When eminent economists assert that the drivers of
development have their roots in politics and that history matters a great deal
in the process, it can come as a jolt to many modern policy makers and
ideologues. This is particularly true of those who consider economic problems
to be quasi technical issues solvable a with healthy dose of unregulated
markets and free trade and capital flows. The hard science of economics does
not -- in this view -- need any support from the conditional, qualified and
often muddled propositions of the ‘soft’ disciplines.
Reading Acemoglu and Robinson is both exhilarating and
educational, as they carefully and with a wealth of examples ranging from ancient
Rome, medieval Japan and Europe to colonial America, take apart the traditional
explanations of poverty and inequality and offer a powerfully convincing alternative.
The authors classify extant explanations of poverty
and inequality into three broad groups:-
Geography: climate and related disease vectors and poor
soil productivity
Culture and religion: other-worldliness if not
downright indolence
Sheer ignorance: policy makers unaware of existing
straightforward technical solutions
They then proceed to establish the inadequacy of these
explanations in the real world.
The authors begin in a slightly dramatic fashion by
looking at two identically named towns located close together, but on opposite
sides of the US -Mexican border.
“The city of Nogales is cut in half by a fence……look
north and you will see Nogales Arizona, USA. Life south of the fence, (in
Nogales Sonora, Mexico) just a few feet away, is rather different."
The towns share
a common climate and the population has common racial-cultural roots, but one
is a developed and prosperous township while the other is far from being so. The
difference, the authors contend, lies in the institutions governing the
political and economic life of the two towns. A more convincing example is that
of the two Koreas—widely different development performance, but identical
geographical and racial/cultural characteristics.
Historical contingencies, the authors contend,
determine the evolution of political institutions in a society -- the manner in
which power is distributed across the population and the constraints, if any,
that regulate the exercise of political power. Political institutions in turn
condition and support economic institutions -- the rules governing property,
contracts and exchange -- the provision of public goods and also other critical
institutions like those for dispensing justice and ensuring security and law
and order. Institutions together determine economic growth and the distribution
of income and wealth -- in effect, the development outcomes for the society.
Societies where inclusive institutions evolve, experience prosperity. Such institutions are characterized by pluralistic
distribution of power, effective constraints on its use, secure property rights
and the enforcement of economic and other contracts , effective centralized states that ensure
availability of public goods, security and law and order.
The critical questions however is, why such
institutions evolve in some societies and not in others. Here the authors
emphasize the role of critical junctures in history. The Black Death in 14th century Europe created
conditions -- a drastic reduction in the labour force, primarily -- that pushed
western Europe towards the gradual elimination of serfdom, but had quite the
opposite effect in eastern Europe where ground conditions were different. In
the authors words, “The outcome of events during critical junctures are shaped
by the weight of history. The outcome, however, is not historically
predetermined but contingent.” In effect, history matters! And the accidents of
history matter!
More significantly for most of the world, the
widespread European colonization of the Americas and much of Asia and Africa
conditioned the nature of institutions that evolved in the colonized
territories.
The authors go into great and fascinating detail about
the colonization of the Americas. The story of Spanish and Portuguese
colonization of South America is very different from the British efforts in
North America and the different conditions that the colonizers found in the
areas they reached, created different outcomes over time. South America saw the
establishment of brutally extractive institutions and, because institutions tend
to persist, iniquitous extractive institutions have been the norm South of the
Rio Grande. Extractive institutions result in the failure of nations and the
colonial legacy of South America is visible in the relative failure of both
democracy and development in that region. North of the great river however,
conditions were very different and all the initial efforts of feudal vested
interests to establish a clone of feudal Britain failed.
The colonial
experience of Africa and the consequences thereof for post-colonial Africa, is
another interesting area the authors examine.
The story and accompanying analysis of how a critical
juncture –colonialism -- created different trajectories of political, social
and economic development in different environments is a fascinating one and for
those of us without much exposure to world history, hugely educative.
The basic thesis, that extractive institutions do not
enable sustained growth and that inclusive institutions are a necessary
condition for development can perhaps be questioned on issues of definition. What
is an ideal inclusive society and what an extractive one? Can there not be
shades of grey here, and how will that impinge on growth paradigms?
Regardless of academic quibbles, the book is a long,
but extremely interesting and informative read. The effort is well worth the
reward.
Happy reading.
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