Possibly the only area where the NDCs did well, compared to the currently developing countries at similar levels of development, was that of social welfare institutions, which saw quite impressive growth from the 1880s onward. By 1913, most NDCs (with the exception of Canada, the USA and Portugal) had – albeit highly incomplete industrial accident insurance, health insurance (except the Netherlands, New Zealand, Spain, Finland, Australia and Portugal) and state pensions (with the exception of Norway, Finland, Switzerland, Spain and Portugal). Unemployment insurance was, however, still a novelty: it was first introduced in France in 1905, and in Ireland, UK, Denmark, and Norway by 1913. However, countries such as Norway and Sweden still disenfranchised the recipients of social welfare.
Much labour legislation regarding working hours, workplace safety, female labour and child labour had also been introduced by this time, but the standards were rather low, the coverage limited and enforcement poor. For example, in the USA, even a 10-hour limit to the working day was fiercely resisted by employers and conservative judges, and it would be another quarter century before child labour was banned at the federal level (1938). No country had attained even a 48-hour working week (let alone a 40-hour week) by this time.
3.3.2. The long and winding road to institutional development
The first thing that emerges from the detailed discussion in section 3.2, and the overview provided by section 3.3.1, is that it took the NDCs decades, if not centuries, to develop institutions from the time when the need for them began to be perceived. It should be also pointed out that the NDCs frequently experienced reversals in this process. Let us provide some examples to illustrate this point.
Democracy took long time to develop. Just to give a couple of examples, it took France and Switzerland almost 100 years (1848 to 1946 and 1879 to 1971, respectively) to move from universal male suffrage to universal suffrage. The need for a modern professional bureaucracy was widely perceived at early as the eighteenth century, but in many NDCs it was not until the early nineteenth century that such bureaucracy was actually instituted. The value of limited liability institutions had already been recognized by the end of the sixteenth century, when royal charters permitting limited liability were granted to big, risky ventures (e.g., the British East India Company); however, it did not come into general use until the mid-nineteenth century even in the most advanced countries. The need for central banking was acknowledged in some circles from as early as the seventeenth century, but the first ‘real’ central bank, the Bank of England, was not instituted until 1844. The USA felt the need for at least some degree of central banking from the very early days of its existence, as can be seen in the establishment of the (short-lived) First Bank of the USA in 1791, but it was only in 1913 that the Federal Reserve System was put in place, and even then its coverage was still highly limited.
The diffusion of new institutions from innovating countries to the rest of the NDCs also took a considerable time. Table 3.6 charts, whenever possible, where and when different institutions first emerged, when they were adopted by the majority of the NDCs and at what point they were accepted by all the NDCs. The table shows that, even when we exclude the exceptional case of the ‘pre-modern’ patent law, it took anything from 20 years, in the cases of state pension and unemployment insurance, to 150 years (for example, modern central banking) between an institutional innovation and its adoption by the majority of the NDCs. The table also shows that when it comes to the time period between an institutional innovation and its adoption as an ‘international standard’ among the NDCs (i.e., with the vast majority of countries espousing it), we are not even talking in decades but in generations. The reasons for this slow pace of institutional development in the NDCs were diverse.
First of all, especially in the earlier stages of development, many institutions did not get adopted or remained ineffective when adopted, because they were ‘unaffordable’. The absence of social welfare and labour regulations are the most obvious examples in this regard, but many institutions of corporate governance and finance also remained ineffective in earlier times because there were not enough resources for their management and enforcement.
Second, in many cases institutions were not accepted, even when they had become ‘affordable’, because of the resistance from those who would (at least in the short run) lose out from the introduction of such institutions. The resistance to democracy, labour regulation, or income tax by the propertied classes are probably the best examples in this regard.
Third, institutions were sometimes not adopted because the economic logic behind them had not been properly understood by their contemporaries. Resistance to limited liability or central banking, even by those who would have benefited from such institutions, are good examples of this.
Fourth, there were also institutions that were not adopted because of certain ‘epochal prejudices’, even when they had become obviously ‘affordable’ and the logic behind them had been understood. The late introduction of professional bureaucracy in the USA due to the Jacksonian prejudice against professionalism, or the late introduction of female suffrage in Switzerland are probably the best examples.
Fifth, institutional development was sometimes delayed because of the interdependence between certain institutions, so it was necessary for related institutions to develop simultaneously. For example, without the development of public finance institutions to collect taxes, it was difficult to pay properly for a modern professional bureaucracy, but without a developed tax bureaucracy it was difficult to develop public finance institutions. It is no coincidence that the development of modern bureaucracy went hand in hand with the development of the fiscal capacity of the state.
More detailed historical knowledge is required to explain why a particular institution was not adopted in a particular country at a particular time; unfortunately, there is no space in this book to engage in such discussion. However, what seems clear from our analysis here is that institutions have typically taken decades, if not generations, to develop. In this context, the currently popular demand that developing countries should adopt ‘world standard’ institutions right away, or at least within the next 5 to 10 years, or face punishments for not doing so, seems to be at odds with the historical experiences of the NDCs that are making these very demands.
| Table 3.6 | |||||
|---|---|---|---|---|---|
| Summary of institutional Evolution in the NDCs | |||||
| First Adoption | Majority Adoption | Last Adoption | UK | US | |
| Democracy | |||||
| Male Suffrage | 1848 (France) | 1907[a] | 1925 (Japan)[a] | 1918 | 1870 |
| Universal Suffrage | 1907 (New Zealand) | 1946[a] | 1971 (Switzerland)[a] | 1928 | 1965 |
| Modern Bureaucracy | early 19th C. (Prussia) | mid-1800s | early-1900s | ||
| Modern Judiciary | 1930s? | ||||
| Intellectual Property Rights | |||||
| Patent Law | 1474 (Venice) | 1840s[b] | 1912 (the Netherlands)[b] | 1623 | 1793 |
| ‘Modern’ Patent Law[1] | 1836 (USA) | 1960s[b] | 1990s (Spain, Canada)[b] | 1852 | 1836 |
| ‘Modern’ Copyright Law[2] | 1891 (1988)[3] | ||||
| Trademark Law | 1862 (UK) | 1862 | |||
| Corporate Governance Institutions | |||||
| Generalized Limited Liability | 1844 (Sweden) | 1856 (1862)[4] | |||
| Bankruptcy Law | 1542 | 1800 | |||
| ‘Modern’ Bankruptcy Law[5] | 1849 | 1898 | |||
| ‘Modern’ Auditing and Disclosure[6] | 1948 | 1933 | |||
| Competition Law | 1890 (USA) | 1919 | 1890 | ||
| Effective Competition Law | 1914 (USA) | 1956 | 1914 | ||
| Financial Institutions | |||||
| ‘Modern’ Banking[7] | mid-1920s (UK) | mid-1920s | |||
| Central Banking | 1688 (Sweden) | 1847[c] | 1913 (USA)[c,9] | 1694 | 1913 |
| ‘Modern’ Central Banking[8] | 1844 (UK) | 1891[c] | 1929 (USA)[c,9] | 1844 | 1929 |
| Securities Regulation | 1679 (UK) | 1679 | mid-1800s | ||
| ‘Modern’ Securities Regulation[10] | 1939 | 1933 | |||
| Income Tax | 1842 (UK) | 1842 | 1913 | ||
| Social Welfare and Labour Institutions | |||||
| Industrial Accident Insurance | 1871 (Germany) | 1898[d] | 1930 (USA, Canada)[d] | 1897 | 1930 |
| Health Insurance | 1883 (Germany) | 1911[d] | Still absent in the USA[d] | 1911 | Still absent |
| State Pension | 1889 (Germany) | 1909[d] | 1946 (Switzerland)[d] | 1908 | 1946 |
| Unemployment Insurance | 1905 (France) | 1920[d] | 1945 (Australia)[d] | 1911 | 1935 |
| Child Labour Regulation | 1787 (Austria) | 1873[e] | 1913 (Portugal) | 1802 | 1904 |
| ‘Modern’ Child Labour Regulation[11] | 1878 (UK/Prussia) | 1878 | 1938 | ||