Jeffrey D. Sachs, professor at Columbia University, has a lengthy review of Acemoglu and Robinson’s Why Nations Fail in FOREIGN AFFAIRS. Glenn and I spent a lot of time thinking about WNF during our early brainstorms. In short, we agree with the “mono-causal” explanation of growth based on institutions, as Sachs puts it. To be sure, other factors matter, but the issue is whether they matter in this era like they once did. Has the growth function changed? We think so. But enough about us — I’ll share some of our disagreements with WNF in the weeks ahead. For now, here is Sachs:
This tale sounds good, but it is simplistic. Although domestic politics can encourage or impede economic growth, so can many other factors, such as geopolitics, technological discoveries, and natural resources, to name a few. In their single-minded quest to prove that political institutions are the prime driver or inhibitor of growth, Acemoglu and Robinson systematically ignore these other causes. Their theory mischaracterizes the relationship among politics, technological innovation, and growth. But what is most problematic is that it does not accurately explain why certain countries have experienced growth while others have not and cannot reliably predict which economies will expand and which will stagnate in the future. (QUESTION FROM KANE – DIDN’T WNF EMPHASIZE THAT NATURAL RESOURCES ARE NOT RELEVANT IN A GLOBAL ECONOMY, AND USE THE EXAMPLE OF BORDER TOWNS DEFINITIVELY?)
… The authors also conflate the incentives for technological innovation and those for technological diffusion. The distinction matters because the diffusion of inventions contributes more to the economic progress of laggard states than does the act of invention itself. And authoritarian rulers often successfully promote the inflow of superior foreign technologies. A society without civil, political, and property rights may indeed find it difficult to encourage innovation outside the military sector, but it often has a relatively easy time adopting technologies that have already been developed elsewhere. Think of cell phones. Invented in the United States, they have rapidly spread around the world, to democracies and nondemocracies alike. They have even penetrated Somalia, a country that has no national government or law to speak of but does have a highly competitive cell-phone sector. (KANE – REALLY GOOD POINT)
… South Korea’s style of growth is far more typical than Acemoglu and Robinson acknowledge. Indeed, the pattern is so familiar that it has been given a name: “the East Asian developmental state model,” or, more generally, “state capitalism.” China, Singapore, Taiwan, and Vietnam all began with extractive political institutions and ended up with more inclusive economic institutions. In every case, economic development either preceded political reform or has so far not led to it. Whereas South Korea and Taiwan became democracies after the economic reforms of their authoritarian rulers, China and Vietnam have not yet democratized, and Singapore is semidemocratic. These outcomes contradict Acemoglu and Robinson’s theory that inclusive political institutions pave the way for growth and that without such institutions, economies will inevitably sputter out.
… By the early nineteenth century, the technologies that were first developed in Great Britain began to spread globally. The pattern of diffusion was determined by a complex combination of politics, history, and geography. In Europe, technology generally moved eastward and southward to the rest of Europe and northward to Scandinavia. Even authoritarian governments in Europe did not stand in the way for long, since fierce interstate competition meant that each country sought to keep up with its rivals. Reforms were rife, and where they were delayed, laggards often succumbed to military defeat at the hands of more industrialized foes. The need for state survival drove many elites to open their institutions to industrialization. (KANE — STRIKING A BLOW FOR FEDERALISM!)