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This essay is the introduction to a book of the same title, forthcoming in summer of 2021 from Oxford University Press. The purpose is to document the ways in which patent systems are products of battles over the economic surplus from innovation. The features of these systems take shape as interests at different points in the production chain seek advantage in any way they can, and consequently, they are riven with imperfections. The interesting historical question is why US-style patent systems with all their imperfections have come to dominate other methods of encouraging inventive activity. The essays in the book suggest that the creation of a tradable but temporary property right facilitates the transfer of technological knowledge and thus fosters a highly productive decentralized ecology of inventors and firms.

Why are some societies characterized by enduring democracy, while other societies are either persistently autocratic or experiment with democracy but then quickly fall back into autocracy? I find that there is a systematic, non-linear relationship between rainfall levels, human capital, property rights institutions and regime types such that stable democracies overwhelmingly cluster in a band of moderate rainfall (540 to 1200 mm of precipitation per year). I advance a theory to explain this outcome that focuses on how differences in the crops that could be grown in different rainfall bands affected societies’ institutional paths of development. I then test that theory against a unique cross-country dataset, a comparison of democracies and autocracies in antiquity, and a series of natural experiments.This paper builds upon an earlier collaboration with Victor Menaldo (University of Washington). Our joint paper, “Rainfall, Human Capital, and Democracy,” is available on SSRN. I also gratefully acknowledge discussions with Ran Abramitzky, Isa Chavez, Roy Elis, Stanley Engerman, Rob Fleck, Avner Greif, Tim Guinnane, Mark Kleinman, Dorothy Kronick, Naomi Lamoreaux, Ross Levine, Joseph Manning, Ian Morris, Josh Ober, Robert Packenham, Paul Sniderman, William Summerhill, and Barry Weingast. Nicholas Baldo, Kevin Cook, Roy Elis, Anne Given, and Scott Khamphoune, Dorothy Kronick, and Cole Lupoli, provided invaluable research assistance.

In Chapter Three we discussed the surprisingly slow growth of the Mexican economy once it opened up to foreign trade and investment. We noted that one of the causes of Mexico's sluggish economic performance since the mid-1990s has been the scarcity of credit for firms and households. Indeed, whether we compare Mexico with other members of the Organisation for Economic Co-operation and Development (OECD) or with other Latin American countries, Mexico has an extraordinarily small banking system. As Figure 4.1 demonstrates, in 2005 the ratio of private credit to gross domestic product (GDP) in Mexico was the smallest of any OECD country. Moreover, it was the smallest by a very wide margin, even when compared with the economies of Southern and Eastern Europe. Mexico also does not fare well when compared with other Latin American countries. As Figure 4.2 shows, in 2005 Mexico's banking system, as a percentage of GDP, was dwarfed by those of Chile, Honduras, Uruguay, Bolivia, Costa Rica, Brazil, and even Nicaragua. It was even small by the standards of Ecuador, Peru, Colombia, and Guatemala. In fact, in 2005 there were only two countries in the region with banking systems that were appreciably smaller than Mexico's: Argentina and Venezuela. Perhaps even more surprising is the fact that Mexico's banking system has been shrinking over time. As Figure 4.3 makes clear, the ratio of bank loans to GDP in Mexico declined drastically between 1994 and 2005.

The Institutional Revolutionary Party (PRI) paid a substantial political cost for the poor performance of the Mexican economy during much of the 1980s and 1990s. The party had legitimated its monopoly on electoral office in part by portraying itself as the architect of an “economic miracle” that had, over a span of several decades, industrialized the country and generated rising standards of living. As we discussed in Chapter Two, these claims had always been overstated. But more than a decade of recurrent financial crises and slow economic growth gradually undermined whatever validity they had. For the first time in its history, the PRI began to face serious competition from opposition forces on both the right and the left of the political spectrum. There was nothing inevitable about the process by which Mexico democratized. In fact, progress toward electoral democracy in Mexico was gradual and halting. It is certainly true that long-term changes in Mexican society – increasing urbanization, the growth of an educated middle class, and the emergence of groups of students and intellectuals who were not easily co-opted – posed a challenge to Mexico's ruling party from the 1960s onward. These factors alone, however, cannot explain the PRI's eventual loss of national power. Electoral democratization owed as much – or more – to contingent economic and political developments. Ironically, some of the strategies that PRI-led administrations adopted to forestall economic collapse, or to rekindle economic growth, undermined the coalition that had long supported the party's monopoly on power.

In the previous chapter we explored how, as a theoretical matter, governments and some subgroup of asset holders can create an economic system in which property rights are specified and enforced as private goods. We also explored how the implicit contract between the government and these select asset holders can be made credible via the creation of a coalition with a third group, which receives a stream of rents from the asset holders and provides the government with crucial political support. Finally, we explored why the property rights system laid down by such a coalition might be impervious to changes in the identity and ideology of the government. Empirical reality is, of course, inevitably messier than any model of it. In order to make models tractable, it is necessary to assume that the actors are behaving as if they are playing a game whose rules and strategies are common knowledge. In the real world, however, it is often the case that some actors have a good sense of the game at hand, while others do not. (Indeed, casual empiricism suggests that many actors in social situations do not even know that there is a game.) Even those who ultimately figure out the rules of the game and the strategies for winning do not start out with that knowledge. They learn the game as they play.

All governments – stable and unstable – face a commitment problem: if they are strong enough to arbitrate property rights, they are also strong enough to confiscate them. If the population does not believe that the government will refrain from exercising its power, then it will not invest. If there is no investment, there will be little economic activity, and there will be insufficient tax revenues to sustain the government. The commitment problem is essentially a problem of contract enforcement. In a stable political system, a sovereign government offers property rights protection in exchange for some kind of benefit, typically a stream of tax revenues, from the holders of those property rights. The government and the asset holders assume contractual obligations, much in the same way that any two individuals or corporate bodies can. In a contract between two private parties, of course, the government, typically through the court system, ultimately serves as the third-party enforcer of the contract. A thorny problem arises, however, when the government is itself a party to the contract: the government has a monopoly over the enforcement of property rights but will only enforce those rights when it is in its interest to do so. Even if there is a promise of full enforcement, a sovereign government will be tempted to break it afterward. Private actors can, of course, anticipate government opportunism and therefore choose to invest less or not at all.