Tuesday, July 15, 2014

Acemoglu and Robinson, 2012, Why Nations Fail: The origins of power, prosperity, and poverty (political economy)

Acemoglu and Robinson are an effective team of economic historians based at MIT with a good appreciation of political, economic and social interactions. Their previous book, 2006, The Economic Origins of Dictatorship and Democracy, (title from Barrington Moore’s classic, Social Origins of Dictatorship and Democracy) was a re-examination of the interactions of institutions of oppression and the emergence of democracy, and argued that it was all in the incentive structure.  1688 and the Glorious Revolution figured heavily in their analysis, as it did for Barrington Moore. In this book, they have relabeled their central premise, lost the footnotes, shifted the dependent variable to prosperity rather than form of government, but the argument is essentially the same.  Extractive economic and political institutions are mutually reinforcing, and so are the (much rarer) inclusive institutions that include democracy and market economies. In addition to being less systematically sourced (the bibliographic essay is useful, but harder to follow), the book bounces around a lot, giving it the feel of a HAT-WAP-LUFN (have a thought, write a paper, look up a few footnotes - something most grad students have done).  Inclusive and extractive institutions are not well defined or operationalized - too much precision might get in the way of a good argument, well presented. They are convincing in their demolition of geography, culture, and ignorance as explanatory variables.  They leave modernization and aid to the end, but dismiss this argument effectively too, though without mention of Dambiso Moyo, who uses similar arguments. 

Why do inclusive institutions work?  The implicit argument, reinforced by many historic examples, seems to be that people work or invest if they can keep the product of their risk and labour. So the fundamental mechanism is human motivation. But expropriation of value isn’t always purely extractive; clearly there is good and bad taxation, and Acemoglu and Robinson aren’t good at distinguishing between the inclusiveness that creates incentives while engaging in public investment and redistribution and the greed that kills opportunity. They draw no distinction between the Russian Revolution and Mobuto’s kleptocracy, although the former clearly reinvested more than the latter.  The inclusiveness and creative destruction of the industrial revolution in England and America also generated the extractive institutions of exploitative colonialism in the periphery (see Wallerstein). And how is that form of extractive institution different from the wealth that dominates American politics today? (See Michael Ignatieff’s review in NYRB, July, 2014)  I was hoping for a final chapter on the rise of extractive capitalism and government captive to wealth in the US, but no such luck from MIT. 

To explain why some states evolve extractive institutions and others don’t, Acemoglu and Robinson resort to the contingent path of history and the influence of small differences, which sounds a bit like AJP Taylor’s description of history as “one damned thing after another”.  It’s certainly not as satisfying as their clear declaration of interest-based institutional development in their previous book, economic origins. They admit that it’s not much help with prediction. 

One final disappointment, that has begun to strike me repeatedly in economists’ work.  They do not question the assumption that all growth is good, and creative destruction (mentioned often) is always a good thing. Is it? If the rapacious growth of the 19th Century set up the extractive regimes of colonialism, who’s to say that the growth in power of the 20th Century corporations forged in creative destruction aren’t already the new extractive masters of a decaying western world verging on environmental disaster?  

See also the recent blog post by Acemoglu and Robinson, “Democracy, What is it good for?”

David Last, June 3, 2014

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