Wealth of nations - seems related to Dan Baron's views?
March 13, 2012
Why Some Countries Go Bust
By ADAM DAVIDSON
By his own admission, Daron Acemoglu is a slightly pudgy and fairly
nerdy guy with an unpronounceable last name. But when I mentioned that
I was interviewing him to two econ buffs, they each gasped and said,
“I love Daron Acemoglu,” as if I were talking about Keith Richards.
The Turkish M.I.T. professor — who, right now, is about as hot as
economists get — acquired his renown for serious advances in answering
the single most important question in his profession, the same one
that compelled Adam Smith to write “The Wealth of Nations”: why are
some countries rich while others are poor?
Over the centuries, proposed answers have varied greatly. Smith
declared that the difference between wealth and poverty resulted from
the relative freedom of the markets; Thomas Malthus said poverty comes
from overpopulation; and John Maynard Keynes claimed it was a
byproduct of a lack of technocrats. (Of course, everyone knows that
politicians love listening to wonky bureaucrats!) Jeffrey Sachs, one
of the world’s most famous economists, asserts that poor soil, lack of
navigable rivers and tropical diseases are, in part, to blame. Others
point to culture, geography, climate, colonization and military might.
The list goes on.
But through a series of legendary — and somewhat controversial —
academic papers published over the past decade, Acemoglu has
persuasively challenged many of the previous theories. (If poverty
were primarily the result of geography, say, or an unfortunate
history, how can we account for the successes of Botswana, Costa Rica
or Thailand?) Now, in their new book, “Why Nations Fail,” Acemoglu and
his collaborator, James Robinson, argue that the wealth of a country
is most closely correlated with the degree to which the average person
shares in the overall growth of its economy. It’s an idea that was
first raised by Smith but was then largely ignored for centuries as
economics became focused on theoretical models of ideal economies
rather than the not-at-all-ideal problems of real nations.
Consider Acemoglu’s idea from the perspective of a poor farmer. In
parts of modern sub-Saharan Africa, as was true in medieval Europe or
the antebellum South, the people who work the fields lack any
incentive to improve their yield because any surplus is taken by the
wealthy elite. This mind-set changes only when farmers are given
strong property rights and discover that they can profit from extra
production. In 1978, China began allowing farmers to benefit from any
surplus they produced. The decision, most economists agree, helped
spark the country’s astounding growth.
According to Acemoglu’s thesis, when a nation’s institutions prevent
the poor from profiting from their work, no amount of disease
eradication, good economic advice or foreign aid seems to help. I
observed this firsthand when I visited a group of Haitian mango
farmers a few years ago. Each farmer had no more than one or two mango
trees, even though their land lay along a river that could irrigate
their fields and support hundreds of trees. So why didn’t they install
irrigation pipes? Were they ignorant, indifferent? In fact, they were
quite savvy and lived in a region teeming with well-intended foreign-
aid programs. But these farmers also knew that nobody in their village
had clear title to the land they farmed. If they suddenly grew a few
hundred mango trees, it was likely that a well-connected member of the
elite would show up and claim their land and its spoils. What was the
point?
I encountered another side of Acemoglu’s thesis during what must have
been one of history’s great natural economic experiments: post-Saddam
Hussein Baghdad. On April 9, 2003, the day the city was captured, one
of the world’s most tightly controlled economies suddenly became a
free-for-all. Amid the chaos, many former state functionaries turned
into entrepreneurs. Nearly every engineer from the ministry of
housing, it seemed, had opened his own construction company. Satellite
TVs, once illegal to all but a very small elite, were sold on every
major street. Under Hussein, only one company (widely rumored to be
monitored by the intelligence service) offered Internet access, and it
was incredibly bad and expensive. After it was gone, there were so
many new Internet companies that I had far more access options then
than I do today in Brooklyn.
Yet the American authorities, who had not planned for this budding
free market, all but destroyed it when they gave the bulk of new
contracts to large companies outside the country. Often, these
outsiders subcontracted to Iraqi firms with close ties to the state’s
new political establishment. By the anniversary of the United States
invasion, it was clear that economic success would again come from
connections and corruption rather than talent and hard work. Today,
Transparency International ranks Iraq as one of the most corrupt
nations on earth. An Iraqi friend once told me that he had hoped we
would teach the Iraqis how to be Americans. Instead, the Americans
learned how to be Iraqi.
Acemoglu, Robinson and their collaborators did not come up with the
idea that incentives matter, of course, nor the notion that politics
play a role in economic development. Their great contribution has been
a series of clever historical studies that persuasively argue that the
cheesiest of slogans is actually correct: the true value of a nation
is its people. If national institutions give even their poorest and
least educated citizens some shot at improving their own lives —
through property rights, a reliable judicial system or access to
markets — those citizens will do what it takes to make themselves and
their country richer. This suggests, among other things, that instead
of supporting one-off programs promoting health or agricultural
productivity, the international community should focus its aid efforts
on deep political and economic change.
Perhaps just as interesting, “Why Nations Fail” also shows the effects
of different economic and political systems over the centuries. The
sections on ancient Rome and medieval Venice are particularly
compelling, because they show how fairly open and prosperous societies
can revert to closed and impoverished autocracies. It’s hard to read
these sections without thinking about the present-day United States,
where economic inequality has grown substantially over the past few
decades. Is the 1 percent emerging as a wealth-stripping, poverty-
inducing elite?
Well, maybe. Acemoglu and Robinson’s frequent collaborator Simon
Johnson, the former chief economist at the International Monetary
Fund, told me that financial firms have so thoroughly co-opted the
political proc*ess that the American economy has become fundamentally
unsound. “It’s bad and getting worse,” he told me. Barring some major
shift in our political system, he suggested, the United States could
be on its way to serious economic failure.
Charles Calomiris, an economist at Columbia University, is less
worried. But it’s not because he thinks that banks haven’t co-opted
our political system. “We’ve never had a good banking system,” he
says. “What’s amazing about America is that we’ve been the most
successful economy in the world while being crippled by political
constraints on the quality of our banking system.” This has been going
on since the 1700s, Calomiris says, and he doesn’t see any reason for
the United States’ economy to stop growing anytime soon.
Acemoglu and Robinson are on the pessimistic side of optimism about
the United States’ chances of a resurgence. Congress, they told me, is
too heavily influenced by the wealthy, and the advent of super PACs
has only given elites more power. Yet Acemoglu surprised me when he
said he was encouraged by the rise of the Tea Party and Occupy Wall
Street. While neither has an especially coherent or subtle economic
agenda, both show that, however frustrated they might be, large
numbers of Americans still believe they can influence the political
process to improve their fortunes. Since the future of American
economic health lies in its people, Acemoglu explained, as long as
Americans believe they can influence the process, they will.
But, he quickly pointed out, what if Americans find their protests
have no impact? What if the United States becomes a truly extractive
nation, with violent repression of protest or — in some ways, worse —
the grudging acquiescence of the beaten-down masses? While many
Americans are frustrated by the divisive, often angry public debates
over our economic future, we may only be in real trouble at the very
moment that they shut up.
Adam Davidson is the co-founder of NPR's Planet Money, a podcast,
blog, and radio series heard on “Morning Edition,” “All Things
Considered” and “This American Life.”
http://www.nytimes.com/2012/03/18/ma...s-go-bust.html
