American Political Science Review Vol.94,No.2 nous growth),however,many of the benefits of increas- the high density of institutions;(3)the possibilities for ing returns are external to individual firms and cannot using political authority to enhance asymmetries of be fully captured by individual investors and entrepre- power;and (4)its intrinsic complexity and opacity. neurs.Thus,the mechanisms identified by Liebowitz After briefly explicating each,I will discuss their rele- and Margolis are unlikely to ensure that the best vance to path dependence.Each of these features makes long-term outcome will be selected. increasing retumns processes prevalent in politics. Perhaps more important,the Leibowitz and Margo- Second,I explain why the ameliorative mechanisms lis (1995)argument has little relevance to the develop- that Liebowitz and Margolis identify in economic sys- ment of institutions,which are also subject to increas- tems are often ineffective in offsetting path dependence ing returns.Private actors cannot obtain patents or in politics.Three characteristics of politics change the venture capital to capture the long-term economic picture considerably:the absence or weakness of effi- gains from constructing key economic institutions.In- ciency-enhancing mechanisms of competition and deed,the Leibowitz and Margolis argument simply learning;the shorter time horizons of political actors; assumes the presence of institutions that support mar- and the strong status quo bias generally built into ket mechanisms.Also,their argument does not seem to political institutions.Each of these features makes in- have much relevance for North's argument about the creasing returns processes in politics particularly intense. presence in particular polities of networks or matrices They increase the difficulty of reversing the course of institutions and organizations.The fact that they do down which actors have started.Increasing returns not even cite North's work is telling.North maintains processes are now central to economic theory and the that path dependent processes of institutional develop- argument here is that these dynamics will be very ment are crucial to the evolution of particular market widespread and often more difficult to reverse in economies.Far-sighted financial markets are of limited politics. help in triggering such institutional development;to a For my purposes,the fundamental feature of poli- large extent,they are its product. tics is its preoccupation with the provision of public The failure of Leibowitz and Margolis to address goods.11 Such goods are distinguished by jointness of issues of institutional development in economies points supply (the production costs for the good are unaf- to a more fundamental objection.Even if one accepts fected or only modestly affected by the number of those their analysis regarding the economic sphere,their consuming it)and nonexcludability (it is very costly or arguments still have limited relevance for political impossible to limit consumption to those who have scientists.However strong market mechanisms for paid for a good).These features,which are extremely "far-sightedness"may be,they are almost certainly far widespread in modern life,make public goods-from weaker in politics.I explain why in the next section. national defense to environmental protection-diffi- cult to provide through markets.Nonexcludability cre- MOVING FROM ECONOMICS TO POLITICS: ates free-riding incentives,since individuals will receive THE APPLICABILITY OF INCREASING the benefits of a public good whether or not they RETURNS ARGUMENTS contribute to its production.Jointness of supply means that private markets will underproduce the good in Microeconomic theory illuminates important features question,since private actors tend to consider only the of the political landscape in fields ranging from the benefits to themselves. study of party competition,to the formation of interest These characteristics of public goods help explain groups and social movements,to voting and legislative why the central features of political systems are com- behavior.The value of economists'theoretical exports pulsory rather than voluntary.The exercise of author- is greatly enhanced,however,if the political science ity,generally combined with a complex array of com- importers take careful account of the distinctive fea- plementary institutions designed to circumscribe and tures of the "local"environment.As Terry Moe (1990, legitimate that authority,is necessary to generate col- 119)states in a related context:"The real problem is to lective provision.Legally binding rules are not just a try to identify those essential features of politics that foundation for political activity(like property rights in might serve as a foundation for theory,a foundation the economy).They are instead the very essence of that can take advantage of the new economics without politics (Lindblom 1977;Moe 1990).This key quality of being overwhelmed or misdirected by it."Arguments politics has a number of repercussions for the character drawn from economics must be sensitive to the quite of political life,each of which is relevant for an different nature of the political world (Lindblom 1977; assessment of tendencies toward path dependence. Moe1984,1990:North1990b) Politics differs from economics in many ways.The key is to specify which aspects are most relevant to an The Collective Nature of Politics investigation of the sources and consequences of path A quick contrast with economic markets can highlight dependence.Following a brief summary of the distinc- the prevalence of collective action in politics.Suppose tive tasks of the political arena,this discussion is divided into two parts.The first considers four promi- nent and interconnected aspects of politics that make it In most cases,the goods in question are not "pure"public goods-a fact that complicates the analysis but does not alter my this realm of social life conducive to increasing returns basic claims.For discussions,see Mueller 1989,chap.2,and Cornes processes:(1)the central role of collective action;(2) and Sandler 1996. 257