{"id":457,"date":"2012-05-03T14:48:24","date_gmt":"2012-05-03T14:48:24","guid":{"rendered":"http:\/\/rulesofreason.wordpress.com\/?p=457"},"modified":"2012-05-03T14:48:24","modified_gmt":"2012-05-03T14:48:24","slug":"inclusive-institutions-and-economic-development","status":"publish","type":"post","link":"http:\/\/re-design.dimiter.eu\/?p=457","title":{"rendered":"Inclusive institutions and economic development"},"content":{"rendered":"

Francis Fukuyama reviews<\/a> Why Nations Fail<\/a><\/em>, the new book by Daron Acemoglu and James Robinson, at his blog. The review is fairly critical. Fukuyama agrees that institutions are of paramount importance for development (as you would expect given his own recent book<\/a>) but is unsatisfied\u00a0with the vague (or even missing) definitions\u00a0of the two central concepts of the book – ‘inclusive institutions’ and ‘extractive institutions’. This conceptual stretching allows the labels to be applied quite arbitrarily to fit the argument of the book.<\/p>\n

In substantive terms the critique boils down to the question whether democratic (inclusive) institutions are necessary for stable economic development. In Fukuyama’s view they are not (think contemporary China) and might even be counterproductive (following Huntington). In Acemoglu and Robinson’s view, democratic political institutions and inclusive economic institutions are indispensible for sustained long-term development. Fukuyama’s quibble with Why Nations Fail<\/em> fits into a line of argumentation he is in the midst of constructing which can be summarized as ‘good governance is\u00a0necessary for development but democracy is not necessary for good governance’<\/strong>. His latest project<\/a>, for example, is to develop a new conceptualization and measurement of governance which moves away from the traditional indicators of (Western-style) rule of law and democratic accountability. Here is a characteristic quote from the project’s announcement:<\/p>\n

One can think of many ways in which greater democratic participation actually weakens the quality of governance.\u00a0\u00a0<\/p><\/blockquote>\n

Acemoglu and Robinson respond<\/a> to Fukuyama’s review at their own blog. But in my opinion Fukuyama’s general critique (and\u00a0his smaller points about misinterpretations of historical episodes) remains. Irrespective of one’s normative convictions, one has to admit that economic development has been possible throughout history and space in the absence of inclusive, democratic institutions (unless one stretches the definition of democratic institutions to include 17-th century England\u00a0or contemporary Singapore). Whether growth without political\u00a0democratization is sustainable in the long term remains an open question<\/strong> (China).<\/p>\n

Both Fukuyama and Acemoglu & Robinson focus on macro-level institutions but it is instructive to look at the meso- and micro-levels of institutions as well (taking the work on the management of common pool resources by Elinor Ostrom and others as a guide). In my reading, the message of this literature about inclusiveness, democracy and governance is the following: Successful management of common resources needs some form of participation and voice by the people within the community but\u00a0also restricted access to the resource<\/strong>. Effective governance needs\u00a0institutions\u00a0that are inclusive for ‘insiders’ and exclusive for ‘outsiders’.\u00a0For example, early community-based institutions for managing marine resources throughout the world provided for some influence by ordinary members of the community but at the same time they strictly defined who can and cannot fish and enforced these boundary rules. Of course, who is an outsider and who is insider is in itself a political question. And we don’t know whether these lessons from the micro-level generalize to society-wide institutions.\u00a0<\/p>\n

Finally, although I remain skeptical whether democratic (in the narrow sense) institutions are necessary (in the strong sense) for economic development, the recent experience of Central and Eastern Europe (CEE) suggest a strong link between the two. Even for those with only cursory knowledge of the region would be clear that the countries that installed the most open, democratic and inclusive political regimes are also the most economically successful ones<\/strong>. In the early\u00a0phases of post-communist transitions after the fall of the Berlin Wall many advocated economic development before political liberalization. In line with\u00a0Fukuyama’s reasoning, it was\u00a0feared that democratization prior to, or together with, economic\u00a0reforms would impede\u00a0development and\u00a0lead to the implosion of these countries.\u00a0Fortunately for the region, these\u00a0opinions did not prevail and\u00a0most of the CEE states initiated political and economic reforms simultaneously (in some cases with the additional burden\u00a0of\u00a0nation-building). Looking back, we can ascertain that those states which experienced the earliest and most far-reaching political liberalization were also the ones to achieve the greatest economic development (Poland, the Czech Republic, one hesitates to add Hungary). Whether economic reforms led or followed political liberalization or whether they were all predetermined by pre-communism legacies, political culture, etc. might be still an unresolved issue. Nevertheless,\u00a0at the very least we can say that in CEE\u00a0the establishment of democratic political institutions\u00a0did not\u00a0halt\u00a0economic development<\/strong>.<\/p>\n

—<\/p>\n","protected":false},"excerpt":{"rendered":"

Francis Fukuyama reviews Why Nations Fail, the new book by Daron Acemoglu and James Robinson, at his blog. The review is fairly critical. Fukuyama agrees that institutions are of paramount importance for development (as you would expect given his own recent book) but is unsatisfied\u00a0with the vague (or even missing) definitions\u00a0of the two central concepts of the book – ‘inclusive institutions’ and ‘extractive institutions’. This conceptual stretching allows the labels to be applied quite arbitrarily to fit the argument of the book. In substantive terms the critique boils down to the question whether democratic (inclusive) institutions are necessary for stable economic development. In Fukuyama’s view they are not (think contemporary China) and might even be counterproductive (following Huntington). In Acemoglu and Robinson’s view, democratic political institutions and inclusive economic institutions are indispensible for sustained long-term development. Fukuyama’s quibble with Why Nations Fail fits into a line of argumentation he is in the midst of constructing which can be summarized as ‘good governance is\u00a0necessary for development but democracy is not necessary for good governance’. His latest project, for example, is to develop a new conceptualization and measurement of governance which moves away from the traditional indicators of (Western-style) rule of law and democratic accountability. Here is a characteristic quote from the project’s announcement: One can think of many ways in which greater democratic participation actually weakens the quality of governance.\u00a0\u00a0 Acemoglu and Robinson respond to Fukuyama’s review at their own blog. But in my opinion Fukuyama’s general critique (and\u00a0his smaller points…<\/p>\n

Continue readingInclusive institutions and economic development<\/span><\/a><\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false},"categories":[13,23],"tags":[60,173,176,203,207,258,280,330,495,693],"jetpack_featured_media_url":"","jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7g3hj-7n","jetpack-related-posts":[{"id":510,"url":"http:\/\/re-design.dimiter.eu\/?p=510","url_meta":{"origin":457,"position":0},"title":"Taking stock of Institutionalism","date":"September 27, 2012","format":false,"excerpt":"This year's Nobel Symposium has been on the topic of Growth and Development. Several of the presentations (available here) deal with the impact of institutions on economic growth and development. The contributions by Daron Acemoglu and\u00a0Andrei Shleifer in particular do a great job in taking stock\u00a0of what we know about\u2026","rel":"","context":"In "Institutions and regulation"","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":230,"url":"http:\/\/re-design.dimiter.eu\/?p=230","url_meta":{"origin":457,"position":1},"title":"Hyperlinks","date":"January 18, 2012","format":false,"excerpt":"Migration and unemployment File under 'correlation is not causation'. And 'endogeneity'. And 'instrumental variables that do not make sense'. Equitable decision making has intrinsic value\u00a0Apparently,there is a region in the brain [anterior insula] 'linked to the experience of subjective disutility'. Ah,\u00a0the prospects for utility maximization! Fukuyama on European identities\u00a0Surfing on\u2026","rel":"","context":"In "Hyperlinks"","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":210,"url":"http:\/\/re-design.dimiter.eu\/?p=210","url_meta":{"origin":457,"position":2},"title":"Natural experiments of history? Not really, but still a fine book","date":"December 11, 2011","format":false,"excerpt":"Natural experiments are a fine (and fun) way to study questions where the researcher doesn't have control over the assignment of cases. But the label 'natural experiment' can get abused - not all comparisons are 'natural experiments'. Nature needs to intervene into the assignment of cases in a way that\u2026","rel":"","context":"In "History"","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":969,"url":"http:\/\/re-design.dimiter.eu\/?p=969","url_meta":{"origin":457,"position":3},"title":"The 'Global South' is a terrible term. Don't use it!","date":"November 6, 2018","format":false,"excerpt":"The Rise of the 'Global South' The 'Global South' and 'Global North' are increasingly popular terms used to categorize the countries of the world.\u00a0According to Wikipedia, the term 'Global South' originated in postcolonial studies, and was first used in 1969. The Google N-gram chart below shows the rise of the\u2026","rel":"","context":"In "Classification"","img":{"alt_text":"","src":"https:\/\/i2.wp.com\/re-design.dimiter.eu\/wp-content\/uploads\/2018\/11\/f2_hdi_eq.png?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":404,"url":"http:\/\/re-design.dimiter.eu\/?p=404","url_meta":{"origin":457,"position":4},"title":"What to do about improving governance?","date":"March 22, 2012","format":false,"excerpt":"Here is a link to my interview for Gulan Magazine discussing how to establish good governance and the role of formal institutions. \"Even if institutions are working in Western Europe or in the US and they are imported to the developing countries, there is no guarantee that they would produce\u2026","rel":"","context":"In "Institutions and regulation"","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":243,"url":"http:\/\/re-design.dimiter.eu\/?p=243","url_meta":{"origin":457,"position":5},"title":"Myron's Law","date":"January 23, 2012","format":false,"excerpt":"\"Asymptotically, any finite tax code collects zero revenue\" This is what economist Paul Romer calls Myron's Law (after Myron Scholes). It is a great aphorism as it illuminates a neglected source of institutional change - the opportunistic adaptation of the regulated actors to the rules which spurs transformations of the\u2026","rel":"","context":"In "Institutions and regulation"","img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=\/wp\/v2\/posts\/457"}],"collection":[{"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=457"}],"version-history":[{"count":0,"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=\/wp\/v2\/posts\/457\/revisions"}],"wp:attachment":[{"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=457"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=457"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/re-design.dimiter.eu\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=457"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}