Cogito Ergo Non Serviam
Government Matters Say Nobel Winners
The Nobel Prize in Economics is probably the final word on economic research. This year, the winners of the award, in the words of the committee, "have demonstrated the importance of societal institutions for a country's prosperity. Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better." Put differently, government matters in the growth of an economy. While their focus was mainly on ex-colonies, the lessons appear to apply across the board. A market economy cannot flourish without a stable and open government.
Professors Daron Acemoglu, Simon Johnson and James Robinson have looked at the institutions introduced during European colonization and have noted that there was not a one-size-fits-all approach. The press release announcing the award explained, "In some places the aim was to exploit the indigenous population and extract resources for the colonisers’ benefit. In others, the colonisers formed inclusive political and economic systems for the long-term benefit of European migrants." The economic track record of the former lags far behind the latter. Yet the former persist, and the professors explain, at least in part, why.
The significant insight here is one that can be found I almost every human endeavor. The long-term strategy that provides the best results does not get implemented in some places because the short-term gains to the people in power prevent it. They would be undermining their own positions, and no ruler is going to do that deliberately.
National Public Radio explained, "Colonies where a large share of settlers survived tended to establish inclusive, democratic institutions and subsequently prospered, the prize-winning researchers found. Those where relatively few settlers survived often formed more autocratic, extractive institutions and ended up languishing."
So, there are numerous places in Africa and Asia (Latin America as well, but the colonization happened differently there) where independence has not brought the people any real economic benefit. These are places where the gold, oil and other valuable resources were the attraction. A few locals benefited, but most people did not. Then, independence came and the locals with the money and access have kept the wealth for themselves and perpetuate the colonial system to a large degree. The colony and the independent country are run more or less the same way.
In a press conference, Professor Acemoglu stated "that autocratic governments can boost growth temporarily by pouring resources into favored industries, but that tends to be hard to sustain. He acknowledged democracies don't always deliver on their potential for widespread prosperity. He pointed to survey data showing support for democracy is at an all-time low."
The difference is that democracy is messy and autocracy is not. The corollary is that democracy is flexible and autocracy is not. Democracies can adjust while autocracies cannot alter their policies as easily because, to do so, the Great Leader needs to admit mistakes, something dictators are not good at doing.
"There's many examples in world history of societies like that that do well for 40, 50 years," Professor Robinson said to the press by phone. "What you see is that's never sustainable. . . . The Soviet Union did well for 50 or 60 years." After that, it did not do so well. and had to go out of business.
Applying their research internally may prove interesting as well. Can it be that the states in the US that rely on extractive industries perform more anemically than others? At first glance, it explains much of the red-blue divide.
© Copyright 2024 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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