According to the
economist Daron Acemoglu and the political scientist James Robinson, economic
development hinges on a single factor: a country's political institutions. More
specifically, as they explain in their new book, Why
Nations Fail, it depends on the existence of "inclusive"
political institutions, defined as pluralistic systems that protect individual
rights. These, in turn, give rise to inclusive economic institutions, which
secure private property and encourage entrepreneurship. The long-term result is
higher incomes and improved human welfare.
What Acemoglu and Robinson call "extractive"
political institutions, in contrast, place power in the hands of a few and
beget extractive economic institutions, which feature unfair regulations and
high barriers to entry into markets. Designed to enrich a small elite, these
institutions inhibit economic progress for everyone else. The broad hypothesis
of Why Nations Fail is that governments that protect
property rights and represent their people preside over economic development,
whereas those that do not suffer from economies that stagnate or decline.
Although "most social scientists shun monocausal, simple, and broadly
applicable theories," Acemoglu and Robinson write, they themselves have
chosen just such a "simple theory and used it to explain the main contours
of economic and political development around the world since the Neolithic
Revolution."
Their causal logic runs something like this: economic
development depends on new inventions (such as the steam engine, which helped
kick-start the Industrial Revolution), and inventions need to be researched,
developed, and widely distributed. Those activities happen only when inventors
can expect to reap the economic benefits of their work. The profit motive also
drives diffusion, as companies compete to spread the benefit of an invention to
a wider population. The biggest obstacle to this process is vested interests,
such as despotic rulers, who fear that a prosperous middle class could
undermine their power, or owners of existing technologies, who want to stay in
business. Often, these two groups belong to the same clique.
The authors' story is soothing. Western readers will
no doubt take comfort in the idea that democracy and prosperity go hand in hand
and that authoritarian countries are bound to either democratize or run out of
economic steam. Indeed, Acemoglu and Robinson predict that China will go the
way of the Soviet Union: exhausting its current economic success before
transforming into a politically inclusive state.
This tale sounds good, but it is simplistic. Although
domestic politics can encourage or impede economic growth, so can many other
factors, such as geopolitics, technological discoveries, and natural resources,
to name a few. In their single-minded quest to prove that political
institutions are the prime driver or inhibitor of growth, Acemoglu and Robinson
systematically ignore these other causes. Their theory mischaracterizes the
relationship among politics, technological innovation, and growth. But what is
most problematic is that it does not accurately explain why certain countries
have experienced growth while others have not and cannot reliably predict which
economies will expand and which will stagnate in the future.
DIAGNOSING
DEVELOPMENT
Acemoglu and Robinson's simple narrative contains a
number of conceptual shortcomings. For one, the authors incorrectly assume that
author-itarian elites are necessarily hostile to economic progress. In fact,
dictators have sometimes acted as agents of deep economic reforms, often
because international threats forced their hands. After Napoleon defeated
Prussia in 1806 at the Battle of Jena, Prussia's authoritarian rulers embarked
on administrative and economic reforms in an effort to strengthen the state. The
same impulse drove reforms by the leaders behind Japan's Meiji Restoration in
the late nineteenth century, South Korea's industrialization in the 1960s, and
China's industrialization in the 1980s. In each case, foreign dangers and the
quest for national opulence overshadowed the leaders' concerns about economic
liberalization. In their discussion of the incentives facing elites, Acemoglu
and Robinson ignore the fact that those elites' political survival often
depends as much on external as internal circumstances, leading many struggling
states to adopt the institutions and technologies of the leading states in a
quest to close economic gaps that endanger the state and society.
The authors also conflate the incentives for
technological innovation and those for technological diffusion. The distinction
matters because the diffusion of inventions contributes more to the economic
progress of laggard states than does the act of invention itself. And
authoritarian rulers often successfully promote the inflow of superior foreign
technologies. A society without civil, political, and property rights may
indeed find it difficult to encourage innovation outside the military sector,
but it often has a relatively easy time adopting technologies that have already
been developed elsewhere. Think of cell phones. Invented in the United States,
they have rapidly spread around the world, to democracies and nondemocracies
alike. They have even penetrated Somalia, a country that has no national
government or law to speak of but does have a highly competitive cell-phone
sector.
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