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.

There is no way around the basics: Development will take time

I just read Chris Blattman’s response to the UK Prime Minister’s op-ed in the Journal. It reminded me of a lot of the things that I have been reading lately in preparation for my fieldwork (My dissertation will tackle the subject of legislative (under)development in Africa, with a focus on the Kenyan and Zambian legislatures).

Cameron’s sentiments in the op-ed are emblematic of the problems of development assistance. Like in all kinds of foreign intervention, developed states often try to externalize their institutions (and more generally, ways of doing things). These attempts often ignore the lived realities of the countries being assisted.

Forgetting the history of his own country (think autocratic monarchs, monopolies, limited suffrage), Cameron thinks that democracy, human rights and free markets (all great things) will magically create jobs in the developing states of the world. They don’t. In fact, they often lag the job creation process. For development assistance to be effective it must eschew these feel-good approaches to the problem of underdevelopment.

Blattman is spot on on a number of points:

  1. Unchecked leaders are bad for economic development (this is why I am so much into PARLIAMENTS!!!): Also, democracy is NOT synonymous with limited government. Heads of state like Queen Victoria or Hu Jintao or Bismarck or even Seretse Khama were in no measure democrats. However, they reined under systems with strong (sometimes extra-constitutional) checks to their power. That made a difference.
  2. Institutions rule, yes, but the right kinds of institutions: 1688 moments do not drop out of the sky. They are often preceded by decades if not centuries of civil strife, economic change and plain old learning. Institutional development takes time. Plus each society requires its own unique and appropriate mix of institutional arrangements to meet unique economic and social needs. A procrustean approach to institutional development (embodied in global capacity building) will inevitably fail. Institutional development must never be allowed to be captured by those who think that we can transform Chad simply by having them adopt Swedish institutions.
  3. Growth will require creation of jobs, i.e. industrial development: The poor countries of the world need real jobs for high school-leavers and other less educated people. The present focus on the “sexy” entrepreneural sectors – whether they are small businesses for the poor or tech hubs for the very highly educated – as the engines for growth in the developing world is misguided. I reiterate, starting a business is a very risky venture that should be left to the wealthy and the occasional dare devil. The poor in the global south need stable 9-5 jobs. Lots of them.

And lastly, where do strong institutions come from? There is no easy answer to this question. What we know is:

  1. History matters: Present countries with a long history of stateness have a better track record of building strong institutions for development. Yes, they may not always be democratic, but countries with a long history of centralized rule have strong states (and institutions) that deliver for their people (for more on this see Englebert and Gennaioli and Rainer).
  2. Democracy does not always create strong institutions: Since 1945 many have chosen to forget the fact that universal suffrage is a pretty recent phenomenon in the political history of the world. For the longest time world polities were ruled by power barons who held de facto power (as opposed to the procedural de jure power in democracies). When democracy came along after the Enlightenment the resulting structures of rule often reflected these de facto configurations of power. Over time institutions in these countries were cemented enough to allow for complete outsiders like say the current president of the United States to be elected without upsetting the balance of power (in another era he would have had to have mounted a coup). This is the challenge of the democratization in the new post-WWII states. How do you make democracy serve the interests of the people, rather that purely that of the elite? How do you use democracy to create strong institutions? Is this even possible? And if not, what other options do we have?

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.’’

Protestant ethic and the spirit of democracy?

This article explores Protestantism’s inadvertent, historic role in dispersing elite power and spurring democracy. Economic and political elites typically hoard resources and perpetuate class distinction. Conversionary Protestants undermined this social reproduction because they wanted everyone to read the Bible in their own language, decide individually what to believe, and create religious organizations outside state control. Thus, they consistently initiated mass education, mass printing and civil society and spurred competitors to copy. Resultant power dispersion altered elite incentives and increased the probability of stable democratic transitions.

I test my historical arguments statistically via the spread of Protestant and Catholic missionaries. Protestant missions account for about half the variation in non-European democracy and remove the influence of variables that dominate current research. These findings challenge scholars to reformulate theories about cultural vs. structure, and about the rise of democracy.

That is Woodberry of UT Austin in a rather provocative paper that will soon hit the printing press. The paper is a reminder of how much we still don’t know about the mechanisms that produce democracy and limited government – and by extension general institutional development.

You can find a copy here.

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.

textual presence

Google has digitized more than 5 million books in a project that also enables users to track changes in scholarly attention to particular topics. I did a few searches and came up with these results. They obviously do not mean much and are only useful in knowing what scholars paid more attention to at any given time.

There was a time when Africa was cooler than Asia

 

 

 

 

 

 

Positive trends: investment outbids aid

 

 

 

 

 

 

institutions beat democracy?

 

debating africa’s growth prospects

The Economist has an interesting debate going on about Africa’s growth prospects. The consensus appears to be that structural factors – such as institutions, culture, colonial history and what not – are the main culprits in the tragic tale of African underdevelopment. I agree. Bad governance, the historical accident of colonialism which halted the natural processes of state formation, among other things such as historical low population densities and a culture that mystifies most things are what continue to deter African nations from realizing their full potential.

Gilles Saint-Paul argues that:

most African countries are trapped at a “low-trust” equilibrium where basic property rights are not enforced and corruption is rampant. Essentially if I do not expect others to fulfil their side of the contract, it is rational for me not to fulfill mine, and transactions eventually disappear

One of my favorite economists, Daron Acemoglu, adds that:

The economic problems of African nations are a consequence of their postcolonial institutions, which are themselves the continuation of the precolonial institutions.

But Lant Pritchett is quick to remind us of the folly of lumping all the sub-Saharan African countries together, pointing out the stark differences between places like Botswana and Somalia or Cote d’Ivoire and Mozambique.

More here.