Friday, October 10, 2014

Ahistoricism in Acemoglu-Robinson

The IMF recently published a list of ten most successful economies in the periods 2001-2010, and 2011-2015. A striking thing, even at the first glance, is that in both cases, 8 out of ten economies on the list have had socialist institutions and socialist governments (often single-party rules) as recently as 10 or 20 years ago.  The countries are China, Ethiopia, Mozambique, Tanzania, Ghana, Myanmar, Angola, Zambia, Cambodia, Vietnam, even India with its quasi-socialist planning and industrial policies (until 1991-2).

Now, for some of them it could be argued, growth was fueled by oil and raw materials. Fair point. But surely, Vietnam, India, China, Ethiopia are not growing just because they have raw materials. The sources of growth are much more varied.
So, it would seem, having had socialist policies in the recent past is good for your current growth. Why could this be the case? The most  studied example is China (very recently in Vladimir Popov’s excellent book “Mixed fortunes”). The reason is that socialism led to improvements in several key areas without which fast modern development is unimaginable: health (getting rid of many infectious diseases and increasing life expectancy), gender equality (bringing  women into the labor force), education (significantly increasing the average level of schooling, especially among women, poor people, and previously oppressed national minorities), increasing savings rate (by cutting frivolous consumption and repressing wages), creating better infrastructure and introducing  clear channels of communication between the top and “people”. Overall, these were policies of modernization and both labor and capital “mobilization”. The last re. the to-to-bottom communication  means that policies were not decided in a vacuum and then never implemented but actually carried through. Sometimes, it was, as under Communism, for the worse as during the Great Leap Forward and mass collectivization in the USSR. But often, as in China, for the better.
Now, do I believe that we should now go back to single-party rule and socialist institutions? Not at all. I do not think that they would be efficient in the current globalized economy with a vastly different nature of technological progress: much more diffuse; not  driven by electricity  grids, dams and roads as it was the case in the 1950s and the 1960s. But the key point is the following: the best institutions for progress at period t are not necessarily the best institutions for progress in period t+1. Nor in period t+2.
The problem of Acemoglu and  Robinson work is that they take human development teleologically. They have found out what are the best institutions  today and believe that such institutions must have been the best for economic growth from pre-history to now. It is just that nobody figured it out. This is the type of ahistoricsm excoriated by Marx who (rightly) argued that economic apologists just observe what type of relations of production exist today, and then decide that they must be the  best and the only ones possible.

PS. This is why I prefer, and find it much more sophisticated and nuanced, the approach by Sharun Mukand and Dani Rodrik (2002). They show that optimal policies and institutions are a function of country's  endowments and country's  ability to experiment with different policies and institutions (when endowments are not similar to those of the rich world). In other words, even at a given point in time, there is no sense arguing that only one set of institutions is the best. And even much less so over time.
PS2. The definition of inclusiveness is similarly vague and problematic. It could be strongly argued that Communist ideologies were very inclusive. They were so inclusive that, particularly if you were poor, you had to be vaccinated, go to school, dress properly, wash your hands, participate in social life, perform in theater, select your enterprise  or building leaders etc. But that inclusiveness was in some ways good (and much better than similar democratic institutions at the same level of development could have provided) and in many other ways it was totalitarian. Thus, saying that institutions should be “inclusive” does not really narrow it down.  

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