INSTITUTIONS EVOLVE TO REDUCE TRANSACTION COSTS. Good Jane Galt post on developing economies this morning. Sample: "The reason I'm interested is that there's no evidence that natural resources are the key to national success; if anything, the evidence runs the other way. Most of the Asian success stories, for example, have little in the way of natural resources, and not much open space either. Nor does Europe compare with, say, Africa for mineral wealth. With a few exceptions, such as warm-water ports, the countries whose economies are dependant on their geographical or geological features are the basket cases of the world." The institutions matter. And developing the institutions doesn't happen overnight. For instance, the reality that the United States went into business with a relatively limited franchise could well be a feature, not a flaw. More recommended reading here.