The decline of Economic History at MIT

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. 

institutions, culture and economic development

I am currently taking a class taught by Avner Greif, an economist/economic historian at Stanford in the tradition of New Institutional Economics. The class introduces ideas about economic development from a perspective that does not get much attention from economists, i.e. culture and its impact on long-run institutional development.

In one of the readings Tabellini argues that:

Well functioning legal institutions breed good values, since legal enforcement is particularly relevant between unrelated individuals. …… better informal enforcement sustained by ongoing relations in a closed network may be counterproductive for values.

Thus, the model predicts that clan based societies develop very different value systems compared to modern societies that rely on the abstract rule of law.

That’s in The Scope of Cooperation.

The paper provides a model of the recursive interaction between good institutions and culture. The scope of cooperation and interaction matters for institutional and economic outcomes. Clannishness, whether in Southern Italy or Mogadishu, is bad for economic development.

But you need a functional state system for people to be able to even contemplate abandoning the insurance scheme that is the clan. The model predicts two steady-state equilibria. Institutionally speaking, you are either Botswana or Chad.

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.

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.