Tag Archives: daron acemoglu

Most read posts in 2014

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Here are the top posts in 2014

1. Corruption under apartheid South Africa: This post was top partly because of the 2014 South African elections. More on the legacies of apartheid era corruption and rent-seeking in South Africa here.

2. Kenya Security Laws (Amendment) Bill 2014: This bill (now an Act of Parliament) is further evidence of Uhuru Kenyatta’s autocratic tendencies. I personally don’t think that he is an incarnation of Moi or other dictators of years gone. Rather, Mr. Kenyatta is a poor administrator who likes taking shortcuts to get quick results. As I argued in a related post, the Security Laws (Amendment) Act 2014 could potentially severely limit civil liberties in Kenya.

3. Did European Colonialism Benefit Africans? The popularity of this post is perhaps a reminder that more research is needed on the long-run effects of colonialism not just in Africa but in other formerly colonized places as well. So far all the literature tells us is that colonialism was bad, but that the Western institutions that Europeans spread around the globe are good. More recently we’ve seen evidence that pre-colonial institutions in the colonies were pretty resilient in the face of colonial intrusion; and have had lasting effects (also remember that the duration and intensity of colonialism varied widely across the globe). One avenue of research that I have been exploring is how pre-colonial institutions interacted with colonial administrations, and how this shaped the institutions that emerged out of the independence wave of the early 1960s. More on this in the new year.

4. Why Raila Odinga Lost: A sizable proportion of Kenyans still believe that Odinga was robbed in the March 2013 election in Kenya. I disagree. In my own projections on this blog – merging disaggregated opinion polls with historical district turnout rates (perks of having a case with tight ethnic voting) – I found Mr. Kenyatta to be ahead of Mr. Odinga by about 740,000 votes, or 7.2 percentage points (which was close to the final official figure of 6.7% difference between the two).

I don’t think that Kenyatta won in the first round, but do believe that we would have trounced Odinga in a runoff anyway. Which is why I have never come to terms with the unanimous Supreme Court decision granting Kenyatta victory on the basis of less than 9000 votes out of 12.3 million cast.

5. Understanding Uganda’s Military Adventurism Under Museveni: General President Museveni has managed to create an image of himself as the anti-terror hatchet man in the wider horn of Africa region. Ugandan troops are the backbone of the AU mission in Somalia (AMISOM). Since his triumphant entry into Kampala in 1986 Museveni has also been involved in conflicts in Rwanda, the DRC, Sudan, C.A.R, and more recently South Sudan. Because of the degree of militarization of the Ugandan state and recent public displays of intra-elite friction, I think Uganda will continue to inch up in the coup sweepstakes ahead of the 2016 election.

Let them have “Good Institutions”

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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 institutions, as equilibria, are fickle, and also take forever to emerge. In addition, they tend to depend on all sorts of localized variables (including culture) 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.”

More on direct cash transfers

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As Chris Blattman put it, the Cashonistas are rejoicing. And with very good reason.

There is mounting evidence that giving money directly to poor people does a much better job of improving their welfare than traditional channels of institutional(ized) aid-giving. On a related note, this evidence lends credence to claims by proponents of oil-to-cash programs. Oil to cash enthusiasts advocate for direct payments to citizens of revenues from extractive sectors (and especially oil) so as to avoid what is commonly known as the resource curse (more on oil-to-cash here). I am not one to argue against evidence, so I am intrigued by the success of Give Directly, and look forward to further impact assessments to ascertain the stickiness of the observed welfare gains.

However, I agree with Brett Keller that we shouldn’t allow the present evidence to distract us from thinking about things like schools, hospitals, business-promoting state institutions, etc.

Despite the within-community evidence of positive effects of direct cash transfers, we shouldn’t forget that these communities do not exist in a vacuum but within political economies of various states. For instance, given what we know about ethnicity and attendant barriers against collective action, what would be the effect of giving all the money to the people and then requiring them to comply with tax regimes and other collective action endeavors?

Furthermore, giving poor people money is often based on an implicit premise that the poor ought to become entrepreneurs and lift themselves out of poverty (People respond to incentives, and we know what would happen if say we guaranteed them direct cash transfers in perpetuity. So the scheme only works if poor people can use the money to start businesses). But entrepreneurship is hard. Even for people with trust funds and super-charged business incubation resources. So is it really fair to require that the objectively most risk averse among us lift themselves out of poverty by starting businesses? Isn’t this the role of the middle and upper middle classes who can tolerate the risk? I am not saying that entrepreneurship is limited to particular classes (lots of people from humble backgrounds have created wildly successful businesses the world over). What I am saying is that as a matter of policy we shouldn’t unnecessarily burden the most vulnerable among us.

Also, to borrow from Huntington, we are well advised to keep in mind that even though economic success leads to stabilization, the process of development can be destabilizing. With this in mind, for most development initiatives to succeed, they need political cover (broadly defined as the ability to shape or influence government policy). Interventions to accelerate growth must never lose sight of this fact. Those who make and/or can influence policy matter a great deal.

This might sound very 20th century, but I think that the best anti-poverty measure out there is still mass job creation by BIG business (and agree with Chris Blattman here). It beats all the pro-poverty pro-poor interventions I can think of. So may be instead of raining cash on the poor it might be better to think of smart ways of jumpstarting the growth of SMEs in the developing world into mass employers. This is not a trickle down economics argument. It is an argument for the continued emphasis on macro reforms in the political economy to provide an enabling environment for mass job creation.

We can’t continue to insist that institutions matter but then turn around and do our best to device anti-poverty interventions that skirt the very same institutions that we insist are the fundamental cause of long-run growth.

Direct cash transfers might prove to be a key part of the shortcut to Denmark (and I hope the successes stick). But like with most shortcuts, the potential for disappointment is a little higher than most of us would like to admit.

The decline of Economic History at MIT

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What is the cost of not having economic history at MIT? It can be seen in Acemoglu and Robinson, Why Nations Fail (2012). This is a deservedly successful popular book, making a simple and strong point that the authors made originally at the professional level over a decade before (Acemoglu, Johnson and Robinson, 2001). They assert that countries can be “ruled by a narrow elite that have [sic] organized society for their own benefit at the expense of the vast mass of people” or can have “a revolution that transformed the politics and thus the economics of the nation … to expand their economic opportunities (Acemoglu and Robinson, 2012, pp. 3-4).”

The book is not however good economic history. It is an example of Whig history in which good policies make for progress and bad policies preclude it. Only transitions from bad to good are considered in this colorful but still monotonic story. The clear implication is that if countries can copy the policies of English-speaking countries, they will prosper. No consideration is given to Britain’s economic problems over the past half-century or of Australia’s relative decline for a century.

That is Peter Temin writing about the story of Economic History at MIT in the 20th century. For more click here (H/T Greg Mankiw).

Also, to be honest, one of the reasons I am into development (and the politics around it) is because of my fascination with economic history. I wish more development practitioners and theorists alike cared a little bit more about economic history. At the very least, looking at how things really actually worked out in the past serves to temper the urge to completely fall for the latest fad within the development industry. 

Daron Acemoglu talks State Building

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Last month MIT Economist Daron Acemoglu (co-author of Why Nations Fail) gave the Nemmers lecture at the Northwestern Econ Department (see video here).

In the lecture he defines inclusive institutions as having two components: (i) pluralism and (ii) political centralization.

Now, when most people talk about institutional development they like to focus on the first component. This is the crowd that will tell you that what Rwanda needed after 1994 was electoral democracy and free market institutions and all would be well (Did you know that Mali has elections this July?) But history teaches us that that is not the whole story. There is also the problem of Stateness (aka political centralization), and how it comes about.

Finally Acemoglu and Robinson are addressing what I think is a weakness in their inclusive-institutions-as-the-fundamental-cause-of-long-run-growth argument – the question of the need for political centralization through state building (and the messiness it entails). In the lecture, Acemoglu makes the argument that pluralism can actually lead to state building (or makes it easier) through the creation of “consensually strong states”; and that the process of state building can lead to pluralism due to the centralizing leader’s need to cut deals with local elites. In other words, there is reverse causation between pluralism and stateness.

The takeaway is that inclusive institutions result from the joint development of sustained economic growth and a wider distribution of political power.

This is all good, although I wish Acemoglu and Robinson explored the role of coercion in state-building. My reading of history may be completely out of whack, but when I look back in time I see a lot of conquests and forcible inclusion into states and a lot less “deal making.” Conquests not contrasts appear to be the modal MO of state formation.

More on Obama’s WB President Nomination

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Source: Wikipedia

Nigerian Ngozi Okonjo-Iweala is definitely the dream candidate for the Bank. But the realities of U.S. domestic politics and foreign policy concerns are stacked against her nomination to the presidency of the Bank. It will be hard for the U.S. to selflessly relinquish an important tool of foreign policy and influence in the Bank’s presidency.

If Obama backs down, he will be criticized for being soft in the face of international pressure. If he nominates a non-American, he will still be criticized as an apologist for those who hate America (real or imagined) and a believer in American decline.

Obama’s incentive is to get his nominee become World Bank President. Full stop.

Source: Wikipedia

So far those rooting for Ngozi (including yours truly) have questioned Jim Yong Kim’s credibility (he is/was not a fan of neo-liberalism) and competence (he is not an Economics PhD; but a mere MD, PhD) as World Bank president.

You can get Kim’s co-authored book here (or your local library; $97 is a bit pricey), it is on my to-read list (A review of the book is available here).

Here is quoting a post over at the Duck of Minerva for a more balanced take:

If Dr. Kim criticized the growth agenda of the structural adjustment era, so what? This has all become mainstreamed into the Bank’s own philosophy of pro-poor growth.Does it take a PhD in Economics to run the World Bank successfully? If selected, Dr. Kim would be the leader with the most hands-on development experience that the Bank has ever possessed. He would be as or more experienced in the field as serious contenders that were mooted in advance like Susan Rice, Hillary Clinton, or Pepsico CEO Indra Nooyi (ok, maybe Larry Summers knows more but Summers always know more than anybody). As Daron Acemoglu and Jim Robinson pointed out on their blog [Why Nations Fail]: “Perhaps all of Mr. Kim’s critics prefer the status quo where the World Bank is run by ex-warmongers (Robert McNamara), bankers (James Wolfensohn) or career civil servants (Robert Zoelick). Wait wasn’t that the World Bank that they loved to criticize?”

Adding that:

You don’t have to denigrate Dr. Kim to praise the other candidates. The strongest case is that while Dr. Kim is a good candidate, Dr. Okonjo-Iweala is the dream candidate. She’s from a large developing country, knows the issue well, understands the complex world of global finance, and is intimately familiar with the culture and organization of the Bank. And, for her supporters, the changing nature of the international system has made this practice of the U.S. having the automatic right to appoint the Bank’s president an anachronism.

debating africa’s growth prospects

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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.