Let them have “Good Institutions”

The people in poor countries have the same aspirations as those in rich countries — to have the same chances and opportunities, good health care, clean running water in their homes and high-quality schools for their children. The problem is that their aspirations are blocked today — as the aspirations of black people were in apartheid South Africa — by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them. You could see this in the protests behind the Arab Spring: those in Cairo’s Tahrir Square spoke in one voice about the corruption of the government, its inability to deliver public services and the lack of equality of opportunity. Poverty in Egypt cannot be eradicated with a bit more aid. As the protestors recognised, the economic impediments they faced stemmed from the way political power was exercised and monopolised by a narrow elite.

…… Making institutions more inclusive is about changing the politics of a society to empower the poor — the empowerment of those disenfranchised, excluded and often repressed by those monopolising power. Aid can help. But it needs to be used in such a way as to help civil society mobilise collectively, find a voice and get involved with decision-making. It needs to help manufacture inclusion.

That is Daron Acemoglu and James Robinson writing in The Spectator on Why foreign aid fails – and how to really help Africa.

I am a firm believer in the fact that “institutions rule” and are “the fundamental cause” of long-run economic growth and political stability. That said, I think this latest addition to the “Aid Debate” also detracts from the real issues regarding the efficacy of aid. It also runs the risk of creating the impression that the promotion of good institutions is a substitute for all forms of aid, or worse, that aid has led to the persistence of bad institutions and endemic poverty in poor countries.

How would the Central African Republic look today if it hadn’t received any kind of foreign aid over the years? I, for one, don’t think that it would be a bastion of political stability and stellar economic performance.

Strong and stable institutions are absolutely essential for the achievement of political and economic stability and general improvement of human welfare. And we should definitely preach this gospel for all to hear. But they also take forever to emerge, and depend on all sorts of localized variables that an international institution builder would most certainly miss (also, see here). And in the meantime, we still have to deal with the challenge of making the lives of the poor better (and within their lifetimes, approx. 60 years). Under these conditions, single panaceas (aid-driven or not) will obviously not work, especially if they come in as vague a package as “good and inclusive institutions.”

Did European Colonialism Benefit Africans?

“We find it difficult to bring the available evidence together with plausible counter-factuals to argue that there is any country today in Sub-Saharan Africa which is more developed because it was colonized by Europeans. Quite the contrary.”

That is Leander Heldring and James Robinson writing in a new paper on the negative impact of colonialism on Africa’s economic prospects.

Source: Wikipedia

Source: Wikipedia

Interesting attempt at positive analysis of a difficult subject (esp. with regard to counter-factuals), although normative undertones drive most of the analytical narrative.

The negative legacies of colonialism – despotism, negative ethnicity, aid dependence, and general underdevelopment, etc – certainly do persist.

But for those unwilling to submit to the gods of path dependence, the question remains of how long incompetent African leaders will continue to blame outsiders for their own ineptitude. After half a century of independence, many Africans are wary of being the only ones left in the “bottom billion” once the East and South Asians climb up.

To paraphrase Achebe, the trouble with Africa is simply and squarely a failure of leadership. There is nothing basically wrong with the African character. There is nothing wrong with the African land or climate or water or air or anything else. Even external conquest and subsequent colonialism was not unique to Africa.

H/T Chris Blattman.

Foreign Aid for Institutional Development?

In a speech at the Clinton Global Initiative, U.S. Republican presidential candidate Mitt Romney urged that more of U.S. foreign assistance should have strings attached. Mr. Romney said that:

“Working with the private sector, the program will identify the barriers to investment and trade and entrepreneurialism in developing nations…………. In exchange for removing those barriers and opening their markets to U.S. investment and trade, developing nations will receive U.S. assistance packages focused on developing the institutions of liberty, the rule of law, and property rights.”

Romney also added that:

“The aim of a much larger share of our aid must be the promotion of work and the fostering of free enterprise. Nothing we can do as a nation will change lives and nations more effectively and permanently than sharing the insight that lies at the foundation of America’s own economy — and that is that free people pursuing happiness in their own ways build a strong and prosperous nation.”

I am of the opinion that an approach to foreign assistance embodying the spirit of the latter quote is more likely to succeed than the former.

The thing with institutions is that they often reflect already existing social equilibria. The courts, the police, the military, the legislature, the stock exchange, etc, all reflect established norms and moral claims that individual stakeholders have on the system and on each other. When Westerners foreigners come in (many of whom often have very little understanding of the social basis of the existing equilibria) they often tend to work at cross-purposes with the existing social compacts (a good example here is the phenomenon of mono-issue activism – think of Human Rights Watch fighting the World Bank at the expense of locals).

Granted in some parts of the world these very social compacts need to be changed (e.g. misogynous social systems). But even in such cases the changes have to be grounded in local political arrangements that are self-enforcing. Media pronouncements from Western ambassadors are not enough.

Many development academics and practitioners alike often neglect the fact that in European history (contemporary Western experience informs a lot of institutional proselytizing) political development (i.e. the creation of responsive and impartial bureaucratic institutions to manage the affairs of the state) was preceded by modernization and general economic development. In most of the developing world this relationship is reversed. Political development has become the independent variable charged with driving the process of modernization and economic growth and development.

As a result, the mantra seems to be that if only everyone could get governance right then everything would fall in place and we’d all be on the road to becoming Denmark.

May be this can be achieved. I remain skeptical.

Persistence of Culture (and Institutions)

“How persistent are cultural traits? Using data on anti-Semitism in Germany, we find local continuity over 600 years. Jews were often blamed when the Black Death killed at least a third of Europe’s population during 1348–50. We use plague-era pogroms as an indicator for medieval anti-Semitism. They reliably predict violence against Jews in the 1920s, votes for the Nazi Party, deportations after 1933, attacks on synagogues, and letters to Der Sturmer. We also identify areas where persistence was lower: cities withhigh levels of trade or immigration. Finally, we show that our results are not driven by political extremism or by different attitudes toward violence.”

That is Voigtlander and Voth writing in the Quarterly Journal of Economics.

Their paper speaks to my previous post on the challenges of institutional engineering given the stickiness of institutions (and by extension the cultures that create and then reinforce them). Of course culture is a dicey subject that is often misused to explain economic and social outcomes. Instead of using the amorphous term “culture” I prefer to hear more about the reward systems that make it beneficial for individuals and communities to engage in certain cultural practices.

On a more positive note, the paper provides some evidence of the power of economic opportunities to dis-incentivize engagement in hateful cultural practices:

“Instead of reinforcing persistence, we argue that economic factors had the potential to undermine it…… Our results also lend qualified support to Montesquieu’s famous dictum that trade encourages ‘‘civility.’’

Talk of unintended consequences…

Judging from the NY Times coverage of the 1917 episode, legislators paid little attention to the implications of mandating a ceiling.  They focused instead on Treasury Secretary McAdoo’s request for a higher borrowing limit so as to fund an expensive war effort.  The ceiling was created to empower, not rein in, Treasury (prompting a failed effort to create a congressional  committee to oversee Treasury’s actions).  Similarly, the creation of the aggregate ceiling in 1939 reflected congressional deference to Treasury, granting the department flexibility in refinancing short term notes with longer term bonds.  As the Senate floor debate makes clear, senators viewed the move as removing a partition in the law that hampered Treasury’s ability to manage the debt.

……. This seems to be a case of the often unintended consequences of institutional design.   That is, we can’t always understand why we have a particular institution or practice by looking only at its contemporary usage.  Moreover, institutions crafted in a specific context to solve a particular problem often prove sticky, taking on new significance once politicians discover new ways to exploit them.  The often unintended consequences of institutional design will likely be central to any broader explanation of the evolving politics of the debt limit.

That is Sarah writing on the Monkey Cage blog.

I was struck by this post because I picked up Pierson’s Book – Politics in Time – today and couldn’t put it down. I highly recommend it for those of you out there interested in the temporal dynamics of institutional design and development.

Also, I just discovered this (in Pierson, 2004 p. 41): Stockman Reagan adviser in 1981 said of Social Security refrom that he didn’t want to waste “a lot of political capital on some other guys problem in the year 2010.” He was only one year off.

is kenya at last getting limited government?

On Thursday Speaker of the Kenyan Parliament Kenneth Marende ruled that President Kibaki’s appointments to constitutional offices were unconstitutional. The politics of the decision aside (it is a war between Premier Odinga and others intent on succeeding Mr. Kibaki in 2012) it is a good sign that finally Kenya may have gotten a system of political balance of powers. No single faction appears to be able to do whatever it wants, wapende wasipende.

Scholars like Nobel Laureate Douglas North, Barry Weingast (of my Department), among others, have argued that limited government (in which centres of power balance each other to prevent tyranny) is one of the key ingredients in the quest for long-run Economic growth and political stability.

Kenya appears to be on the threshold of obtaining limited government. It began with President Kibaki’s laid back approach to governing which empowered centres in the political structure outside of the presidency. Raila Odinga, William Ruto, Uhuru Kenyatta, Martha Karua etc are all politicians who have elevated themselves to an almost equal footing, politically speaking, with the president himself.

And the change has not just been about personalities, typical of politics in Africa. Institutions have had a hand in it, too. The Kenyan parliament – which Barkan thinks is the strongest in SSA – with its committee system and relative autonomy from the executive has been at the forefront of checking the powers of the executive in general and the presidency in particular. The new constitution reflects this new equilibrium condition.

The new constitution also empowers the judiciary, previously seen as a rubber stamp institution in the pocket of the president. Although nominations to the institution has gotten off on a rocky start, it appears that the law society of Kenya and the Judicial  Service Commission might be strong enough to (self)regulate judges on the bench, regardless of who appoints them.

I am cautiously optimistic.

kenya: a model of conservative revolution?

An ambitious project is in the works to build a new city from scratch in Kenya, a sign that things are indeed changing in the economic engine of the wider eastern African region. The stock market voted for the new constitution with a bullish run on the eve of the ratification of the document. Investments in property – the property class has outdone most asset classes in the last two years – serve as a sure marker that Kenyans are confident in government’s commitment to protection of property rights. I am one of those who remain optimistic that Kenya is on the verge of take-off. And here is why.

Not long ago the idea of a cabinet minister resigning in Kenya was a pipe dream. Even more improbable was the idea of parliament defying the president. But these days ministers resign and the Kenyan parliament routinely defies State House. More importantly, the august house has continued its march towards independence from the executive – both functionally and financially. By controlling their own budget and calendar and building a functioning committee system, members of The House have acquired enough muscle to expose lapses in the management of public affairs – including the present scandals involving the Kenyan foreign ministry and the Nairobi City Council.

The biggest question, however, is whether the reforms embodied in the new constitution will last. My answer is yes they will, for two reasons. Firstly, the reforms are not as radical as some commentators think they are. The Kenyan establishment still stands to gain the most from the institutional reforms embodied in the new constitution. Land ownership, taxation, regulation of business, among other topics of interest to the elite are still firmly in the hands of the conservative centre and their provincial allies. Secondly, the emerging culture of bargaining, as opposed to Nyayo era “wapende wasipende (like or not) politics,” provides opportunities for amicable settlement of disputes resulting in self-reinforcing deals. No single political grouping can force its will on Kenyans. Mr. Kenyatta needed to only convince the Kiambu mafia for his policies to fly. Moi only needed a small group of collaborators. The new dispensation, however, requires that a significant number of elites, with varied political interests, buy into an idea before it can fly. This is progress. It is stable and sustainable progress.

Kenya’s dark hour in early 2008 was an eye-opener to the political and economic elite. The more than 1300 deaths will forever be a reminder of the evils of strongman rule. The broader legacy of the 2007 election will however be positive. The elections showed the core conservative establishment that they cannot run the country on their own, and that the peripheral elites also have significant de facto political power. By forcing the elite into agreeing to a self-enforcing arrangement, the regrettable events of 2007-08 facilitated elite compromises culminating in their new Kenyan constitution. The yet to be established supreme court will provide the final piece of the foundation needed for sustained institutional development in a predictable environment. Paradoxically, the biggest plus of Kenya’s new constitution is its conservative bent. And for that reason it will endure beyond the current teething phase. A more radical document would have been eviscerated just as the Kenyatta and Mboya amendments decimated Kenya’s independence constitution.