felt better protected in China than they did in Russia is perhaps no surprise to anyone who has observed the evolution of Russia's legal system over the last decade. But the important point is the gap between rules and how they are perceived.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/3eU6KSi;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.