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Rediscovering the importance of institutions - “Why Nations Fail”

Tom Friedman had a fascinating column in Sunday's New York Times on the book "Why Nations Fail."  The main thesis of the book is that institutions that promote greater access to economic activity and that are associated with greater income equality also are good for the nations that sponsor them.  I was rather struck by this notion, as it is almost the same thesis that William Baumol suggests are associated with the promotion of entrepreneurship.  Things like transparency, the existence of property rights, open exchanges…  A book that touches on this is:

The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, 2002.

Baumol essentially argues that innovation, not price competition, is the growth engine behind the miracle of capitalism.  Innovation is also fostered by access to opportunities and a regime that rewards innovators. 

It is worrying that we seem to have lost this thread somewhere.

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