Alert: I read only about 40% of this book, as I ran out of time on my E Library Loan and also became tired of his proving his theory in one civilization after another. He's very smart, knows everything, but proving why each civilization from the beginning of time until now proved redundant, so much so that I picked up another book. I did a fairly thorough annotation of the book as I read it, which follows.
This book explores why some cultures/nations are so prosperous, with high standards of living and why others, like much of South America, Africa, and Southeast Asia remain in poverty. His major thesis would be that it's not geography, not work ethic, but democratic political institutions, which spread power, emphasize accountability, encourage commerce, ensure safety and justice for all, not just a powerful, politically corrected few.
He begins by showing the different models of colonizations in North and South America. Basically, the Spanish turned the South into a slave state, intent on making the elite wealthy, exploiting the locals, the goal being extracting as much wealth, mostly silver and gold out of the country, keeping the indigenous people indebted or enslaved to the elite. From this, the rise of the modern corrupt governments arose in the 19th century, breaking away from Spain, ensuring that the small elite kept their wealth and control of the political mechanisms. In contrast, North American, settled by the British mostly, at first tried the Spanish method but had to give it up because of the intransigence of the natives Americans, the lack of gold or silver, the spareness of population, and the unwillingness of some to embrace this method or coercion. As a result, the colonies soon learned that if they were to survive, they would have to depend on themselves, on their hard work, and that the rewards would be in terms of land and agricultural goods, not silver or gold. This led to more equality, the desire to have some say in the way one was treated, and eventually a partial democracy.
With the coming of the Industrial Revolution, the US was more democratic than any other nation and the most economically innovative nation in the world, with patents coming from all spectrum's of the society, with men like Edison and Ford coming from modest backgrounds, not the governing elite. And there were lots of banks, lots of capital, lots of competition, so that new companies could develop. This was not true in South America, particularly in a country like Mexico, where wealthy and political power was among a few. The US for example had 28,000 banks, Mexico just 60. Thus, Mexico could charge high interests rates, slowing growth. In Mexico, often generals used force to gain and retain power, unlike the US where politicians were elected to power and gave it up when their terms ended. And, in the US, when banks and politicians began to monopolize a certain area, citizens would rise and throw them out of office, keeping banking under some control; there was accountability. Politician's who enriched themselves were often, not always thrown out of office Again, democratic institutions are crucial to curbing abuse of power by a few.
The land grab on the two continents was different; in the US, land was granted to the large array of the population, from all spectrums of society, not just the wealthy. In South America, the land went to the politically connected, the wealthy, leaving the poor out of the equation. No pioneers heading west to get a land grant. Though the US did have a civil war, most of South America saw constant coups, rise of authoritarian governments, who were then overthrown and a new set of thugs took their place, to enrich themselves as fast as possible. It was not till the 1990's that things began to change.
Acemoglu compares the rise of Bill Gates to Carlos Slim, one an innovator, the other a master of the powers needed to function in a world of favors, knowing the right person, political connections and bribes. His tactics would not work in the US because we have laws and a court system to enforce them.
Countries that are successful have governments that provide services, including education, health care, roads, law and order, and a democratic process for electing political readers, where all have a voice in the government.
Some of the wealth has spread to northern Mexico, basically because American companies have moved their plants to Mexico, bringing jobs and increased prosperity for those in that area. This increase in wealth comes from the outside, not the political institutions in Mexico.
Political processes determine the economic institutions people live under; economic institutions shape incentives: to save, to become educated, to invest, to innovate and adapt, to be nimble. Democratic countries, by far, are the most successful, the wealthiest, the healthiest. Thus, political institutions do matter, especially, democratic institutions. They influence behavior and incentives in real life and forge the success or failure of nations. They ensure fairness, security, and the absence of fear that a dictator will rise and take their wealth., imprisoning them, or threatening their lives.
It's as much politics as economics that determines the wealth of a nation. And once these political systems get ingrained, it's difficult to change them, as we see in the Middle East, often taking a civil war to change things. The elite in the Middle East did not want change; they benefited from it. It was the common man who wanted change, who hoped to benefit. There was no way the leaders would give up their power. Assad in Syria continues in power because the army and the power elite stand to lose everything if their is political change.
Maps are included to show the scattering of poor nations, showing that things have changed very little in the past 150 years, meaning that the political institutions have not changed much, thus neither have the economic conditions. Interesting.
He then debunks the geography hypothesis; it true, what would account the differences between N/S Korea, E/W Germany, Europe/Africa, etc. Most of today's inequality results from unequal dissemination of technologies, beginning with the early technologies during the Industrial Revolution. Countries that encouraged change, innovation, invited development, set up motivations for hard work, end up at the top of the scale. All these behaviors result from the types of political institutions a country has developed. He continually proves its the political institutions that are forged which determine prosperity, not geography. His arguments destroy Jared Diamond's thesis quite easily and convincingly. The institutions imposed by the Ottoman Empire keep much of ME and Northern Africa poor today, not geography.
He then debunks the culture hypothesis. North/South Korea have basically the same culture but different political institutions, which explain why one is wealthy, the other poor. It's political institutions, not culture. Africans are not lazy, Europeans hard working, thus one continent is wealthy the other poor. Africa's poverty mostly results from colonialism, modern dictatorships, and lack of incentives, created by governments, to innovate, work hard, delay gratification.
His central thesis, which he begins to develop, is that economic growth and prosperity are associated with inclusive economic and political institutions, while extractive institutions typically lead to stagnation and poverty. Inclusive political institutions insure that all citizens have security of property rights, safety of person, belief and trust in judicial system, protection of all citizens, as well as creating conditions that encourage the incentives for growth and progress for all.
He also argues and proves that fear of 'creative destruction', being a luddite, stalls growth and progress for all. Even though people may lose their jobs, like with the introduction of the computer, more jobs are created as a result. Monopolies, also, impede the growth of the populace, concentrating wealthy and power in the few, thus the necessity of someone like Teddy Roosevelt, perhaps Obama.
No comments:
Post a Comment