Co-authored by the M.I.T. economist Daron Acemoglu and
the Harvard political scientist James A. Robinson, “Why Nations Fail” argues
that the key differentiator between countries is “institutions.” Nations thrive
when they develop “inclusive” political and economic institutions, and they
fail when those institutions become “extractive” and concentrate power and
opportunity in the hands of only a few.
***********
I’M reading a fascinating new book called “Why Nations
Fail.” The more you read it, the more you appreciate what a fool’s errand we’re
on in Afghanistan and how much we need to totally revamp our whole foreign aid
strategy. But most intriguing are the warning flares the authors put up about
both America and China.
Josh Haner/The New York Times
Thomas L. Friedman
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Co-authored by the M.I.T. economist Daron Acemoglu and
the Harvard political scientist James A. Robinson, “Why Nations Fail” argues
that the key differentiator between countries is “institutions.” Nations thrive
when they develop “inclusive” political and economic institutions, and they
fail when those institutions become “extractive” and concentrate power and
opportunity in the hands of only a few.
“Inclusive economic institutions that enforce property
rights, create a level playing field, and encourage investments in new
technologies and skills are more conducive to economic growth than extractive
economic institutions that are structured to extract resources from the many by
the few,” they write.
“Inclusive economic institutions, are in turn supported
by, and support, inclusive political institutions,” which “distribute political
power widely in a pluralistic manner and are able to achieve some amount of
political centralization so as to establish law and order, the foundations of
secure property rights, and an inclusive market economy.” Conversely,
extractive political institutions that concentrate power in the hands of a few
reinforce extractive economic institutions to hold power.
Acemoglu explained in an interview that their core point
is that countries thrive when they build political and economic institutions
that “unleash,” empower and protect the full potential of each citizen to
innovate, invest and develop. Compare how well Eastern Europe has done since
the fall of communism with post-Soviet states like Georgia or Uzbekistan, or
Israel versus the Arab states, or Kurdistan versus the rest of Iraq. It’s all
in the institutions.
The lesson of history, the authors argue, is that you
can’t get your economics right if you don’t get your politics right, which is
why they don’t buy the notion that China has found the magic formula for
combining political control and economic growth.
“Our analysis,” says Acemoglu, “is that China is
experiencing growth under extractive institutions — under the authoritarian
grip of the Communist Party, which has been able to monopolize power and
mobilize resources at a scale that has allowed for a burst of economic growth
starting from a very low base,” but it’s not sustainable because it doesn’t
foster the degree of “creative destruction” that is so vital for innovation and
higher incomes.
“Sustained economic growth requires innovation,” the
authors write, “and innovation cannot be decoupled from creative destruction,
which replaces the old with the new in the economic realm and also destabilizes
established power relations in politics.”
“Unless China makes the transition to an economy based on
creative destruction, its growth will not last,” argues Acemoglu. But can you
imagine a 20-year-old college dropout in China being allowed to start a company
that challenges a whole sector of state-owned Chinese companies funded by
state-owned banks? he asks.
The post-9/11 view that what ailed the Arab world and
Afghanistan was a lack of democracy was not wrong, said Acemoglu. What was
wrong was thinking that we could easily export it. Democratic change, to be
sustainable, has to emerge from grassroots movements, “but that does not mean
there is nothing we can do,” he adds.
For instance, we should be transitioning away from
military aid to regimes like Egypt and focusing instead on enabling more
sectors of that society to have a say in politics. Right now, I’d argue, our
foreign aid to Egypt, Pakistan and Afghanistan is really a ransom we pay their
elites not to engage in bad behavior. We need to turn it into bait.
Acemoglu suggests that instead of giving Cairo another
$1.3 billion in military aid that only reinforces part of the elite, we should
insist that Egypt establish a committee representing all sectors of its society
that would tell us which institutions — schools, hospitals — they want foreign
aid to go to, and have to develop appropriate proposals.
If we’re going to give money, “let’s use it to force them
to open up the table and to strengthen the grass-roots,” says Acemoglu.
We can only be a force multiplier. Where you have
grass-roots movements that want to build inclusive institutions, we can enhance
them. But we can’t create or substitute for them. Worse, in Afghanistan and
many Arab states, our policies have often discouraged grass-roots from emerging
by our siding with convenient strongmen. So there’s nothing to multiply. If you
multiply zero by 100, you still get zero.
And America? Acemoglu worries that our huge growth in
economic inequality is undermining the inclusiveness of America’s institutions,
too. “The real problem is that economic inequality, when it becomes this large,
translates into political inequality.” When one person can write a check to
finance your whole campaign, how inclusive will you be as an elected official
to listen to competing voices?
Prof. Daron Acemoglu,
For those of you who don’t know him Prof Daron Acemoglu
is an Armenian from Turkey and is currently teaches economics at MIT. There are
even rumors that he might also get the Nobel economics prize.
His grandfather was one of the founders of the Istanbul
Mkhitaryan Sanotz Miyoutyoun (Togo Acemyan), and his father Kevork was a very
prominent law professor in the Istanbul University Faculty of Law but
unfortunately passed away very early.
We should all be proud of Daron’s accomplishments. (He
was even offered an economic ambassadorship by the current Turkish Minister of
Foreign Affairs but declined because of his work on this book and other
projects).
Sirov
Nurhan B.
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