Wednesday, March 28, 2012

political institutions determine the wealth of nations

mit | It is among the grandest topics in scholarship: Why do some nations, such as the United States, become wealthy and powerful, while others remain stuck in poverty? And why do some of those powers, from ancient Rome to the modern Soviet Union, expand and then collapse?

From Adam Smith and Max Weber to the current day, scores of writers have grappled with these questions. Some scholars, like Weber, have argued that religious or cultural differences create vastly different economic outcomes among countries. Others have asserted that a lack of natural resources or technical expertise has prevented poor countries from creating self-sustaining economic growth.

Economists Daron Acemoglu of MIT and James Robinson of Harvard University have another answer: Politics makes the difference. Countries that have what they call “inclusive” political governments — those extending political and property rights as broadly as possible, while enforcing laws and providing some public infrastructure — experience the greatest growth over the long run. By contrast, Acemoglu and Robinson assert, countries with “extractive” political systems — in which power is wielded by a small elite — either fail to grow broadly or wither away after short bursts of economic expansion.

“You need political equality to underpin economic prosperity,” says Acemoglu, the Elizabeth and James Killian Professor of Economics at MIT. More specifically, he says, economic growth depends on widespread technological innovation. But widespread innovation is only sustained where countries promote rights, giving more people the incentive to invent things.

And while Acemoglu and Robinson have documented this thesis during roughly 15 years of joint research, now, in their new book, Why Nations Fail, released this week by Crown Publishers, they look more closely than ever at the collapse or stagnation of countries that lack these inclusive political systems.

Elites, Why Nations Fail asserts, resist innovation because they have a vested interest in resisting change — and new technologies that create growth can alter the balance of economic or political assets in a country.

“Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people,” Acemoglu and Robinson write. Yet when elites temporarily preserve power by preventing innovation, they ultimately impoverish their own states. Fist tap Dale.


Dale Asberry said...

John Michael Greer has recently posted about industrial production as a system of wealth concentration:

John Kurman said...

"Debt: The First 5,000 Years" by David Graeber also covers this. The post-WWII era set up an agreement where wages would be coupled to productivity, and there were institutions that prevented most abuse from the ruling classes, like unions, and, yes, the federal government. That all changed under Reagan and Thatcher's neoliberal revolution, when the government said "Fuck you, get a credit card" to the middle class. Coincidentally, usury laws were disbanded so that any amount of interest could be charged. 

freeandeasywandering said...

This implies that national economies are closed systems.  They are not.  It is easier for a country like the US, sitting on an already-existing industrial base, to outproduce and undersell a developing competitor.  This is only a most obvious example.

CNu said...

"What" implies that national economies are closed systems?

Also, there's this small matter to consider

Bill said...

 The idea that it is the national political system which determines economic prosperity, etc.  I would note that there are broader, global trends in economic change over time that seem to be more directly determinant of all kinds of things, including economy.

Interesting link, but I am wary of any historical approaches to economy which end with the US revolution, because it took place before widespread mechanization and 19th century imperialism, both of which form the crux of the matter when dealing with global inequality.

CNu said...

Economics is an aspect of politics Bill. Money is the defining instrumentality of political control in today's world, and most particularly, this living memory aspect of global monetary policy which Big Don was kind enough to point out just the other day