One of the most important questions that have been the concern of policy makers the world over is the question and the extent to which the state plays a role in the economic development of a country. The book chronicles a variety of stories that bear relevance to the aforesaid question, through the annals of economic history. It crisply catches the theme by laying out that ‘countries that are poor are so because those controlling power create poverty by making choices. It is on purpose that they get it wrong not because of ignorance or mistakes’. Thus, it seeks to handle the question that what are the reasons why some nations are rich?
The answer the book believes are rather simple and straight-line, as the authors propose that is a merely a question of Institutions, with nations that have been successful have been those that built “inclusive” and “pluralistic” as well as creating incentives for hard work and investment on the part of its citizens. On the other hand ‘nations vary in the success of their economies because of the institutional difference, the rules manipulating the working of the economy, and the incentive structure for motivating people”. States with an unsuccessful past are those marked by institutions of an “absolutist” or “extractive” character that seek to benefit, politically and economically, a small section of elite at the cost of the populace at large. In the book the authors acknowledge that the work is built on the “shoulders of giants” of the like of Adam Smith who could recognize that economic growth was dependent upon “peace, easy taxes, and a tolerable administration of justice.”
The cases can be very persuasive, with the beginning example being of Nogales, a city divided in half by fences that demarcate Mexico from the United States of America. The Nogales that lies in the USA is approximately three times as rich as its Mexican counter part. The examples of this sort can be constantly iterated: just contrast the South and North Korea. In specific cases the study of China is of particular value. The book concedes that nations with institutions of an extractive character can experience periods of high growth but only for a limited while. As such the book holds that China can grow at its breakneck pace for another two decades as it is “playing catch-up” based on imported technologies. Yet at the end of this period it shall have to make the move to a more innovative economy. This shift shall require the creation of pluralistic, inclusive institutions that have the power inherently to endanger the entrenched positions of the elite. The book believes without this shift, the impressive growth “will evaporate”.
Further, the book offers a cautionary tale for the current hegemon, UnitedStates of America, comparing it to the Republic of Venice that became immensely rich and powerful, controlling all of trade from the far east, based on its culture of inclusive institutions, yet when these institutions degraded to develop an extractive character soon the prosperity of the city state dissipated and soon Venice was itself a plaything of European powers. This conclusion with regard to the importance of institutions and politics with regard to the developmental debate has important repercussions for policy (as pointed out by the authors). Growth if it were to be a spinoff of core institutions, makes the prospects of foreign aid look dim as unlike trade liberalization they cant be switched on like a light bulb. Regimes run by extractive elites can and do waste copious sums of well-meaning aid; Further, it may be argued that, the inflow of aid into poor countries may be detrimental to governance by weakening answerability, thus leaving countries worse off. Hence, it would require outside agencies planning to rebuild a country, to chalk out a plan to redesign the political calculus in favor of positive institutions and without this aid would largely remain ineffective.
However it is at this stage that the book leaves the reader feeling a sense of being forced into generalized conclusions that often merely touch the surface of critical issues – what is the exact sort of institutions that are good and how does one go about building them. The first puzzle that remains in the mind of the intelligent reader is with the conceptual analysis. The book tends to have a very wide definition of the word extractive that can encompass any/ all institutions that deny any degree of partaking to its citizens, these ranges from the tribal communities to Argentina in the 19th century, up till the present day Communist Party of China. One is reminded of Huntington’s hypothesis developed in his argument with regard to democracies, that expanded enfranchisement can undermine societies (in the process also hurting development) when political institutions are perceived or actually fail to grow equally in tandem.
One is thus forced to except that all of the great characteristics of what is termed or understood, as “inclusive” might not necessarily gel together and possibly could be at odds with each other. However the authors choose to ignore this going by the logic of more being better with regard to inclusion.
It is definitely true that the hypothesis contains much that is substantial in nature, yet no theory in social sciences has a monopoly on the absolute or whole truth. This is another problem that is brought to light with the superficial treatment of rival theories of development, which is summed up in heads like “culture”, “ignorance” of policymakers and “geography”. All of these it is argued cannot explain poverty. There is truth in this, however it would be impetuous to argue that resources and geography have lost relevance. A case in point is Russia, would it have not had different industrial and naval course if only it had a shoreline, which had a number of all year round ports or if England lacked a navy, and a market (which facilitated the industrial revolution) would it have given rise to Pax Britannica. There is no denying that expiations that hinge on culture are highly misleading, yet they do play minor but not an insignifi cant role.
To conclude, there is a strong justification in this book being a best seller in spite of its plentiful number of pages. It remains without a doubt the brainchild of two very eminent scholars in their respective fields and it a mentally stimulating read that seeks to elucidate an important hypothesis with verve and for this reason alone it is a worthy of one’s time. However, while reading it one must remember that it does not remain the absolute truth on the important issues it raises. It is often a truism that reductionism often leads to simplification which is necessary to develop a hypothetical framework yet these cannot always allow a grand theory that can answer everything.
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