Institutions, Economic Growth and Democracy: An Interview with James Robinson and Daron Acemoglu

Savannah Koomen @savie

 

In their books Why Nations Fail and The Narrow Corridor, economists Daron Acemoglu (MIT) and James Robinson (University of Chicago) have vigorously defended the role of institutions in explaining economic growth and political freedom. Here we talk with them about the pitfalls of geographic determinism, the limits of Max Weber's account of modernization, inclusive and extractive institutions, life in stateless societies and the dynamics of democratization processes.

-GDP per capita appears to increase the further a country is from the equator. This had led some authors (Jeffrey Sachs, Jared Diamond, Ian Morris) to suggest that geographic differences explain - to a good extent - current economic inequalities among countries. Do you think these approaches work?

 

No. We think this argument confuses correlation with causation. It is true that on average countries in temperate latitudes are more prosperous than those in the tropics, but this does not imply that a tropical location makes you poor or there is a direct effect on being in the tropics on development. In fact in our research we showed that the main reason this correlation exists is because of the way that European colonial empires created very different types of institutions in different parts of the world. In particular they created systematically worse institutions in tropical locations. This was for many reasons but an important one was that these were very unhealthy places for Europeans, so they did not favor settlement. In the absence of significant settler populations countries tended to get much more extractive institutions and are thus poorer today, but this has nothing to do with the direct effect of latitude on development.

 

 

-Max Weber famously favored a different approach. For him, cultural factors (mainly, the predominance of a Protestant ethic) explain the economic success of the industrialized West. Why do you think he was wrong about this?

 

Well, it’s a very Eurocentric hypothesis. It’s true that the industrial revolution happened in Britain and Western Europe but other (Catholic) parts of Europe caught up pretty quickly as did other parts of the world, like Japan, which can’t be connected to this argument. Looking back in world history you see patterns of development which cannot be explained by appealing to religion. 1,000 years ago in the Song dynasty, China was probably the most advanced part of the world economically. So neither case study nor more systematic empirical evidence supports Weber's hypothesis.

 

 

-What are inclusive institutions, and how they differ from extractive ones?

 

Inclusive institutions are those that create broad based patterns of incentives and opportunities, extractive ones are the opposite, they impede and block such incentives and opportunities. The definition  is focused on these properties because many different specific sets of institutions can be inclusive, while there are many ways to be extractive. North Korea and Gabon both have extractive institutions, for example but the details of those institutions differ a lot.

 

 

-When is economic growth possible under extractive institutions? And why do you think this kind of growth will be short-lived?

 

This can happen when a society with extractive political institutions has part of what it needs to be inclusive – namely an effective central state. In these circumstances, even if that state is not accountable to people or political power is narrowly concentrated, it can, if it wished, decide to promote economic growth. The Soviet Union did this after 1926, China has done it after 1978. What we show in the book is that there are many examples of this in history but they never last. In the case of the Soviet Union this was because the extractive nature of the institutions meant they could not innovate except in very narrow domains. In the Chinese case there is more innovation but the concentrated nature of political power dooms the economic growth. It’s hard to predict exactly how it will go off the rails but we think human history shows that concentrated political power always ends up getting abused at the expense of social welfare and economic prosperity.

 

 

-During the second half of the 20th century, many supra-national organisms have emerged (the UE, for instance). What role do they play in your analysis? Do they increase inclusion, or not necessarily?

 

We’d say they have promoted international inclusion. Most of our analysis is focused on the country level because we’ve always thought that is where the politics is and that is where the crucial issues are but it is true that the creation of these institutions after World War II has helped to eliminate externalities and coordinate inclusive policies in many ways. The EU, for example, was a huge force towards inclusion in Eastern Europe.

 

 

-In The Narrow Corridor you argue, contra Hobbes, that life in stateless societies needn't involve a state of war of all against all, but it will probably trap individuals in a "cage of norms". What does that mean?

 

It means that most stateless societies actually create a proliferation of norms and customs to avoid the sorts of problems that Hobbes identified. These norms often seriously limit peoples social and economic freedom, which is why we call them a “cage”. Maybe the caste system in India which we discuss in detail is the best example.

 

 

-What is the Red Queen effect?

 

In The Narrow Corridor we emphasize that to create liberty you need both a strong state and a strong society. The Red Queen is what gets you there. It is a dynamic which comes into action when state and society are balanced. They compete for power; the state tries to control society, society wants to make the state accountable. To achieve these goals they both try to get stronger, more organized, it is this race which creates liberty.

 

 

-According to Seymour Martin Lipset's modernization hypothesis, democratization is positively correlated with economic development (as their per capita income increases, societies become more democratic). Do you agree with this thesis?

 

This is another question we have done a lot of scientific research on. It is true that if you look around the world today there is a correlation; countries which have higher levels of income per-capita tend to be more democratic. But if you look over time and ask "Is it true that places that have grown faster tend to become democratic?", it is not true. Not over the past 50 years, 100 years, 150 years… In fact this correlation emerged over the past 500 years and it is not about income causing democracy, as Lipset thought, it is about the co-evolution of the two as a consequence of the Red Queen effect operating in some parts of the world but not others.

 

 

-You argue that an attentive citizenry is needed in order to successfully shackle the Leviathan (i.e. to contain despotism and secure a space of liberty). In European countries, as well as the US - though in your book you claim that this might be changing -, the Leviathan seems to be reasonably shackled. Yet, as political scientists point out, citizens often ignore important facts relevant to political decision-making. How is that possible? Can we shackle the Leviathan if we do not pay much heed to politics?

 

We live in a representative democracy where we delegate many decisions to elected politicians. We’d agree that citizens are maybe less informed that might be possible or desirable but the big picture is that, for all the frictions and imperfections, we see democracies providing more public goods and growing better than dictatorships. It doesn’t seem to us to be ignorance which is challenging the sustainability of the Shackled Leviathan but rather the fact that people are well informed by the many problems, such as inequality, from which society now suffers.

 

 

-Academics discuss which social groups drive political transformation. Some authors believe that the working class is the main agent of social and political change[i]. In The Narrow Corridor you seem to give a stronger protagonism to the middle class. What is your view on this issue?

 

We are not sure that is right. Our earlier work on democracy, in our first book Economic Origins of Dictatorship and Democracy we emphasized the masses as the main agent for democratization. It’s true that modern mass democracy comes late in the European story, but if you go back to our argument about the origins of the European path and how late Roman state institutions were merged with very participatory Germanic institutions the emphasis is again on mass participation. We don’t talk too much about the working class because that seems to be a Marxist Eurocentric idea and in our view you can have liberty in societies which look completely different, for example of the pre-conquest Valley of Oaxaca in Mexico!

 

 

-It is often argued that some authoritarian regimes (with extractive elites) might be a better choice in some specific circumstances (when democratic or inclusive systems are not available, when the alternative is a radically unstable - or even failed - state, or in the face of severe crises, like the current COVID-19 situation). Do you agree with this claim?

 

There is an argument that authoritarian regimes can be a transition path to inclusion, but we argue against that in The Narrow Corridor. Our reading of history is that having autocracy without any inclusion is a recipe for getting stuck in autocracy. Societies that are inclusive today built both a strong state and a strong society together. We don’t really understand this logic of “statebuilding” which says you have to build state institutions before you allow for inclusion or democracy because that can create instability. Do you honestly think that helping unaccountable states in Africa, for instance, to become more powerful, will lead to better outcomes rather than just cement some elite into power longer? For states to become more powerful they need the cooperation of society and they need to be legitimate, so you need to get people involved in that and give them a voice. Of course that is difficult but in our view it’s the only road to an inclusive society.

[i] A recent example is Dahlum, Sirianne, and Carl Hendrik Knutsen. 2019. "Who Revolts? Empirically Revisiting the Social Origins of Democracy", Journal of Politics 81(4): 1494-1499.

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