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The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929 (Political Economy of Institutions and Decisions)

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Haber et al ask whether the truism that political instability means declining economic growth because of weak property rights holds true from the porfiriato to post-revolutionary Mexico (1876-1929). The answer, surprisingly, is not necessarily(!).
Unstable governments have an incentive to create and enforce limited property rights, so as to have access to rents by which they can maintain their power. However, if the government goes too far and tries to create a form of limited government, it weakens itself such that less scrupulous usurping governments can enter the bargain and co-opt those rent-producing assets for their own purposes, usually to the detriment of the current administration.
Nevertheless, the mexican state during this period in question was able to benefit from these limited property rights, enforced by a variety of third-parties, to maintain economic growth throughout this chaotic period, with the slight exception of the years 1913-1917. However, the authors point out that the potentially major cause for the economic contraction during these years was primarily a result of the destruction of the railroad/transport system, which limited the property holder's ability to get their goods to the international and domestic markets. Political violence per se was not the primary cause of economic contraction.

This book is an outstanding analysis of real empirical evidence which turns the simple theory of instability=contraction on its head.

The deeper import herein is also that limited governments cannot provide an immediate exit from political instability. Machiavelli jumps out from behind the curtains wearing a sombrero! The current simplistic argument of many would-be politicos, that all developing nations need only create a limited government like the US to cure their economic ailments, is shown to be a straw man in this book.

This book is perfect for those that want to understand how developing countries must deal with instability in order to grow into more limited forms of government.

It also is an excellent analysis, based on hard research, of how property rights are formed even in the midst of political instability. Highly recommended.