Sachs vs Acemoglu and Robinson

Some weeks ago I posted a review of the book by Acemoglu and Robinson, “Why Nations Fail,” which included references to critical reviews by prestigious scholars such as Sachs, Fukuyama, Diamond and others. Some weeks later, Acemoglu and Robinson responded to Sachs, and he replied to them in his blog. These comments and replies can be followed here. In his second (and so far, to my knowledge, last) reply, Sachs contributes some academic references that reinforce his points. These include work that qualifies the idea by Acemoglu and Robinson of “the reversal of fortunes,” according to which the poorest colonies at the time of colonization facilitated the establishment of non-extractive institutions that imported the political organization of the metropolis. While in many countries the idea of the “extractive elites” by Acemoglu and Robinson is taken as the revealed truth, it is useful that other academics provide more multi-causal and non-linear explanations of why some nations fail and others succeed to develop.

Corruption, violence and economics

I am re-reading a book that is now some years old but that is very revealing of the interconnections between spheres of social interaction that usually receive a separate treatment. The book is  by Raymond Fisman and Edward Miguel and summarizes the results of a number of empirical studies by both economists that have to do with the relationship between corruption and economics or between violence and economics. For example, one of the chapters is related to the corporate connections of the Suharto family in Indonesia, and how the firms that were connected suffered in their stock price from events related to the illness of the dictator. The first chapter reflects on how different nations that were in the third world just 30 or 40 years ago have now diverged dramatically in terms of income per capita. For example, Kenya remains as poor as when it became independent, whereas Korea, which had the same development level as Kenya 40 years ago, now enjoys a level of development similar to Japan or to European countries. Although it is very difficult to establish causality, those countries that have not been able to develop are also countries that are mired in corruption and violence. This reflects a broader interaction in my view, the one between democratic quality, the management of identities and economic development. One can see it also through the impact of economic crises, as explained in the last book by Gary Gorton: those countries that suffer the most serious economic crises are also countries that easily fall into ethnic or identity conflicts and where crises coincide with corruption scandals. For example, countries that receive external aid to develop may spend these resources in spectacular infrastructures that are far away from the needs of the people, or may fail to agree on which are the projects that are more efficient, that is, that maximize the joint welfare of all the economy, instead of only a part of it. Corruption and ethnic conflict are social issues, as is economic development.

From a confederal to a federal Europe

A few days ago, the meeting of the European leaders to approve a new budget, finished with an insatisfactory agreement, because it failed to launch a coordinated program of egalitarian and balanced growth. The national media focused in each country on the advantages or disadvantages of the new budget for the local finances. Unfortunately, the debate did not focus on the long run implications of the difficulties to make progress towards a more coordinated, federal, democratic Europe. Of course, it will not be easy to advance to this from the current confederal Europe, where each member state has veto power, as it was not easy in the US to advance form a confederacy of states to a federal Union. But a true integrated market will only be possible if, like in America, there is a federal government with a federal budget, with taxation powers, with a substantial transfer of sovereignty from the states to the Union, where resources are pooled and transfers are made at the right scale. National debates are a bit ridiculous against the background of this challenge. National debates will be absolutely irrelevant if Europe is not able to evolve to a clear federal, integrated structure. It will be irrelevant in the new geo-strategy of economic and political powers, and its dream of a large multicultural community where nation-states belong to the past will come to a halt.

Full, Transparent and Independent

The Financial Times has called today for a full, transparent and independent investigation into the scandal that engulfes the Spanish Prime Minister, Mariano Rajoy, and his party, the Popular Party. It has been alleged that the main leaders of this party for the last 20 years received illegal money coming from illegal political donations. Mr. Rajoy has tried to stop the storm by organizing an internal investigation by a party operative. Popular Party leaders do not realize that Spain is no longer an isolated country with black and white TV, but a country that is fully integrated in Europe that in addition is on the spotlight for the potential impact that its crisis could have on overall European financial stability. Spain can just not afford to be governed by a group of individuals that are not up to the standards of a well functioning, clean, democracy. It is for this reason that I just signed a petition asking Mr. Rajoy to tender his resignation.