On Thursday, James Robinson, the David Florence professor of government at Harvard, gave a talk titled “Why Nations Fail” at the MainStage of the ’62 Center. The title was taken from Robinson’s new book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, which he co-wrote with Daron Acemoglu. Both the book and the talk focused on Acemoglu and Robinson’s new theory of political economy, which emphasizes the importance of inclusive institutions.
The talk was the keynote address of the Center for Development Economics’ two-day conference titled “The Future of the World Bank and the IMF: Redesign For a New (and Old) World.” The conference, which was open to the public, also featured a variety of panels on Thursday and Friday.
Robinson was introduced by Professor of Economics Anand Swamy. Economics, Swamy said, is “often criticized for being too abstract.” In contrast, Robinson, with partners Acemoglu and Simon Johnson and among other theorists, concretely argued that since the 1980s the West has been prosperous due to its institutions. Douglas North proposed the theory in the 1980s, before correlation was firmly established by statisticians in the 1990s.
Finally, Acemoglu, Robinson and Johnson “took the field by storm” in the early 2000s, with a combination of history, statistics and theory doing much more to establish causation. “They changed the preoccupations of the field,” Swamy said.
Why Nations Fail, which was published in March, was “an attempt to put together in a simple way” all of the work that Robinson and his partners had done in the last 15 years. It also gave them an opportunity to write about all the “eclectic readings” that had inspired their theories but that had been left out of their academic papers.
The book is “just a look at this blurry picture,” Robinson said as a graph of regional GDP per capita over the last millennium appeared on the projector behind him. “We want to explain not just the differences in prosperity today, but also where this inequality came from,” Robinson said. He argued that the geography hypothesis, which has geography as the deciding factor in prosperity, does not work.
The geography hypothesis is largely discounted because of the theory of “reversal in fortunes”; countries that were rich 500 years ago, such as Mughal India and Aztec Mexico, are not today.
Robinson focused mainly on the Americas in his explanation of this reversal. Based on “the exploitation of the indigenous peoples for the benefit of the conquistadors, unequal hierarchical systems” were set up in Spanish South America, whereas in North America, the “attempt to recreate the authoritarian, extractive regimes” of the Spanish colonies did not work due to the lower concentration of native populations, according to Robinson.
Instead, the Virginia Company and other colonizers had to “find a set of institutions which would help the settlers prosper,” Robinson said. This ended up including a general assembly with universal male suffrage and land grants to each of the settlers, resulting in a basis in private property rights. These historical systems explain the difference in the modern organization of North America and Latin America, which in turn explains “their different levels of prosperity,” argued Robinson.
Robinson then took this example and used it to define four types of institutions: extractive economic institutions, extractive political institutions, inclusive economic institutions and inclusive political institutions. “Underpinning extractive economic institutions are extractive political institutions,” which include predatory taxes and regulations and the lack of pluralism and centralization, respectively. Inclusive institutions include, in the economic sense, property rights, education and openness, and in the political sense, pluralism and rule of law.
Robinson claimed that for the most part, the world can be organized into two spheres: those that are inclusive in both respects and those that are extractive in both respects. He stated that institutions that are partially inclusive and partially extractive are “highly unstable,” giving the example of South Africa, where once political apartheid ended, they “couldn’t have the economic color bar” either.
When both are inclusive, however, “growth is sustainable,” Robinson said, partially to address pessimism about the United States, whose institutions he argued are “very resilient.”
Robinson then addressed the “emergence of world inequality.” The modern era, which began with the Industrial Revolution, “disseminated very unevenly because different parts of the world have very different institutions,” he said. North America, Australia and New Zealand had inclusive institutions that then spread to Western Europe. They then reached East Asian states such as Japan and South Korea, which were able to replicate Western institutions, but then could not be easily adopted by Eastern Europe and other countries plagued by extractive imperialist institutions, such as countries in Latin America and Africa.
Robinson then gave a variety of examples of extractive institutions in poor countries. In 2000, he explained that “Robert Mugabe won the lottery in Zimbabwe,” showing an extreme example of a lack of plurality. “In Uzbekistan, there’s still a system of labor extortion,” and finally in 2001, Colombian warlords signed a pact with Colombian leaders to fix the elections, showing the problems with an “uncentralized national state,” Robinson said.
Robinson then explained what he and Acemoglu were trying to do with their book: give an idea of “how to think about policy.” First, he said that “political transition precedes economic transition.” Next, he claims that “a reactivation of civil society” is needed. Robinson calls this a “broad coalition,” which prevents any one group from forming a narrow society. This is difficult, he said, but is “more optimistic than any geography hypothesis.”
Robinson then warned against a series of false options. He called “irresistible charm of authoritarian growth,” what is currently China’s model, unsustainable. He also argued that the historical evidence does not support the idea that “good economics is good politics” – instead, it must be the other way around. Finally, he argued against “engineering prosperity.”
Robinson briefly addressed foreign aid, arguing that while it is “not the solution,” it is also not “the source of poor institutions,” and can do a lot of good in the meantime. He then argued for specific models of aid that the World Bank, on which the conference as a whole focused, could use.
He cited the “Partners in Health” model of building hospitals in “de-politicized spaces” such as Mirebalais in Haiti, which is far away from the “predatory politics of Port-au-Prince.”
He called this style development “under the radar.” He also argued for empowerment in the style of women’s liberation, as “collective action drives institutional change.”