Why are some countries wealthier than others, despite shared histories and limited resource endowments? This paper examines the economic divergence between Guinea-Bissau and Cabo Verde, two former Portuguese colonies that initially shared colonial administration and political vision through interconnected elites. Both countries were governed by the African Party for the Independence of Guinea-Bissau and Cabo Verde (PAIGC) until their political separation in 1980. Despite its comparatively rich natural resources, Guinea-Bissau remains mired in chronic political instability and underdevelopment. Cabo Verde, despite its geographical constraints and resource scarcity, has achieved remarkable stability and sustained economic development. Drawing on institutional theory and actor-centric approaches, this paper argues that post-independence governance choices and elite behaviour are the decisive factors shaping their divergent trajectories. We highlight, first, the role of institutional quality in determining economic and political outcomes, and second, the centrality of elite agency – through strategies of cooperation, competition and rent-seeking – in driving institutional divergence. Geography and natural resources alone do not determine development outcomes, nor is the colonial legacy deterministic; rather, strategic governance and institutional effectiveness are the key differentiating factors. These findings deepen our understanding of post-colonial development in sub-Saharan Africa and offer actionable insights for policy design in similarly situated small states.

The formal and informal arrangements underpinning constitutional settlements reflect the relationships at the foundations of the economy and the polity. There is mutual embedding of the economy within the intertwined collective objectives characterising the polity, and of the polity within the web of material interdependencies characterising the economy. This mutual embeddedness defines the ‘constitution’ of political economy as the pattern of connectivity reflecting the relationship between the political constitution and the economic constitution. This has deep implications for the dynamics of the economy and the polity, as well as for the character and effectiveness of actions by stakeholders in both spheres.

The liberal order, as first articulated by Hobbes, depends upon an unnatural disembedding of both the economy and the polity from society. The economic and the political are keep apart. While the economy is seen as a private matter, the polity is conceived as a public one. The socially relational and mediating groups are squeezed out. Yet this involves contradiction. Is property primarily a matter of primary seizure or legal underwriting? Either the economic captures the political or vice-versa. A bad corporatism follows. The only alternative is a good corporatism recognising the priority of the social, of groups and their representation.

This article is the introduction to the Special Issue on The Constitution of Political Economy. It provides an overview of six articles which in distinctive yet overlapping ways explore three key issues. First, how the economy and the polity are embedded in society. Second, how interdependence shapes institutional arrangements. Third, how different levels of aggregation determine levels of policy-making, notably the importance of intermediate institutions.

Understanding today’s conflicts and compromises requires addressing the entanglement between material processes and the viewpoints of a variety of collective actors: how they understand themselves and the economy within which they act, what objectives they perceive it affords to them, and what constraints it imposes. The structural approach to economic analysis, which builds on the traditions started by Physiocracy and classical political economy, offers a vantage point to understand material processes. The paper proposes three directions to generalise it, thus making it more suitable to address the entanglement between such processes and the emergence and viewpoints of collective actors.

This paper advances a pre-colonial institutional thesis to explain the variation in the salience of ethnicity in African societies. It posits that pre-colonial political centralization facilitated the accumulation of economic and institutional advantages, positioning descendants of centralized ethnic groups to benefit from these advantages within postcolonial states. Social identity choices are rational; therefore, descendants of centralized ethnic groups, who enjoy greater advantages within the nation, find less incentive to choose their ethnicity over their national identity. Examples from Ethiopia and Ghana as well as the evidence from combining individual-level survey data from the Afrobarometer with historical data on pre-colonial political centralization support the theoretical claim. In particular, the paper presents both theory and evidence indicating that individuals with ancestors from politically centralized pre-colonial societies are less likely to favour their ethnic identity over their national identity . These findings underscore the importance of considering pre-colonial legacies when promoting national unity.

Populist responses to matters of social concern are considered in a framework like that of Acemoglu and Robinson’s ‘narrow corridor’ that supports liberty and justice. We discuss the risk that such responses could result in a country being pushed out of this narrow corridor—and, if so, with what long-run consequences. We conclude that a political system of ‘checks and balances’ can play a key role in keeping the society within the narrow corridor; but it is incumbent on the existing political system to confront the issues of populist concern so as to come up with creative solutions.

Critiques of the meritocracy have centered on its narrow definition and biased assessment of merit, its stigmatization of the unsuccessful, and excessive competition. This paper identifies a different mechanism that could have pernicious social and political consequences. Economic mobility sorts people based on certain ‘productive’ traits, separating them into classes, and thus alters social externalities. This sorting–separation–externalities mechanism can produce between-class polarization in social outcomes (e.g. alcoholism and drug abuse) and worsen aggregate outcomes over all classes, consistent with rising ‘deaths of despair’ in the United States (Case and Deaton, 2020, Deaths of Despair and the Future of Capitalism. Princeton University Press). When traits are endogenous, transition out of a caste-based society produces an initial burst of economic mobility which dissipates over time. Thus, a dynamic meritocratic society devolves into a static class-based society. I set out an alternative model called the ‘experimental society’, which is less susceptible to these problems.