Question

In 1000 words - What are extractive institutions (provide examples)? What kind of consequences/outcome do extract institutions generate?

Answer 1

Extractive institutions are institutions which remove the majority of the population from participation in political or economic affairs. For example, during the Age of Exploration, the island of Barbados developed into a slave based economy. In fact, “two-thirds of the population were slaves with no access to education or economic opportunities, and no ability or incentive to use their talents or skills” .However, while the slaves were without any political or economic agency, the landowners did have quite a bit of economic power and even rights to private property. These economic and political institutions were not enough to create an inclusive society, because the bulk of the population was still barred from participation. Likewise, extractive institutions also favor the elite who are in charge, allowing them to pull materials and opportunities from those that live under them.

There are basically many consequences/outcome that extract institutions generate.

1 ) The growth generated by extractive institution is different in nature from the growth done by inclusive institution .

2 ) The growth generated by extractive institution is not very sustainable .

3 ) extractive institution do not foster creative destruction and generate at best only at limited amount of technology progress.

4 ) Throughout history, extractive institutions have typically led to stagnant economic growth. Even though certain societies (for example, the USSR) have achieved some level of economic growth under extractive methods, they do not achieve long-term, stabilized economic growth. In fact, the countries which have developed long-term growth patterns did so with the parallel, gradual development of inclusive institutions, enabling large swathes of the population to participate in the political and economic systems of the country.