As we explore in our open step on globalisation , until the beginning in the 19th Century, consumption and production usually happened in the same place. Food was grown locally, and those in the surrounding area purchased it, for example. However, as countries, and eventually the entire world, became more accessible and connected, economic webs expanded to become ever more complex.
An economy, they suggest, is based on the fact that resources, such as workers, land and raw materials, are limited. Demand, however, is infinite. By the time we could move resources and produce across borders, these national economies again became part of a much wider network of interconnected nations.
The world economy also known as the global economy refers to the economy of all humans of the world. This definition includes the various economic systems and activities that take place within and between nations. This broad scope captures the exchange of capital money and assets as well as the consumption and production of goods. However, there are all kinds of different economic systems that local and national economies might adopt.
This type of economic system was used in the Middle Ages. That ruler would then allocate land to certain nobles who fought for them. Most economies around the world today follow a capitalist system. One of the key characteristics of a capitalist economy is that private entities as opposed to state-owned control property and production in accord with their interests. In capitalism, supply and demand mean that market prices can be set to serve the interest of the wider society.
Another stand-out feature of a capitalist economy is that there is a motivation to make a profit. While in capitalism, private companies own the means of production, in socialism, everything is owned by the state or the public. Rather than working for the profit of the individual, everyone works for wealth that is distributed among the people.
Rather than supply and demand setting prices and the production of goods, in a socialist economy, products and services are produced based on usage value — the needs of society.
Much like with socialism, a communist economy aims for ownership of the means of production by the community. It aims to create a classless society where everyone contributes and takes out according to their ability and needs.
However, this often comes at the expense of individual freedoms. Examples of communist countries today include China, Cuba and Vietnam.
However, as we explore in our open step, countries can be both capitalist and communist. As we explore in our open step on different types of economies , the economy and markets are dependent on how they allocate the factors of production to control the economy.
Markets are the mechanisms by which scarce resources are allocated. They ensure that consumers and producers can obtain the goods and services they want.
When it comes to macroeconomics, the type of market a country has plays a big role in its economy. There are two extremes here, depending on how much influence a government has over the market. With that in mind, there are three different types of economy at the macro level:. At this extreme, all the factors of production are controlled by the state. This means:. At the other end of the spectrum are free-market economies.
Rather than the government controlling decisions, the factors of production are decided by the consumer and producer and usually depend on money. At the middle of the spectrum is a mixed market — a compromise between the other extremes. This means that there is some level of government intervention, usually setting boundaries in which the free market can operate.
In response to these economic factors, the U. Thus, the government enacted policies that limited government spending, reduced tax cuts, and limited growth in the money supply.
At this time, the government also shifted away from its reliance on fiscal policy—the manipulation of government revenues to influence the economy. The fiscal policy did not prove effective at addressing high levels of inflation, high levels of unemployment , and vast government deficits.
Instead, the government turned to monetary policy—controlling the nation's money supply through such devices as interest rates—in order to regulate the overall pace of economic activity. Since the s, the two main goals of the Fed have been to achieve maximum employment in the U. Currently, the Fed's mandate for monetary policy is known as a dual mandate. This is because, according to the Fed, if there are economic conditions that allow for every person that wants to work to have a job or secure one fairly quickly and in which the price level of goods is fairly stable, then it reasonably follows that interest rates will settle at a moderate level.
While outside events may influence economic activity, governments may also use economic means to enact changes. This may range from direct economic action, to tax policy or legislation, but typically government responses to economic conditions involve using multiple strategies simultaneously. Board of Governors of the Federal Reserve System.
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Your Practice. Popular Courses. Leibniz: Expected duration of the dictator or governing elite. The duration curve goes through points X and Y in Figure A dictator in a country with a stronger rule of law—and therefore a lower likelihood of a coup unrelated to performance—would face a duration curve that meets the cost line to the right of the one shown. The duration curve is the feasible frontier for the dictator. Points in the feasible set above the cost curve result in positive rents for him.
The curve represents a familiar trade-off:. How does a dictator facing a duration curve decide the tax rate to impose on the citizens?
The answer is similar to the way that a monopolistic firm decides on the price to charge for its product. This can be seen in Figure The dictator will find the tax that maximizes his total expected political rent, which as in Figure Convexity means that for a given value of D , moving upwards in the figure increasing T makes the curves steeper, while for a given T, moving to the right increasing D makes the curves flatter.
The shape of the isorent curves is similar to the isoprofit curves:. Now suppose the dictator is considering setting a modest tax and expecting a long tenure in office, indicated by point A. Because the isorent curve is flatter than the duration curve at this point, we can see that he would do better by raising the tax and bearing the opportunity cost associated with doing so a shorter expected stay in office. Continuing this reasoning, we can see that the tax rate indicated by point F on the duration curve gets the dictator a large surplus per year, but not enough to offset the short duration of his government.
A lower tax rate would increase his expected rent. Leibniz: How the monopolist sets the rent-maximizing level of taxes. At this point, the slope of the highest isorent curve is equal to the slope of the feasible frontier the duration curve :. Consider Figure Which of the following statements is true? Just as competition disciplines firms in the economy by limiting the profits they can get by setting too high a price, competition to win elections is the way that a democracy disciplines its politicians to provide the services desired by the public at a reasonable cost in terms of taxes.
Below we give some evidence of this from the US. There is also evidence from other countries that the prospect of being removed from office affects what politicians do. The introduction of village-level elections in China led to increased provision of local public services such as health services and schooling, and arguably a reduction in corruption. Even in undemocratic settings, the threat of losing office can discipline politicians.
In China, provincial governors and Communist Party secretaries are not subject to review by voters but instead by higher officials in the central government. Governors and party secretaries are frequently promoted and almost as frequently fired. The records of all terminations over the period — show that those whose provinces experienced rapid economic growth were promoted, while those whose provinces lagged behind in growth were dismissed.
Think of a politician as wanting to stay in office and knowing that she must satisfy a majority of voters when seeking re-election. But she also has her own objectives: to advance a particular project that she favours, or to maintain good relations with wealthy individuals who will support her political campaigns or employ her when her political career is over.
Just comparing the policies adopted by politicians in districts that are non-competitive for example, there will be no other candidate for the seat with those who face electoral competition will not answer the question. The reason is that competitive and non-competitive political districts, and the politicians who represent them, are different in so many ways that the comparison would mix the effects of political competition with the effects of these other differences.
Economists Tim Besley and Anne Case devised an ingenious way to answer the question. Some state governors in the US are limited to two four-year terms of office.
This means that at the end of their first term they will face electoral competition when they ask voters to re-elect them. During their second term, the prospect of political competition does not affect them, because they are not allowed to stand for re-election. As in any good experiment, other important influences are held constant. We are measuring the same individuals, in the same districts, under a treatment and a control condition. They found that during their first terms the treatment period , Republican and Democratic governors implemented virtually identical levels of total taxation per capita.
But during their second terms the control period , Democratic Party governors, who tend to favour more public expenditures and taxation, implemented much higher levels of taxation than Republicans did. And Republican governors, when not facing political competition, implemented much lower levels of the state minimum wage.
But they diverged according to their own political preferences or economic interests when electoral competition was removed. The government leadership is no longer represented by a dictator, but instead by what we call a governing elite , that is the top government officials and legislative leaders, unified by a common interest such as membership in a particular party.
Unlike a dictator, the elite can only be removed from office by losing an election, and not by a citizen uprising or some other non-electoral means. When we speak of its removal from power or the duration of its time in office, we do not mean the removal of an individual as might have been the case with a dictator , but rather the entire group and its affiliation with a political party.
In the US, for example, the Republican Party governing elite was removed from office in , when President Obama was elected. The Democratic Party governing elite associated with President Obama was removed from office when President Trump was elected eight years later. In the model, there are now two ways that a governing elite can be removed from office, both of which occur through elections although, of course, reality is more complex :.
The longest continuous rule by a governing elite was the government of the Mexican Institutional Revolutionary Party PRI , which governed Mexico from the time of the Mexican revolution in the early twentieth century right into the twenty-first century. The longest rule by an individual at the head of a governing elite was by Fidel Castro 49 years in Cuba, who was then succeeded by his brother Raul. The shortest period in office in this table is the elected government of Gough Whitlam in Australia, which was removed by the Governor General not an elected official following a parliamentary impasse over the budget.
This means that it makes the duration curve flatter. This is the inverse of the slope of the duration curve. If we have weak political competition, the duration curve is steep, just as a steep inelastic demand curve indicates weak competition in a market for goods or services. The flatter, more competitive, duration curve that you see in Figure The model helps show why governing elites, and the wealthy and powerful members of society who are allied to these elites, have so often resisted democracy, and attempted to limit the political rights of the less well off.
But now suppose that everyone has the right to vote and that opposition political parties are allowed to challenge the elite. This increase in political competition is represented by the flatter duration curve, indicating that the feasible set of the elite has shrunk. It now chooses point G, and collects lower taxes per year. Notice that, in the figure, the governing elite in a more competitive political system implements lower taxes but has the same expected duration as the elite in the less competitive system with higher taxes.
But this need not be the case. Generally, the duration could be longer or shorter if conditions become more competitive. You are already familiar with the reason why the expected duration might not change after increase in political competition. There are two offsetting effects:. Leibniz: The income and substitution effect of an increase in political competition.
How is the duration curve in Figure Applying what you learned about income and substitution effects and how they can be analysed in a diagram with indifference curves and feasible frontiers from Unit 3 , redraw Figure Cambridge: Cambridge University Press.
This has happened in many cases because governing elites have found it in their interest to concede to a more competitive political system, or even introduce one on their own initiative:. The elite of the Communist Party of the German Democratic Republic East Germany also discovered the limits to its ability to impose stability by force. Popular demonstrations and challenges to the government were successful, in part because the police and armed forces eventually could not be counted on to defend the incumbent government.
An alternative way to ensure stability is to introduce changes in the political system that make it more democratic, providing the dissatisfied with legal means to seek a change in government. If greater democracy also increased the stability of the political system however to the extent shown in Figure This would be possible because the increased expected duration of the government, due to increased stability, would more than offset the reduced taxes that could be imposed due to the increased power of the citizens to dismiss the government for excessive rent-taking.
Suppose the elite can introduce a policy that will provide the same level of public services at a lower cost. This would be called an increase in the effectiveness of the government.
An example might be that the government could adopt teaching methods that are more effective, or find ways to motivate teachers to improve their teaching. Or the government could require that the construction firms that build public infrastructure, such as roads, compete with each other rather than colluding in setting high prices.
We have seen that like firms, the government treated in the model as if it were a single person is an important economic actor. As an actor, the government imposes laws, fights wars, collects taxes, and provides public services such as the rule of law, stable currency, roads, healthcare, and schools. But, like firms, the government is also a stage.
The political institutions of a country are the rules of the game that determine who has power and how it is exercised in a society. Democracy is a political institution, which means it is a set of rules that determine. Political institutions differ from country to country and over time. But major categories of political institutions include democracy and dictatorship.
The key value motivating democracy is political equality. Citizens should have substantially equal opportunities to be able to express their views in ways that can shape the policies and other activities of the government. Kenneth Arrow is the economist who contributed most to our understanding of the problems that elections sometimes encounter in selecting between different courses of action.
Characteristically scholarly and detached from ideological rhetoric, he later wrote:. There is by now a long and … imposing line of economists from Adam Smith to the present who have sought to show that a decentralized economy motivated by self interest and guided by price signals would be compatible with a coherent disposition of economic resources that could be regarded … as superior to a large class of possible alternative dispositions.
Arrow was a pioneer in the study of many of the themes in The Economy , including asymmetric information and the economics of knowledge, and helped broaden the scope of economics to include insights from other disciplines. A year before his death, Arrow co-taught a course about inequality at Stanford University using an early draft of Unit 19 of this book, which was revised in light of his comments.
In Unit 1 we explained that we use the word democracy to refer to a form of government in which three political institutions exist:. Ideally, in a democracy those who have power are elected in an inclusive and open competitive process, and the rule of law and civil liberties limits the things they can do with that power. Here we focus on the consequences of democracy for addressing problems the second point , not on its intrinsic merits the first point. No existing government fulfils the democratic ideal of political equality, where each citizen has equal influence over an outcome.
Similarly, no government today can be said to perfectly match the three political institutions that define democracy.
Think about inclusive elections. Some examples include:. As we will see in the following sections, how a government actually works is not determined solely by the presence or absence of civil liberties, the rule of law, and inclusive fair elections.
One of the puzzles of politics is that in two-party electoral systems, parties often offer programs that are remarkably similar. Here are some examples:. Just as firms compete for purchases from customers, in democracies, political parties compete for votes from citizens by offering party platforms, which consist of policies that they say they will enact if elected.
We will consider a simple majority-rule system in which the party or candidate with the most votes wins. If the parties care only about winning an election, in what conditions will they offer distinctive platforms tailored to their respective core supporters? And if they offer similar programs, at which point on the political spectrum will that be?
We can provide some answers to these questions using a model developed by Harold Hotelling, an economist. He had imagined the location of stores along a railway line. In his article, Hotelling also applies his model of competition to the political platforms of the Democratic and Republican Parties in the US. Imagine a stretch of beach along which bathers are spread evenly.
They can purchase ice cream from one or more mobile ice cream stands. Initially we assume that every bather will buy one ice cream, and that all ice creams cost the same. If there is more than one vendor, they will purchase the ice cream from the vendor located closest to them. Understanding where the ice cream sellers choose to locate on the beach to the right, to the left, in the middle will help us understand where political parties would locate along the high tax left to low tax right continuum.
This is called the median voter model. To begin, a single vendor, April, is at the beach. Suppose she is at a location shown by A 0 in Figure A single vendor, April, arrives at the beach and locates her ice cream stand at A 0.
A second seller, Bob, arrives and sets up at B 0 , midway between April and the right-hand end of the beach. Bob realizes he could expand his sales by shifting to the left towards April, to point B 1. Because her customer base has shrunk, she shifts immediately to the right-hand side of Bob, to point A 1. At this point, neither has an incentive to move as they have divided the customers exactly in half. This is a Nash equilibrium under the rules of the game we have set out.
Imagine that the bathers on the far-left part of the beach are not going to buy ice cream under any condition they are like the citizens who do not vote.
Along comes Bob, a second seller who is identical in economic respects to April. Where will he locate in order to maximize his sales, and hence his profits? He might reason that the market to the right of April is larger than the market to the left, so he will locate in the middle of the stretch of beach to the right of April, at point B 0. He would then get all of the bathers to his right and as well as of those to his left who are closer to him than to April.
But Bob would immediately see that he could expand sales by shifting to the left, towards April. While the customers to his right will now have to walk farther to get ice cream, they would certainly not switch to April who is even farther away.
He will therefore be able to gain a few customers to his left, who were previously closest to April but are now closest to him, while losing none of those customers to his right. He will end up standing just to the right of April, so that he gets all of the sales along the longer stretch of beach to the right. Could Bob or April make more profits by changing their location?
In other words, is this a Nash equilibrium? April, understanding the profit-maximizing logic that Bob has just acted on, will shift immediately to the right-hand side of Bob, to A 1. Then she will get the larger market. But then Bob will do the same, and they will keep leap-frogging over each other until they are back-to-back in the middle of the beach.
Both locating halfway along the beach is a Nash equilibrium under the rules of the game. The bathers located near to the centre of the beach benefit from this.
Their trip to the ice cream stand is shorter than those on the extreme left or right of the beach. To return to politics, we can think of voters as arranged along a left-to-right spectrum much as the customers are arranged on a beach.
If there are two parties competing for votes, and voters will always vote for whichever party offers policies that are closest to their views, the model tells us that the only Nash equilibrium would be for both parties to propose policies in the middle of the left-right spectrum. On this basis, we would expect to see that voters in the middle of the left-right political spectrum would be offered two party platforms very much to their liking.
Those more distant from the centre would have to choose between two platforms. The citizen in the centre—called the median voter —has two advantages. First, she gets to choose between two platforms very close to her preferences. To understand why this is the case, consider a family on the far right of the beach. If the family choose to move slightly to the left, would this affect the Nash equilibrium position of the ice cream stands? April would now have more customers than Bob, and Bob would want to relocate to the left.
In politics, when swing voters change their political preferences just a little, by moving to the other side of the parties in the centre, the parties in the centre move too. Suppose that April and Bob are happily selling ice cream on the beach, standing side by side, with April getting all of the customers to the left and Bob getting all of those to the right.
They will remain there because this is a Nash equilibrium. But now, along comes Caitlin, a third ice cream vendor. This presents a very limited view of the competitive process.
Not surprisingly, we see that parties often do not all move toward the centre, or offer identical platforms. Recall that the model of perfect competition among firms that you studied in Unit 8 ignores many of the ways that firms actually compete for example, advertising, innovation, or lobbying the government for favourable legislation.
Similarly, the median voter model leaves a lot out. Four facts will lead us to quite different conclusions from the median voter model:. In our beach example from Figure If this is the way politics works, then the platforms are similar, but the advantaged voter is now not the median citizen but a voter to the right of centre.
Next, suppose that not all families will buy exactly one ice cream. Some families will buy lots of ice cream, whereas others will buy less. Where would April and Bob stand if bathers wanted to buy lots of ice cream at one end of the beach, but not the other?
Both April and Bob would locate side-by-side as before, but nearer to these ice-cream-loving families. In politics, this means that parties would move their platforms toward voters who could contribute to their election campaign.
These contributions could be money, or time spent campaigning. The same would occur if dissatisfied citizens at one end of the political spectrum were more likely to engage in other political activities—demonstrating, or criticizing the party platforms.
But when these things happen, both parties still have similar platforms. Now suppose there is one more condition. Instead of bathers uniformly spread along our beach, there are few in the centre and most are in two groups.
One is on the left, and the other on the right. Politics is very different from selling ice cream for another reason. As well as wanting to win elections, party leaders typically do care about the platform.
They would be willing to risk losing voters at one end of the political continuum to take a position more in line with their personal values. There is, however, another important difference between elections and ice creams. April and Bob split the market and both survive, one perhaps taking slightly more of the market. In a majoritarian political system, if both parties offer similar platforms, the party that gets just one vote more than the other forms the government.
Albert Hirschman — lived an extraordinary life. Born in Berlin in , he fled to Paris in after Adolf Hitler won power in Germany, and joined the French Resistance in , helping many artists and intellectuals to escape from the Nazis. He migrated to the US in He crossed disciplinary boundaries with ease, grappled with questions that lay well outside the professional mainstream, and developed ideas that were imaginative, profound, and enduring.
He was concerned with how the performance of entities such as firms and governments could be improved. He identified two forces—exit and voice—that could serve to alert an organization that it was facing decline and provide incentives for recovery.
When a company performs poorly or unethically, shareholders can sell their shares exit or campaign for a change of management voice.
Hirschman observed that economists had traditionally extolled the virtues of exit competition , while neglecting the operation of voice. They favoured exit-based policies, for example those that made it easier for parents to choose which school their children attended so that schools would have to compete to enroll students.
He considered this an omission, because voice could allow a lapse to be reversed at little cost parents could usefully seek changes in school policies, in this example , while exit might waste physical capital and human capabilities. After making this distinction, Hirschman explored how exit and voice interact.
If exit was too readily available, voice would have little time to act. A repairable lapse could end up being fatal to an organization. This effect would be even stronger if those most sensitive to performance decline were also the fastest to exit. The fact that easy exit undermines voice has some paradoxical implications.
A national railway system might perform better if roads were poor, so that angry customers could not easily exit, and would work to improve it instead. And the availability of private school options might result in worse public school performance if the most quality-conscious parents took their children out of the system. The interplay between exit and voice works through a third factor, which Hirschman called loyalty. Attachment to an organization is a psychological barrier to desertion.
By slowing exit, loyalty can create the space needed for voice to do its work. But loyalty can hinder performance too if it becomes blind allegiance, because that stifles both exit and voice. Organizations may promote loyalty for precisely this reason. Hirschman was deeply critical of the claim that, in a two-party system, both parties would adopt similar platforms that reflected the preferences of the median voter. This claim relies on reasoning that accounts for exit and neglects voice.
Voters on the extreme fringes of a political party had no viable exit option, Hirschman agreed, but he rejected the implication that such a voter was powerless:. Albert Hirschman loved to play with language. English was the fourth language in which he gained fluency after German, French, and Italian but he still managed to coin the most wonderful expressions. Awkward —to his daughter Katya as a birthday gift.
At the beginning of this unit we considered how a natural monopoly might be run if it were in private or government hands, contrasting two ways that power in the hands of the monopolist or the government official can be made accountable. The key idea is that customers facing a monopoly are not powerless. They have the option to buy less, or even not at all. Citizens facing a government-owned firm similarly have ways of fighting back against inadequate service, by seeking to replace the government in an election.
The models we have studied have clarified the similarities and differences between the profit-maximizing behaviour of a monopoly firm and the political-rent-maximizing behaviour of a governing elite. These are summarized in Figure This means that any governing elite that sought to skim off any rents at all would be removed from office at the end of the year, just as any firm charging a higher price than the competing firms would lose all of its customers at once, and go out of business.
Would locating at the middle of the beach still be a Nash equilibrium in the following cases? In each case, explain the political analogy to the ice cream seller example. Which of the following statements are true? By extending the model of the government as monopolist to include political competition, we have a framework for understanding the emergence of representative institutions and eventually universal suffrage, as described at the beginning of this unit.
Governments survived if they provided citizens with essential public services at reasonable tax rates, rather than through palace intrigues or the threat of force. Fear of instability that prompted some of the wealthy in the US and elsewhere to advocate greater democracy also helped spread democracy in Figure As you saw in Figure During this period, farmers, industrial workers, and the poor demanded greater political equality—and especially the right to vote—as a means of gaining a larger share of the output and wealth of the rapidly growing economies.
In there were attempted revolutions against the monarchy in Sicily, France, Germany, Italy, and the Austrian Empire. Knaves will tell you that it is because you have no property, you are unrepresented. I tell you on the contrary, it is because you are unrepresented that you have no property … In the late nineteenth and early twentieth century the wealthy in many countries concluded that extending democracy might be prudent, much as the leaders of the South African government were to conclude a century later.
Center for Systemic Peace. Polity IV annual time series ; Inter-parliamentary union. Initial periods of democracy of less than five years are not shown in the chart. The first democratic nation was New Zealand, which became fully democratic just before the turn of the twentieth century, although it remained a British colony until At that time elections were held in many countries but women, those without property, or other disadvantaged groups were denied the right to vote. South Africa, Mexico and some of the countries once ruled by the Communist Party Poland, for example are relatively recent additions to the club of democratic nations.
Switzerland is also a recent addition. By the time that Swiss women finally won the right to vote in , the prime ministers of Sri Lanka, India, and Israel were all women. Universal male suffrage in Switzerland had been granted 90 years earlier. Excluding women from voting makes a difference in the policies that elected governemnts adopt. The US enfranchised women in but had denied the vote to black people in many states before We indicate the complicated status of the US using a light green bar.
We have done the same for Australia, where indigenous Australians were denied the right to vote before , and for Canada, which restricted the voting rights of Native Americans for a brief period. The most populous country that is not a democracy is also by far China. Notice in the figure the two waves of countries that became democratic. The first wave occurred at the time of the First World War and the Russian Revolution, which tripled the number of democracies in the world in less than 10 years.
The First World War provided much of the impetus for the spread of democracy during this first wave. If you look at the figure, you will see that the US was not democratic at this time, because the right to vote was restricted to men. In both countries, women and those without property were denied the right to vote. A second wave of democracies emerged after the Second World War. Many former colonies, including India and Indonesia, became democratic at this time. The extension of suffrage in the early years of the twentieth century made many countries in northern Europe and New Zealand into democracies.
In those countries, the rule of law and civil liberties—the other two criteria for a democratic political system—had been in force long before the introduction of universal suffrage.
After the Second World War, most countries had already granted the right to vote to virtually all adults though in Saudi Arabia, for example, women gained voting rights only in Today, countries judged to be undemocratic such as Russia often do not fail our test because of restrictions on the electorate.
They are not democracies because the rule of law and civil liberties are inadequate. The blue patches in the bars show that there have been some interruptions in democracy, including the period of dictatorship in Chile following the military overthrow of the democratic government, and the period of Fascist rule in Germany between and , but most countries that have become democratic have continued to be democracies.
All the countries in the figure can be decribed as democratic because they are sufficiently close to the criteria we have laid out.
But in some cases, there is a large difference between our three criteria of rule of law, civil liberties, and inclusive fair elections, and how the system functions in practice. In the US for example:. Joseph Schumpeter see Section 2. Joseph Schumpeter. Joseph A. Schumpeter, The Economics and Sociology of Capitalism. Princeton University Press. As we have seen, before the twentieth century a major activity of governments was defence in some cases, predation on other nations , and raising the taxation to support it.
But well before that time, some ruling institutions came to understand that they would benefit from providing conditions for the growth of the economy—building canals, roads and schools in the nineteenth century, for example. Economic development could be an asset either by creating a larger tax base, a more scientifically oriented cadre of citizens, or by building financial institutions that could loan money to the government.
During the twentieth century large-scale production in firms was easy for the govenment to see, and happened in one place. This made taxation and regulation of firms easier, and governments could also use the accounting books and payroll records of firms to find out who was paid what.
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