Every day, people all across the world make countless transactions, exchanging one good or service for another. What allows us the necessary trust to engage in these interactions not only with our friends and neighbors, but with complete strangers?  Why are certain people in certain countries better able to grow their wealth through simple everyday trade? In America and other developed nations we are able to conduct these transactions without much thought because we have adopted the institutions necessary to promote peaceful cooperation.  Because many countries lack these institutions, it is difficult for much of the world to share in our success, and in some cases bad institutions actively prohibit trust and peaceful cooperation.

In order to ensure that we can cooperate – even with complete strangers – without undue fear, we need to know that there exists a uniform and predictable set of rules to prevent fraud or coercion, and to enforce contractual agreements.  There are particular institutional arrangements that history has proved most conducive to constructing and sustaining these rules.  A government in which powers are dispersed among several bodies, for instance, prevents the rule of law from devolving into the arbitrary rule of single tyrant.  Robust legislative, executive and judiciary branches are able to provide the law and enforcement necessary for open exchange, while each body also checks the others from becoming a threat to the liberty which they were instituted to foster.

In many countries, a lack of clear property rights prevents growth.  In order for individuals to prosper, they must not only feel secure in their dealings with others, but also in their belief that they will still possess tomorrow what they own today.  Governments that make it excessively difficult for the poor to claim legal ownership over their land and property condemn them to an uncertain and often bleak future.  Unable to participate in the legal market, they lose the benefit of trust that these institutions provide.

Even with these institutions, free exchange is often encumbered by bureaucracy and corruption.  When the people lose trust in their institutions, either because they are ineffective or hopelessly corrupt, they are unable to provide the necessary conditions for prosperous exchange.  But when we get it right, by creating institutions to protect the rights of citizens to be secure in their persons and possessions, the power of the poor can be unleashed to transform their future into one of peace and prosperity.

The Power of the Poor airs October 8, 10 PM ET (or check your local listings) on PBS