[WS:] The central argument of the path dependence approach is that institutional decisions made at a "crucial historical junction" tend to be reproduced later on, more likely than alternative arrangement, due to the reduction of "transaction costs." A classical application of this approach is the location of industry - when one factory opens at a particular location, other may follow suit because they can advantage of the infrastructure already developed for the first establishment, availability of the skilled labor that the first establishment spurred, etc. Another example would be the decision to develop gasoline automobile in early 20-century - this led to the development of the infrastructure such as gas supply chains, repair garages etc. that make it easier to continue manufacturing gas powered cars than ones that use other form of power (e.g. electric).
Similar arguments were used to explain national economic development to counter "designer capitalism" approach popular in the 1990s. The argument was that wholesale transfer of neoliberal markets to former socialist economies would not work because of "path dependence" on institutional solutions developed under socialism, and an approach that favors slow transformation of the existing institutions instead of 'shock therapy" is more likely to be effective. Needless to say that the 20 years of recent history proved the path dependence approach right and the shock therapy squarely wrong. Another macro-institutional application of this theory is the development of social welfare systems that depend on already existing solutions (e.g. the "pillarized" by religious affiliation educational and social welfare services in the Netherlands that in the 20th century were used to deliver government social welfare services.)
Following this logic, it can be argued that immigrants brought institutional solutions to the colonies, which then became the foundation of the institutional systems of the new world. That may explain why British colonies tended to adopt liberal capitalism of their "mother country". Again, the mechanism at work, according to the path dependence approach, is transaction cost consideration rather than some mystical ideological preferences.
>From a theoretical perspective, path dependence goes against the
'economic rationality' concept popular in neo-classical theory by
placing the notion of rationality in a particular socio-historical
context (for more details see Brian Arthur "Increasing Returns and
Path Dependence in the Economy" 1994, University of Michigan Press,
Ann Arbor.
As to your comment about "vulgar Marxism" - this is not really what I argue. I am basically opposed to economic reductionism in any form - i.e. the tendency of reducing complex social relations to economic relations. I think there is certain tendency in Marxist thought to fall for it. In other words, I find the so-called 'economic theory" to be a form of modern theology or pseudo science if you will - it is used to legitimate the existing power relations rather than to explain anything. In fact it obscures more than it explains.
-- Wojtek http://wsokol.blogspot.com/