From parents to Silicon Valley… How did institutions create the wealth of the United States? | economy

Days before the United States celebrates the 250th anniversary of the Declaration of Independence, questions about the secret of its economic superiority are returning to the forefront. After two and a half centuries of growth, the United States has become the largest economy in the world and the most capable of innovation and attracting investment.

But a report by the Wall Street Journal believes that this success was not the result of the abundance of natural resources or the expansion of the internal market alone, but rather was the result of a system of constitutional institutions established by the Founding Fathers, which was based on the separation of powers, the protection of private property, the independence of the judiciary, and the restriction of executive authority. The report warns that the erosion of these principles may threaten one of the most important sources of American economic power in the future.

The report believes that democratic institutions were not just a political framework, but rather formed a basis for the growth of entrepreneurship, investment and innovation, by providing an environment that gives individuals and companies a great deal of legal certainty and confidence in the stability of economic rules, which has made the United States, over many decades, a preferred destination for capital and entrepreneurs.

Institutions before the economy

The report traces the roots of this growth to the ideas on which the American state was founded. After independence, the Declaration of Independence did not specify the form of the economy. Rather, economic rules came later through the Constitution, which established a balanced system for distributing powers between the presidency, Congress, and the courts, in addition to distributing powers between the federal government and the states, which provided broad guarantees for the protection of individual rights, contracts, and private property.

The Wall Street Journal indicates that these guarantees have strengthened investors’ confidence in the stability of the economic system over generations, which some economists describe as a “commitment mechanism” that prevents governments from reneging on their pledges or suddenly changing the rules of the game.

Early practices of state leaders also contributed to consolidating this confidence, such as George Washington voluntarily relinquishing power after two terms, and Alexander Hamilton laying the foundations for the creditworthiness of the federal government, in addition to judicial rulings that established the sanctity of contracts and the independence of the judiciary.

Although these institutions were not comprehensive for all Americans at their beginning, in light of the continuation of slavery and the deprivation of women and blacks from many rights, they provided, according to the report, an environment that helped economic activity flourish, benefiting from the widespread immigration, the expansion of lands, and the spirit of initiative that characterized American society during the nineteenth century.

By the end of that century, the American economy had surpassed its British counterpart to become the largest in the world, driven by industrialization, innovation, and expanding markets, a transformation that strengthened the United States’ economic position for decades to come.

Does the American advantage remain?

The report confirms that the success of American institutions is directly reflected in the economy’s ability to innovate. From the Industrial Revolution to the Internet and artificial intelligence, the United States has maintained its position as a major center for technology and entrepreneurship, benefiting from deep capital markets, leading universities, intellectual property rights protection, and a legal environment that encourages long-term investment.

This position is evident in the fact that American companies hold the largest share of the global market value, and in the continued dominance of the dollar as the main reserve currency, in addition to US Treasury bonds enjoying the status of a safe haven in the global financial markets.

But the Wall Street Journal believes that this preference is no longer a given, in light of the escalating political division, the widening of the fiscal deficit, and the increasing use of economic policies to achieve short-term political goals, which are developments that may weaken investor confidence if they affect the independence of institutions or the predictability of public policies.

The report notes that the United States has faced major crises throughout its history, from the Civil War to the Great Depression and the global financial crisis, but the strength of its institutions helped it each time to restore growth and contain the economic repercussions, which strengthened the confidence of local and international investors alike.

He also points out that global competition has become more complex with the rise of China and the acceleration of technological transformations, which makes maintaining American economic superiority dependent on the continuation of the institutional environment that has supported innovation for decades, and not just the size of the economy or government spending.

The report concludes that the American economy did not become the largest in the world thanks to natural wealth or military power alone, but rather as a result of a system of institutions that provided legal stability, protected private property, and encouraged investment, competition, and innovation.

As the United States prepares to enter the second quarter of the millennium in its history, the biggest challenge is not building new institutions, but rather maintaining the strength of existing institutions and their ability to adapt to economic and geopolitical changes, as it is one of the most important assets that have shaped the country’s economic standing over 250 years.