Under the Thumb of History: Political Institutions and the Scope for Action Banerjee and Duflo 2014
Political economy and development Or why do we need grand theories after all? What can we learn from history? Historical determinism Vs. Just one damn thing after another Much grand theorizing in economics (especially related to development) is historical determinist in focus
Under strong determinism: Not much for the policy maker to do: If the state of the world is primarily determined by history and its iron laws, then the scope for policy reform is necessarily restricted and political economy becomes more about how we got here than how we can change where we re going. Under happenstance: We can play a part in the quest to find the best policies and political systems to enhance human welfare
The Determinist View (and research in that vain) Slow moving (perhaps unchanging) forces extending through history determine what happens today. Engerman and Sokoloff (2000) : the persistent impact of factor endowment at the time of colonization on political institutions across the Americas, La Porta et al. (1996 and 1997) who observe that legal systems set up under colonial rule tend to persist and are correlated with economic outcomes today Acemoglu Johnson Robinson (2001) Among former colonies, those with conditions conducive to early colonialists existence were settled by large numbers, had institutions put in place that were relatively inclusive (opposite of extractive, AJR s terminology) that persisted. As a result these countries have better economic outcomes several centuries later. AJR2 a reversal of fortunes. Where the colonialists did not settle turned out to be the ones where there was a robust pre-colonial economy, this aided plunder from afar. Consequently these economies are poorer today than the poorer economies where they settled.
A large follow up literature has used similar methods to establish the same thing: Institutions have surprisingly persistent effects Banerjee/Iyer, Dell, Nunn
What are the reasons for this persistence? Economic Determinism Feudalism -> Capitalism -> Socialism Competition for labor from feudal lords and from rising merchant class leads to collapse of feudalism Competition for labor from Capitalists leads to greater agglomeration of workers, more exploitation, leads to revolutionary class formation by workers and overthrow of capitalists According to this view religion, culture, institutions (political like democracy) are all by-products of economic forces
One could argue that this economic determinist model of reasoning is reflected in much of the work of economists today e.g.: Acemoglu and Robinson s (2000) extension of the franchise Universal adult male voting rights in the West extended because of the increase in the number of workers and consequent rise in demand for more redistribution. Faced with increasing political unrest, threat of revolution, elites had to think of ways to commit themselves to greater redistribution of resources, not only in the present but also in the future. Extending the franchise was a way to do this credibly. Also Doepke and Tertilt (2009) extension of franchise to women Big difference: nothing invevitable about progress in the West, unlike Marx s view of inevitability
If you start off with powerful elites, they might be able to set up systems that could scupper any chance of positive (inclusive) changes. E.g., 6 African countries in 1945 after decolonization with highest scores on polity, only one remains after 30 years Case studies explaining mechanisms whereby elite assert control in democratic systems Colombia Sierra Leone Could perhaps call this Institutional Determinism Why Nations Fail Acemoglu and Robinson: Starting off with a particular type of institution locks you into a path that leads to todays outcomes due to a type of institutional persistence The elites control institutional, political, and other change to maintain their positions of power. only with big outside shocks to the system wars, colonization, natural disasters can they be toppled
Alternatively cultural determinism: Culture is shaped by major events and circumstances, but moves very slowly and continues to affect human relations long after the factors that made it the way it is are long forgotten. Nunn 2008: Regions in Africa which sent more slaves are still poorer today. This cannot be explained by the fact that these were poorer regions to start with, since the regions that were initially richer were more subjected to the slave trade. Nunn and Wantchekon (2011) explore potential causal channels. They observe that levels of people s trust in relatives, neighbors and government are lower today in regions were the slave trade was more active. Decompose this effect into one running through institutions that help sustains trust, and one coming from the level of trust conditional on such institutions. Both channels are at play, the latter at least as important as the former. Grief s (1994) work on Maghribi v. Genoese traders in Mediterranean showed how culture affected choice of contracting institution, enforcement and ultimately development
Note that nobody is arguing for unidirectional causation in any of this literature: Economic determinists: Economic forces -> institutions,culture -> outcomes today Cultural determinists: Cultural traits -> institutions (politicial, economic)-> outcomes today Institutional determinants: Early institutions -> contemporary institutions -> outcomes today Differences in which part is emphasized. Nobody in these literatures argue that the arrows could sometimes go in the other directions.
Evidence here in favour of any of these arguments is mostly of the form that points to historical persistence therefore leading people to conclude that the underlying causal factor is the historical prime mover that still exerts its influence today. But it could be the case that there is persistence without determinism Things might just take a long time to change might be difficult to coordinate the moving parts Good leadership might matter in achieving this Fair bit of evidence that leaders matter And evidence that rules matter Accidents can have big effects: Dell: Droughts before the Mexican revolution Hornbeck and Naidu: Mississippi flooding
Where does this all leave us with respect to policy and change? Does history mainly roll forth following its own powerful logic, liable to be knocked off that course only by some massive shock to the system? Or is there a lot that is left undermined by these grand forces and therefore up for grabs? Can we or can we not make our own history? The evidence reviewed in the paper suggests a strong (and persistent) role for historical events in shaping institutions and political and economic phenomena. the evidence we reviewed in this paper suggests a strong (and persistent) role for historical events in shaping institutions and political and economic phenomena.
Very little scope for using regression analysis to draw sharp distinctions between these theories. Yes elites wield disproportionate power in the world, and culture does impose important constraint on what is possible. But are these forces dominant or merely in contention with the forces of will and chance. We can t be sure that the forces of politics or culture will always act to strangle development in a particular place
There has been improvement in human welfare throughout much of the world. Eg: Infant mortality fell dramatically in SSA from 1960s-2000s while there was very little economic growth The determinism of caste on life outcome in India has diminished Partly due to constitutional amendments and affirmative action Inequality in Latin American fell a lot Partly due to progressive conditional cash transfer programs (progresa, bolsa familia) Politics can change for the better with technology Fujiwara, voting machines in Brazil Voter Mobilization Voter information provision (corruption audits in Brazil)
What to conclude? Determinists: these changes are allowed by the elite because they don t matter Activists: things can change because the elite are not all powerful, or all knowing, or unified in resisting change Change can happen, in order to inform what needs to be changed, and to investigate it, we d better have a good idea of what is going on in a particular situation. To see where we can have leverage, to see what might work. So don t ignore culture, institutions, elites etc. but they do not determine everything that is going to happen
In the end, the choice facing the field of political economy is very simple. It can embrace grand theories that will offer us the satisfaction of strong and simple answers. Or it can try to be useful. I would argue that they are making the exact same statement about the field of development. To me this is a false dichotomy: You can only be useful if you understand what is going on. Our first step before intervening is to observe. Our second step is to have an explanation for what we observe. Only when we understand what is going on can we intervene. Grand theories can help in making us understand.