_5_ _The New Comparative Economics_ The shape and the location of the IPF --<sup>andhence the efficient choice -- varies acrossactivities</sup> within a society, as well as across societies.3<sup>An activity that involves repeated interactionsamong</sup> participants of roughly similar resources,<sup>and withlittletechnological change,such as diamond trading,</sup> can achieve order with little dictatorship<sup>(Bernstein1992). In contrast,anactivity likesecurity issuance,</sup> involving players with few repeated interactions<sup>and massive inequalities of power,is vulnerableto much</sup> more disorder for a given level of police.

Looking across societies, the differences<sup>loomevenlarger.The institutionalpossibilitiesof</sup> modem Sweden, or even China, are far superior<sup>to thoseof Albaniaor Congo.Swedencanpursueeither</sup> extreme laissez-faire policies or toy with<sup>socialism andstill achievedecent outcomes,Albaniacan choose a</sup> perfect balance of dictatorship and disorder<sup>for itsIPF, but property rightswould remaininsecure.For</sup> lack of a better term, we refer to location of<sup>the IPF as "civic capital," with theidea thatsocietieswith</sup> more such capital, and an IPF closer to<sup>the origin,arebetter capableof achievingcooperationamong their</sup> members. We use the term "civic capital"<sup>rather thansocial capitalbecausewe have something similar but</sup> broader in mind. We stick with the idea of<sup>capitalbecause investmentsin civiccapitalpay off in the</sup> medium run.

Recent historical research has made progress<sup>in understandingthe determinantsof civic capital.</sup> Landes (1998) continues the great tradition<sup>of stressingthe influenceof culture.Easterly andLevine</sup> (1997) and Alesina, Baqir and Easterly<sup>(1999) showhow ethnicheterogeneity,and the resulting ethnic</sup> strife, reduce institutional quality. Diamond<sup>(1997) and EngermanandSokoloff (1997,2002) stress the</sup> role of factor endowments and the physical<sup>environmentin shaping-and limiting -the institutional</sup> opportunities of a society. For instance,<sup>the environmentof LatinAmerica, unlike that of North America,</sup> was most hospitable to large scale agricultural<sup>technologies that bredsignificant economicand social</sup> inequalities, causing a long-lasting damage<sup>to the regions'sinstitutions. Acemoglu, Johnson,and</sup> Robinson (2001) argue that the mortality of<sup>Europeansettlersshaped settlement patternsandinstitutional</sup> outcomes. Putnam (1993) maintains that<sup>thelong run history of cooperationin a community -- its social</sup> capital -- determines the ability of its<sup>members to cooperatein theproductionof publicgoods.</sup> But there are some other, more prosaic,<sup>determinantsof civic capital. Technologyof production</sup> matters. When the scale of production<sup>and the paceof interactionamongindividuals rise, the opportunities</sup> for private expropriation expand, moving<sup>the IPF out. The technology of govemmentrepression -the</sup> efficiency of tax extraction and the monopoly<sup>onpower -influenceboth thelocationand the shapeof the</sup> IPF, because they determine how much<sup>dictatorshipis needed to reduce disorder both on averageand at</sup> the margin. Last but not least, the level<sup>of human capitalinthe societyis itself likely to determinethe</sup> location of the IPF, as better educated<sup>andinformed people maybe morelikely to solveproblemswithout</sup> violence.

Admittedly, civic capital is a somewhat<sup>vagueconcept,but manyaspects of it have been measured.</sup> We have already referred to the measurement<sup>of historical influences, whichare predeterminedfor many</sup> policy choices. Other aspects of civic<sup>capital,such ashuman capital,technology,or inequality, canbe</sup> changed in the medium run through public<sup>investmentsor largeinterventions,suchas land reform.For</sup> many reformns that economists focus on,<sup>however,includingsocialcontrolof business,thelocationof the</sup>

> 3Empirical growth studies generally confound the location of the IPF and the choice of a point on it under the rubric of "institutions," but for us it is important<sup>todraw thedistinction.In these empiricalstudies,"institutions"are</sup> measured with a variety of objective<sup>andsubjective assessmentsof institutional quality of a country, suchas law and</sup> order, risk of government expropriation, rule<sup>of law,corruption,efficiencyof the judiciary,or some combinationof</sup> these variables (Easterly and Levine 1997, 2003,<sup>Halland Jones1999,Kaufmann,Kraay,and Zoido-Lobaton2002).</sup> These variables are highly correlated with each<sup>other,and have proven to be strong predictorsof per capita income,</sup> economic growth, and many other "good"<sup>outcomes,but it is not entirely clearwhat they measure conceptually.</sup>