Summary of Acemoglu’s video
In this video, economist Daron Acemoglu explains why nations fail economically. He singles out “extractive” political institutions as the biggest impediment to a nation’s economic prosperity. Acemoglu defines “extractive” political institutions as those that place power in the hands of a few individuals. This scenario features unfair regulations and high market-entry barriers. These factors conjure to enrich a clique in the society, while inhibiting economic progress for the majority of the people (Acemoglu). He contrasts this with governments that have expanded democratic space by protecting property rights. Nations with such political institutions encourage entrepreneurship from their citizenry as well as attract foreign investment. These moves result in higher incomes for their populace and improved human welfare. Acemoglu explains that the causal logic from which his assertion stems; economic developments depend on new inventions (such as the steam engine which kick-started industrial revolution). The research, development and distribution of these innovations are hinged on their inventors’ reaping economic benefits from their work. The existence or absence of political institutions that support or thwart inventors’ efforts to spread innovations determines the economic prosperity level of a nation.
Summary of Jeffrey Sachs’s response
In an article, titled Government, Geography and Growth: the true drivers of Economics development Jeffery Sachs critically responds to Daron Acemoglu and James Robinson’s book Why Nations Fail. Sachs disapproves Acemoglu and Robinson’s blanket assertion that economic development of a country hinges on a single factor: a country’s political institutions. He cites the impact of geographies, histories and the geopolitical dispositions of countries such as China, Taiwan, South Korea, Vietnam, and Botswana on their current economic statuses.
Sachs article highlights the basis of Acemoglu and Robinsons claim: “inclusive” political institutions individual rights secure private property and encourage entrepreneurship resulting in economic growth. “Extractive” political institutions, on the other hand, feature unfair regulations and restrictive economic environments occasioned by despotic rulers and greedy owners of existing technologies. While Sachs contends that domestic politics can encourage or impede economic growth, he asserts that many other factors such as technological discoveries, geopolitics and natural resources also influence the economic growth of countries. Sac’s bone of contention with Acemoglu and Robinson stems from their systematic ignorance of the aforementioned factors in their single-minded quest to prove that political institutions are the absolute drivers or inhibitors of growth (Sachs, 2). According to Sachs, Acemoglu and Robinson do not accurately explain the disparities in the growth of countries, and they cannot reliably predict the futures of different economies around the world.
One of the shortcomings of Acemoglu and Robinson’s assertion is its incorrect assumption that authoritarian elites are hostile to economic progress. Sachs cites historical cases of Japan and South Korea as having had dictators who acted as agents of deep economic reforms. He noted that international threats and the quest for national opulence forced the dictators to act in the best interest of their countries. Sachs also notes that the incentives of technological innovation and those for technological diffusion are distinct. The diffusion of inventions impacts more to the economic progress of a society than the inventions themselves.
Sachs asserts that authoritarian rulers often promote the inflow of superior foreign technologies. Both democratic and non-democratic countries have an easy time adopting technologies that have been developed elsewhere. The case of Somalia-a lawless country without a national government- exemplifies this through its highly competitive cell phone sector. China, one of the strongest economies of the 21st century got to where it is by adopting technologies developed elsewhere and integrating them into its own technological systems. Authoritarian regimes also innovate in the military sector with the benefits of such moves spilling into the civilian economy. South Korea and Taiwan’s public investment in military technology best attest to this.
Sachs rightly puts it that a state’s power depends not only on the willpower of its ruling elite, but also on an adequate resource base to finance that capacity. He criticizes Acemoglu and Robinson for blaming Africa’s underdevelopment on colonial rule without establishing why sub-Saharan governments were weak and localized in the first place. He notes that the geographic conditions of Africa such as high prevalence of diseases. Lack of navigable rivers for transportation, shortage of coal among other factors impeded formation of strong governments in Africa and hence their colonization.
Other than unfavorable geography, the cost of adopting new technologies also affects economic growth. Inhospitable climates, unfavorable topographies and lack of proximity to global markets increase the cost of adopting new technologies thereby limiting foreign investment. Stressing on the effect of geography on economic growth, Sachs explains why Japanese and South Korean TV companies chose to assemble their products in Vietnam instead of Bolivia; in spite of the former having a relatively volatile political climate it had better geography. Sachs also singles out Botswana as a country whose growth after independence in 1966 was impeded by its geography. The discovery of diamonds reversed the country’s economic fortunes, and it currently has one of the highest per capita incomes in Africa. In spite of such strong evidence against political influence, Acemoglu and Robinson maintain that Botswana’s growth was impeded by lack of economic and political institutions. Sachs also notes the role of geography in the economic disparities between the twin cities of Nogales-Arizona and Nogales-Mexico. In addition, geography played a critical role in the spread of industrialization in the 19th Century.
Acemoglu, Daron. Why Nations Fail.5 Sept. 2012, Web 18 September 2012.
Sachs, Geoffrey. Government, Geography and Growth: the true drivers of Economics
development. From Econ 2105-Principles of macroeconomics- Handout. 2012. Print