The Binary World of James Robinson: a rebuttal to Why Nations Fail

He came at the invitation of the Angara Centre for Law and Economics to present his ideas from the book Why Nations Fail which he co-authored with Daron Acemoglu. This pair along with Simon Johnson had originally published back in 2001 an article in the American Economic Review entitled The Colonial Origins of Comparative Development: An Empirical Investigation.

Their book could be seen as an essay expounding on the themes uncovered by their earlier research which credits economic development to the institution-building conducted during the colonial era between the fifteenth and nineteenth centuries. It begins by drawing our attention to the differences between Nogales, Arizona and Nogales, Sonora, towns on opposite sides of the US-Mexican border.

The basic thesis of the book is that nations with institutions that promote greater inclusion in both political and economic spheres prosper while those that foster extractive or predatory policies wind up becoming impoverished and backward. The seminal moment in history, according to the book, happened in England back in 1688 during the Glorious Revolution.

For those not familiar with this event, I provide a brief background here. The basic argument goes a little like this: security of ownership and property rights is essential to investor certainty; investor certainty is needed to foster capital markets, and a set of political checks and balances that guarantee this is best suited for capitalism to flourish.

These principles were essentially what The Glorious Revolution was supposedly fought on and why the Industrial Revolution subsequently took place first in Britain, rather than in Continental Europe. The rights and ideals that Englishmen fought for were transplanted to their American colonies and became the basis for the American declaration of Independence in 1776.

Acemoglu, Johnson and Robinson (AJR) sought to prove empirically that institutions mattered to development. Previously, it was argued that climate and geography had a lot to do with it, i.e. that the industrious, temperate, northern states of Europe were more prosperous than the sluggish states in the southern Mediterranean and the tropics.

AJR sought to dispel this using colonial history. Why was it that not all colonised countries developed along the path of the United States? The difference lay in institutions. Their article demonstrated that in places where diseases led to high mortality rates among early European settlers, and where consequently hardly any permanent settlements were planted, centuries later, the lack of institutional legacy was found to be significantly correlated with low development.

The main lesson was that geography was not destiny, and that even history was not destiny. Less developed nations could begin adopting the institutions that promoted greater inclusiveness and discard extractive policies that left them in squalor. This dove-tailed with the agenda promoted by Washington on good governance, as it searched for a way to rescue the failed Washington Consensus from repudiation.

What came about was the augmented consensus that said free markets and good governance promote economic growth and development. After decades of telling less developed countries to shrink the role and capacity of the state and let markets rip, they were now saying that government needed to be strengthened once again.

The liberal democratic states of the West act as an ideal to which other societies need to aspire to. No other path leads to sustainable economic growth other than this. Just as Calvinist preachers of old would proclaim that no one cometh to the Father, but by His Son, these economists present a case that no other path leads to economic Nirvana, but through the Market (with Institutions performing the role of the Holy Ghost).

This rather binary view of the world is actually contradicted if you go deeper into the colonial history of the Americas which is what John H. Elliott did in Empires of the Atlantic World: Britain and Spain in America 1492 to 1830.

Here he wrote that it was actually the exclusionary racial policies fostered by the English settlers that led to greater social cohesion among settlers around Enlightenment principles of individual rights and liberties, which in turn led to greater independence and prosperity.

Meanwhile in the Southern hemisphere, the Spanish settlers had an “organic conception of a divinely ordained society dedicated to the achievement of the common good” which was “more inclusive rather than exclusive in approach”. The granting of rights both economic and political to natives consisting of mestizos, creoles and freed slaves led to a mixed-race society prone to greater divisions than existed in the North.

The irony here is that a more inclusive colonial policy led to greater exclusivity as subsequent societies were stratified and organised into “pigmentocracies” which made it harder to achieve the egalitarian principles espoused by the Enlightenment. In the Philippines, the outpost of New Spain, the situation was worse in that apart from developing this multi-racial caste-like system, the facility of a common language was not provided as it was in the Americas.

This is the difficulty of using colonial history to prove or disprove that institutions matter in the way attempted by the authors of Why Nations Fail. They do matter, but in different ways, which is the point I highlighted previously in this column (see here).

Secondly, there is the anomaly of the benign dictators of East Asia and the desarollista states of Latin America. Robinson has taken the view that the East Asian growth formula, what is termed the BeST Consensus (BeST consisting of Beijing, Seoul and Tokyo), represent a unique moment in history that cannot really be duplicated or sustained.

Peter Evans disputes this saying that just because the East Asian miracle emerged from a unique blend created by the Cold War policy of the United States, it does not mean that we cannot distil a few basic principles and emulate them today. Just because these states were predominantly autocratic does not mean that weak democratic states cannot adopt the policies that made them succeed in fostering rapid industrialisation (see here for a deeper discussion).

What’s more is that both Germany and the United States, late industrialising Western nations after Britain and France, followed the same industrial policies a century earlier. It was just that after scaling the development wall, they felt the need to “kick the ladder” away to prevent others from following them up because not doing so would disadvantage them.

In Latin America, the record of developmental or desarrollista states of the 1970s and 1980s in Brazil and Mexico is more spotty than in Chile but nonetheless more successful than in Africa or South Asia as these countries made their way into middle income status ahead of countries like Malaysia, Indonesia and Thailand. This is the evidence that Robinson conveniently sidesteps.

Another point James Robinson makes in the book and in interviews is that collective action, which he equates to people power, is key to expanding opportunity for people if the system is closed. He cites the experience of the Philippines and of the Middle East a la Arab Spring to underscore his point. Again, the use of people power is problematic. Why?

Well as Elliott points out, people power features in Spanish colonial traditions as well because

(b)y the laws of medieval Castile the community could, in certain circumstances, take collective action against a ‘tyrannical’ monarch or minister.

Cortes in fact used this against governor Velasquez who ordered him to survey and not to invade the territory of Montezuma in the Yucatan peninsula. It was based on the notion of a social contract between the prince and his subjects which if broken gave the right of the governed to say, “I obey, but I do not comply” (se obedece pero no se cumple).

From time to time, commoners or comuneros resorted to acts of dissent bordering on revolution. But these were simply seen as a way to get the authorities to the bargaining table. Once their grievances were heard and the tyrannical laws or ministers were replaced, they would go back to living as loyal subjects of the monarch. Direct democracy rather than representative democracy ruled until very late in the piece, which left them with very little in terms of a genuine parliamentary tradition.

This swinging of the pendulum from uprising to dictatorship and then back again is exactly what we are witnessing in Egypt today. The problem with equating collective action, i.e. people power, with greater openness, is that the relationship does not always hold.

Finally, let me address the fallacy that only the Anglo-American form of capitalism works well. Francis Fukuyama is right to point out that this is not the only successful Western model that exists. Scandinavia demonstrated another path, which did not require revolts against oppressive monarchs. Theirs was more along the lines of an enlightened, benevolent monarch based on egalitarian religious rather than secular beliefs.

What I hope to point out through this discussion is that the world that we live in is more complex, more multifaceted than what Robinson tries to portray. While it is easy for him to be parachuted into the Philippines to spread his brand of institutional economics, we don’t necessarily have to buy into his whole message.

I agree that the Philippines needs greater openness and participation in political and the economic life, and that collective action to widen the sphere of participation probably needs to be organised, because elites won’t surrender their privileges willingly, but that is as far as I would go.

We don’t need a whole theory based on a faulty or perhaps selective reading of history to back this up. We have seen how people power can be hijacked or used for narrow political ends. We need to guard ourselves against simplistic arguments that say unseating this corrupt ruler here or that autocrat there is going to bring about nirvana for us. Institution-building is not accomplished by this alone, but through a sustained, deliberate, evolutionary process.

The social innovation of Oportunidades and Bolsa Familia more widely known as conditional cash transfers which have been credited with reducing poverty in Mexico and Brazil were not developed by the World Bank or the IMF.

They were experiments conceived by indigenous policy makers who were thinking ‘outside the box’. The East Asian industrial policies responsible for creating economic prosperity and convergence were pursued against the advice of international economists from the IMF and the West. Japan’s Ministry of International Trade and Industry sought to deceive their Western minders that they were complying when in fact they were doing their own thing.

Similarly if the Philippines were to find its way in the world, it will have to be by taking into account its own unique blend of ideas, capacities and institutions. It won’t be by applying some universal one size fits all formula promoted by a Western economist armed with some statistical regressions, a few case studies and a loose reading of history.

Since the era of Martial Law we have had technocrats sing from the same hymn sheet as their Western counterparts while ironically supporting a system that undermined the very principles they were espousing. We need to be smarter and wiser this time around.

We need to accept that the world is not a binary system, comprised of dummy variables that say you are either inclusive or exclusive, free or unfree, open or closed. We need to admit that we live in a multi-polar world, where things are not as clear cut, as some experts would have us believe, and that many paths lead to development. Ours in fact still needs to be found.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • GabbyD

    for those who find this interesting: acemoglu and robinson has a number of posts on the philippines on their blog

    http://whynationsfail.com/blog/2012/12/13/a-damaged-culture.html

    their last paragraph, which i heartily endorse:

    “There undoubtedly are cultural differences between the Filipinos and the Japanese, for instance. But the striking thing about Japan is how it modernized while preserving its rich and unique culture. Our guess is that the Philippines can do the same.”

  • UPnnGrd

    Pinoys of Pinas — even those of Makati Business Club — will just accept the business model most comfortable and linked to what they have learned from their college professors. I mean, you can count in one hand the number of countries from which these conclusions are being drawn. Folks are pushing big-word ideas based on sample sizes of 60 or less… wooWWWW!!!!!

    Don’t forget — Pinoys-of-Pinas still get awed by the super-unorthodoxy of making conclusions based on 1,200 observations…. and now these folks are pushing big-word principles based on sample sizes of 55 or less. WoWWWW!!!!!

    • As Bill Easterly has said, which I have pointed out in another post, there is no available data set that can robustly test all the potential determinants of growth in a single regression. So in fact, we really don’t know what produces growth.

      • UPnnGrd

        Amazing, though, a bit of history. The old names eventually do fade into oblivion, at least based on USA or France or England. I mean, what this means is that 80 yeasr or a hundred years from now, the ERAP-bloodline or the Aquino-bloodline will be like the Al Capone bloodline or Mao bloodline —->>>> oblivion.

      • Precisely. So why are we wasting our time on these people who do not have the answers anyway?

  • You send my mouth agape and my mind astutter grappling with new economic terms “pigmentocracies” and “desarollista states” and even “kick the ladder”. Then you say it is all irrelevant, because Robinson oversimplifies. I am winded and learned mainly that: “Similarly if the Philippines were to find its way in the world, it will have to be by taking into account its own unique blend of ideas, capacities and institutions.” Which, of course, I already knew.

    I appreciate the stretching, though. The cerebral exercise.

    The Philippines would do well to set aside its fetish interest in history, its religion, and its authoritarian anal retentive penchant for restraining its youth with rote learning and strict the rules behavior. Rules adults ignore routinely. And it could energize its people with an FOI Bill instead of restrain them with a libel bill. And it could energize its work force with equal employment laws that unleash competitive vigor, rather than hampering it with favor and friendship.

    Cheerfully yours for customized solutions,
    Joe

    • JoeAm, speaking as someone who lives overseas, the one big potential which the country hasn’t tapped is the burgeoning flow of remittances that come into the country. Creating a uniquely indigenous program aimed at unlocking the potential of this to power new business ventures, industry clusters, infrastructure would be our equivalent to the Oportunidades and Bolsa Familia programs.

      This would require coordinating monetary, fiscal, financial and industrial policy. Right now, the dollar flows are simply causing the peso to strengthen making life harder for the productive sectors of our economy from competing. Solving this policy puzzle through unique institutional and organisational arrangements by harnessing the innate creativity and ingenuity of our people would open up our economic sphere to greater inclusiveness and participation.

      • You ought to form an advocacy group of OFW’s who want to see their dedicated contributions to the homeland leveraged for greater good. It could speak with a powerful voice, I think, if those OFW’s of your dedication and intellect would propose something tangible, directly to Philippine finance ministers or Pnoy. He does read blogs you know.

        • Perhaps the first step would be to commission a discussion paper by a respected independent think tank to work out how this would work. I noticed an article in BusinessWorld the other day by IDEA which spoke about Sovereign Wealth Funds. That’s one model. There are other options on how to do this some of which I have written about already.

          A paper that would map these options out, including their pros and cons, with help from central and line agencies, model the potential impact of the program on the economy from both a fiscal and monetary position, and creating a framework for evaluating the options would be needed as a first step, before advocating it.

          • UPnnGrd

            Now that’s how one would table an action-item….. to commission a discussion paper by a respected independent think tank.

            In the meanwhile…. Pilipinas has to make plans for the next Ondong before Luzon gets Ondong’ed under PersiNoynoy’s watch.

          • Yes, well I suppose we can spend our time sponsoring professors from Ivy League colleges to come in and lecture us on the latest flavour of the month, or we can use our native intelligence to develop solutions for the specific policy problems that besets our nation.

      • Bert

        If for example us guys here in Propinoy are OFWs, and say for example I have a spare two hundred thousand pesos, so has Doy, and Joe, and UP n, and Cocoy, and Manuel, and some others, then polled the whole amount together with the noble aim of “unlocking the potential of this to power new business venture, …”, is there any way to start somewhere that we can realize some profit in the near term, or far?

        • Bert, we can do it that way. Some social entrepreneurs certainly have. But the question is how far would our limited funds go. To have a significant impact, the size of the experiment has to be of sufficient scale, or one which can be scaled up rapidly. What I have more in mind is a systemic approach. One where we can simultaneously address the problem of the strengthening peso and deal with the investment gap that the country suffers, by leveraging off the remittances of overseas Filipinos. This is a problem that I believe is unique to the Philippines, and I will have more to say about this shortly.

          • UPnnGrd

            You can’t do it on money-in-the-bank, you have to do it on debt. And I keep saying NUKE the place. The one who can press the button to do this is PersiNoynoy. He signs the loan-papers and all those other KOMMM–mittt- ments that obligate ChinoF and ManuBuen’s tax-payments plus the tax-payments of Conrado deQuiros’ grandchildren (that’s assuming they don’t become Australian citizens)… to NUKE pilipinas into a power grid that allows the Lucio Tan’s of Pilipinas to think “… hmmmm??? So what can we do now that there is steady power?”