Thanks David! I do very much believe in the importance of strong institutions in terms of their role in development. So what would include things such as rights of individuals and rule of law.
However, there is always a chicken and egg problem. As nations develop economically the quality of their institutions also tends to develop.
It has often been remarked that poor countries cannot develop because of corruption, but usually rich countries had almost exactly the same amount of corruption at similar levels of development. And we see countries that used to be poor and corrupt become much less corrupt and more well run as they get richer.
Thus while material conditions and ideas both matter, I wanted to ask: What is the most dominant factor? What matters more?
If a country has better ideas around the rule of law, property rights, patents and what have you, then what caused a country to have that in the first place? It is the question behind the question which I am trying to answer.
My belief is that the conditions which create trading nations is also the same conditions which create the things you mentioned. I think it is very rare to see a strong trading nation which does not have a well developed legal system. We may of course ask questions about correlation and causation.
However, I cannot find any good example in history of a country with poor geography for trade which still ends up as a major trader because of somehow having superior legal framework. One could point to North America, but they don't count IMHO because North America is an offshoot from the most successful trading nations of Europe. Those ideas already existed when the US got created. The ideas around property rights and rule of law did not have to develop independently.
Also I believe egalitarianism plays an important role. People don't seem to believe in laws and property rights much in highly unequal societies. Why would they? There will be a a feeling that the system is rigged against them. In fact a case could be made that American success was in part built on lack of strong property rights. Economists Hernando de Soto makes an argument akin to that: He points out that a large fraction of American farmers were formally illegal squatters historically speaking.
Through legal reforms, these squatters were given the land they were illegally occupying. That kinds of generous illegal redistribution of land never happened in South America. Hence land remained highly unequally distributed leading deep seated conflicts and political populism plaguing South America for centuries.
