New Publication of Research on the Role of Institutions in Nations' Success

[FitzFord]

By now, you know that this is my particular area of interest and not surprising, think that understanding and getting it right is of substantial importance for success in the design of solutions for improved public sector finance and management, and governance in general. To help my case, I am attaching a link to a review of a major study, reported in a book titled "Why Nations Fail", by Daron Acemoglu and James A. Robinson (MIT).

http://www.washingtonpost.com/entertainment/books/book-review-why-nations-fail-by-daron-acemoglu-and-james-a-robinson/2012/04/20/gIQAefYiXT_story.html?wpisrc=emailtoafriend

It is a hefty read, but I hope that we will begin a discussion on its argument, conclusions and implications for our work after you have been able to read (all/enough of) it, in a week or two.

Fitz.
 

[John Short]

Can I add Poor Economics by Abhijit V Banerjee and Ester Duflo (also MIT) published by  Penguin into the debate.  A play on the title could also be as good an explanation as “institutions, institutions, institutions”.
http://dannyreviews.com/h/Poor_Economics.html
http://www.amazon.com/Poor-Economics-Radical-Rethinking-ebook/dp/B007CI81IQ

[FitzFord]

John, The more the merrier! Let the reading begin!

Fitz.

[petagny]

Here's a much earlier paper by Easterly and Levine on the subject of institutions and economic development and a helpful summary by The Economist.

http://www.economist.com/node/1365367

Easterly and Levine found that 'countries with good institutions tend to do all right with good or bad policies. In the same way, countries with bad institutions tend to do badly regardless.' They also find that 'Favourable geography...promotes good institutions; good institutions then promote development. When the study looks at the economic influence of geography in its own right—that is, does geography affect income independently of promoting good institutions?—they find no clear connection.'

Easterly also did a review of the Acemoglu and Robinson book in the Wall Street Journal:

http://online.wsj.com/article/SB10001424052702304724404577293714016708378.html?mod=WSJ_Books_LS_Books_8

[STONE]

My thanks to the three of you for these review references.  As someone who started his career in development in Botswana it is not surprising that the importance of institutions is just obvious.  I can see why the short-hand term geography is used but 'natural endowment' would seem to be more useful as a term.  That the natural endowment does not override institutions as a factor determining the avoidance of failure is also not surprising to me - Botswana's natural endowment (as known at independence when its institutions were established is not one that many would choose.  History will matter too for some and Why Nations Fail appears to have a lot of that in it, but for me history, aside from events themselves (mostly intervention from outside), is only interesting to the extent that it recounts how institutions react (develop, stagnate or collapse) to events.  Our interest is in how to establish robust institutions that maximise a social welfare function that has an over-riding feature of promotion of the public good. Botswana's governance institutions - including PFM are good.  There is a great deal in PFM reform that comes out of the Botswana 'experience'. But it is not possible to recreate Botswana's history for anywhere else, the state there has never 'failed', and few countries had or will have the opportunity to create institutions when nobody else was really interested in the country.  So it is more than a question of 'establishing' institutions on a tabula rasa; it is about changing institutions from 'not good enough' to 'good enough'. That is not 'reform' or 'improving' or 'strengthening' but envisioning and then designing a 'good enough' institutional framework that will replace the one that is 'not good enough'.  Only then can one consider the management of that replacement - I look forward to Matt Andrews' book for further guidance on that.

[FitzFord]

Here is another review, with several interesting comments attached, almost of which is thought provoking:

http://blogs.the-american-interest.com/fukuyama/2012/03/26/acemoglu-and-robinson-on-why-nations-fail/
 

Fitz.

[petagny]

Just realised that there is a link between Fitz's post and my recent post on Niall Ferguson's first BBC Reith lecture.

Since Ferguson bases a lot of his argument on Acemoglu and Robinson, this review of their book by Fukuyama offers an interesting critique.

I don't think Ferguson mentioned Fukuyama.

[FitzFord]

petagny, I am happy you returned to this topic, which I suppose is not surprising as I believe that the fundamental arguments about the primacy of institutions in development outcomes is perhaps the most critical issue in our business, and likely to be so for a long time. I actually read Fukuyama as both supportive of the thesis of the importance of institutions in development - (I would extend it to governance generally, as you know from my position on the EU crisis). I regard his comments as asking for more rigorous assessment of the institutional situation of countries at specific times in their history and state of development, and what that may predict about expected outcomes. I think that is critical, as it is arguably necessary to recommend modifications/improvements in the institutional arrangements in order to protect current, and promote future, positive developments. At some point, perhaps when we take another break from the EU situation, perhaps we should look at the direction that the USA is taking. It is arguable that there is potentially disruptive institutional changes taking place on this side of the pond that concentrate power in a very small, super-wealthy group of interests, exemplified by "money is free speech". But, before we take on this big one, perhaps we should spend some time exploring , and hopefully, refining our understanding of institutions and instututional factors in development and good governance.

Fitz.