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Francis Fukuyama on Development

[Updated] Fellow American Interest blogger Francis Fukuyama has an excellent review of Daron Acemoglu and James Robinson’s “Why Nations Fail” up on his blog. He has some important insights that should be read by every development specialist or NGO employee looking into the problems facing developing countries:

Acemoglu and Robinson (henceforth AR; Simon Johnson of the old AJR team dropped out of this volume) have two related insights: that institutions matter for economic growth, and that institutions are what they are because the political actors in any given society have an interest in keeping them that way. These may seem like obvious statements, but many people in the development business haven’t gotten the message. Among development specialists there is what AR term the “ignorance” hypothesis: failure to develop is the result of not knowing either what good policies are (this was the old Washington Consensus) or, now that the focus has shifted to institutions, what good institutions or how to create them. Many development agencies act as if leaders in developing countries want to do the right thing, if only they knew how, and that development assistance should therefore consist of sending smart people from places like Washington out to teach them, perhaps accompanied by some structural adjustment arm-twisting.

By contrast AR argue that bad institutions are the product of political systems that create private gains for elites in developing countries, even if by doing so they impoverish the broader society. (Think Nigeria, which has many multimillionaires while 70 percent of the population lives below the poverty line.) Doing the “right thing” would take away the rents they receive, which is why no amount of hectoring or threats to withhold the next loan tranche has much effect on their behavior. They are making almost the identical point to the one made in the 2009 book Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast (NWW), who argue that most underdeveloped societies are what they term “limited access orders” in which a rent-seeking coalition limits access to both the political and economic system. Indeed, I see no real difference between the “extractive/inclusive” distinction in AR and the “limited/open” access distinction in NWW.

There are a couple of Frank’s trademarks on display here. First is the clarity of his core concern: improving the lives of the poor by thinking about development in a rigorous, deeply serious way. Second, he makes his case scrupulously, fairly, and in a calm and civil way.

Read the whole thing.

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  • Neville

    Thirty years ago Africans in senior political and administrative positions were laughing at Europeans and Americans for failing to understand this. You can imagine how much fun they have had since.

  • Anthony

    Fukuyama contends “Why Nations Fail” has policy importance (just for him some signal inconsistencies); yet, insight “bad institutions exist because it is in the interest of powerful political forces within the poor country itself to keep things that way” ought to be part of NGO and development specialist handbook.

  • Corlyss

    I first heard the term “rent seeking” a couple of years ago in an article in Policy Review. It’s such a wonderfully descriptive term, and once I understood how it works, I’ve seen it in many places, including the small town where I live.

  • Duane

    Acemoglu and Robinson are dancing around Bruce Bueno de Mesquita’s Selectorate Theory. Coalition size determines the nature of a regime, and both foreign aid and natural resources are functionally identical – “free” boodle the leader can use to pay off his cronies with. Large coalitions need to be paid off in policies, but small coalitions can be paid off in specie. And the leader always prefers the small coalition – the fewer the people the leader absolutely has to rely on, the better for the would-be autocrat.

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