Daron Acemoglu and James Robinson are an economist and political scientist based respectively at MIT and Harvard, who have co-authored numerous articles and books over the last few decades. Their oeuvre represents an articulate distillation of some of the principles guiding mainstream economic thinking in the Anglo-American world. Acemoglu and Robinson's most recent book, Why Nations Fail (Crown Business, 2012) is an ambitious application of their theories across a large number of historical and contemporary cases.
Acemoglu & Robinson's basic argument is that political openness leads to the adoption of superior economic institutions, which they label "inclusive economic institutions." As Acemoglu & Robinson explain, "Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties." They also consider a few other things important: "To function well, society also needs other public services: roads and a transport network so that goods can be transported; a public infrastructure so that economic activity can flourish; and some type of basic regulation to prevent fraud and malfeasance." (p. 75-76).
Importantly, Acemoglu and Robinson view technological development as an ancillary process that flows naturally from the establishment of good institutions. The subsidiary role of technology in their thinking is clear when they write: "Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education. Sustained economic growth is almost always accompanied by technological improvements that enable people (labor), land and existing capital (buildings, existing machines and so on) to become more productive."
Acemoglu and Robinson's account of economic growth suggests that with
the right institutions an isolated 10th century community of Alaskan
Inuits could become fantastically wealthy. This seems unlikely -- but why? Where did Acemoglu & Robinson go wrong?
Acemoglu & Robinson's emphasis is characteristic of Anglo-American thinking more generally, which emphasizes the role of transactions and the market place in the economy and economic growth. This is a tendency that can be traced back to Adam Smith. There is an alternative tradition that instead emphasizes the role of production and technology. In this alternative tradition, articulated historically by Alexander Hamilton and the American economist Henry Carey, exchange and consumption can only occur provided that something is produced. The quality and price of these products are in turn powerfully determined by the level of technology. What makes a country poor is not the inability of its inhabitants to freely trade the objects that they produce, but rather their inability to produce a wide range of objects as well as the relative inefficiency with which they produce these goods. The key obstacle to development is thus technology and the inability of individuals to access the most up to date production technologies, which are almost always tacit, and require individual learning-by-doing as well as the presence of "teaching" by more skilled producers.
To pick up one of Acemoglu and Robinson's favorite examples, South Korea is rich while North Korea is poor, not because the former is a democracy and the latter a dictatorship, but because South Koreans have acquired the technology to produce a fantastic range of manufactured goods, everything from ships and cars to computers and flat screen televisions.
To Acemoglu & Robinson's credit, they correctly draw out the implications of their
theory and apply it to the People's Republic of China, which they
believe is likely to experience a dramatic economic reversal akin to the
fall of the Soviet Union. They write: "China is unlikely to generate
sustained growth unless it undergoes a fundamental political
transformation toward inclusive political institutions" (p. 151). One suspects that neither Acemoglu nor Robinson has ever been to China, otherwise they would be unlikely to make such an assertion. China has already built close to 10,000 kilometers of high speed rail, while the US has a single, relatively slow high speed train line that is only 300 kilometers long (Acela). China has a manned space program, while the US has mothballed its program, and instead relies on the Russians. Unfortunately for Acemoglu and Robinson, their assertion has already been disproven. Per capita income appears higher in the US than in China only because the US dollar is overvalued by 500 to 600%. As China continues to crush the United States, will they be willing to rethink their approach?
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