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Saturday, March 10, 2012

Paul Collier on Why Nations Fail

Paul Collier reviews Acemoglu and Robinson's Why Nations Fail:

Why Nations Fail by Daron Acemoglu and James Robinson – review, by Paul Collier The Observer: As the turbulence of global economic crisis starts to recede,... fundamental features of the world economy in our times re-emerge. One is the gap between rich and poor countries...: the same people can live in abject poverty in one country, yet be prosperous once they move to another...: why does a border make such a difference? ...
Scholars have struggled for decades to find a convincing answer. ... In the 1960s, the dominant explanation was that poor countries lacked capital; by the 1980s, it was that they had poor economic policies.
The last decade has appeared to offer a new and potent clue: the ascent of China ... is an economic phenomenon without precedent... It has lifted millions out of penury... The beacon offered by China has been widely interpreted, especially by African elites, as demonstrating the benefits of autocracy.
For anyone remotely interested in these issues Why Nations Fail is a must-read. ... Far from seeing China as the clue to spreading prosperity,... China is not, on their analysis, on course for our own level of prosperity.
Their argument is that the modern level of prosperity rests upon political foundations. Proximately, prosperity is generated by investment and innovation, but these are acts of faith: investors and innovators must have credible reasons to think that, if successful, they will not be plundered by the powerful.
For the polity to provide such reassurance, two conditions have to hold: power has to be centralised and the institutions of power have to be inclusive. Without centralised power, there is disorder, which is anathema to investment.
China most certainly ticks this box – it has centralised power and order in spades. Some African societies don't; localised power usurps the authority of the state. But China resoundingly fails to tick the box of inclusive institutions. ... Their argument is that order without inclusive institutions ... will not permit the full ascent to modern prosperity. Their explanation is that if the institutions of power enable the elite to serve its own interest – a structure they term "extractive institutions" – the interests of the elite come to collide with, and prevail over, those of the mass of the population.
So, if inclusive institutions are necessary, how do they come about? Again, Acemoglu and Robinson are radical. They argue that there is no natural process... Rather, it is only in the interest of the elite to cede power to inclusive institutions if confronted by something even worse, namely the prospect of revolution. The foundations of prosperity are political struggle against privilege. ...

Which leads me to wonder how inclusive our political institutions really are.

    Posted by on Saturday, March 10, 2012 at 06:50 PM in Development, Economics | Permalink  Comments (38)

          


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