Is it that a sound political framework with stable and persistant instutions contribute to economic growth, or are, alternatively, sound institutions merely an by-product of a development process that relies primarliy on human and social capital which spurs economic growth (and which leads to more benign regimes through accomodating people by higher and growing incomes)?
The first, institutional approach has diverse followers (depending where you stand, you might wanna include Montesquieu, Buchanan, Tullock, but certainly Easterly/Levine, Dollar/Kray, North and probably also Rodrik and associates).
This logic predicts that political institutions and limited government cause economic growth, and lead to pro-investment policies.
The latter approach may reach out to Aristotle (or at least S.M. Lipset) in the belief that educated people are more inclined to resolve issues peacefully through negotiation than through violence. Key themes are literacy, human and social capital (sounds a bit like Pierre Bourdieu?) - but NOT necessarily good governance and political participation/democracy (cf. the examples of dictator-led South Korea before the 1980s, pseudo-democratic Singapore, Taiwan before 1980s etc.). Subsequently over the years of economic growth the regimes may turn more democratic, or may at least improve its institutional structure.
Common to both approaches are apparently the emphasis on property rights which are supportive for human and physical capital formation, and some sort of competition.
Glaeser et al. seem to support the second logic, but along the way, things aren't as clear as one want them to be. Suddenly, Acemoglu's approach reemerges: European settlers have taken with them their institutional visions/traditions and depending which conditions they found in colonies, they developed exploitative institutions (i.e. if the region was densely populated by locals already) or gov-constraining ones (i.e. if they settled in low-density areas) that caused long-run growth.
One is then not far away anymore of the 'Geographic factors matter'-school of thought (old, but reemerged due to Jeffrey Sachs). Following Sachs's brief analysis (NBER Working Paper 9490) defends geographic factors by doing a regression with a Malaria variable that suggests that ecological conditions directly affect the level of p.a. income after controlling for institutional quality.
And this is just the beginning: there are many more strands of thinking about what factors matter how and in which way(s) run causalities....
Gaudeamus igitur.
basing on:
Glaeser, E.L., La Porta, R., Lopez-de-Silanes, F. & Shleifer, A. (2004). Do Institutions Cause Growth? In: Journal of Economic Growth, Vol. 9, pp. 271-303.
Sachs, J. (2003). Institutions Don't Rule: Direct Effects of Geography on Per Capita Income. NBER Working Paper 9490.
Freitag, 23. Januar 2009
Freitag, 16. Januar 2009
Public Choice (yeah) --> Institutions III (getting dismantled?)
Yeah, the good guys, do-gooders and others.
Wasn't it a certain Rod Blagojevich, who proudly claimed to clean up, to be the nice and proper guy, after his predecessor as Governor of Illinois was involved in corruption, scandals etc.? The good guy gets elected and turns bad (if he ever was good...). Roddie wanted to sell a Senate seat and faces himself impeachment...
and now, another gag - Italy (what else would you have guessed?) is back in the news. But this time, it's not Berlusconi, but the political left - ridere licet, but crying out loud is allowed too (from the Economist):
"On January 5th the centre-left mayor of Naples, Rosa Russo Iervolino, unveiled a new and reshuffled city administration. There were six new faces in her 16-strong team. Four of their predecessors had been arrested on suspicion of taking part in what prosecutors claim was a plan for the “systematic looting” of public funds. A fifth had committed suicide after he too came under investigation for corruption and other alleged offences.
The scandal in Naples, which revolves around a €400m ($545m) public-services contract, is the most substantial but by no means the only one to have assailed the opposition. Since the end of November, centre-left politicians have been put under suspicion, or even arrest, in seven other cities and regions."
Source:
http://www.economist.com/world/europe/displaystory.cfm?story_id=12906536
if you have ever believed, that some people, willing (maybe sometimes) to do something good, do actually good (for the public, hum ... or for themselves?:-) and never bad, read Mancur Olson.
Yeah, public choice - poor Italians: whoever they wanna vote for, it most likely will turn out to be a lemon....
Wasn't it a certain Rod Blagojevich, who proudly claimed to clean up, to be the nice and proper guy, after his predecessor as Governor of Illinois was involved in corruption, scandals etc.? The good guy gets elected and turns bad (if he ever was good...). Roddie wanted to sell a Senate seat and faces himself impeachment...
and now, another gag - Italy (what else would you have guessed?) is back in the news. But this time, it's not Berlusconi, but the political left - ridere licet, but crying out loud is allowed too (from the Economist):
"On January 5th the centre-left mayor of Naples, Rosa Russo Iervolino, unveiled a new and reshuffled city administration. There were six new faces in her 16-strong team. Four of their predecessors had been arrested on suspicion of taking part in what prosecutors claim was a plan for the “systematic looting” of public funds. A fifth had committed suicide after he too came under investigation for corruption and other alleged offences.
The scandal in Naples, which revolves around a €400m ($545m) public-services contract, is the most substantial but by no means the only one to have assailed the opposition. Since the end of November, centre-left politicians have been put under suspicion, or even arrest, in seven other cities and regions."
Source:
http://www.economist.com/world/europe/displaystory.cfm?story_id=12906536
if you have ever believed, that some people, willing (maybe sometimes) to do something good, do actually good (for the public, hum ... or for themselves?:-) and never bad, read Mancur Olson.
Yeah, public choice - poor Italians: whoever they wanna vote for, it most likely will turn out to be a lemon....
Donnerstag, 15. Januar 2009
Do Good and Develop - Institutions II (Economic Development)
Having an economic development (policy) class is an exciting thing. Given the multitudes of factors and processes one might be willing to take into account (or neglect, or deny) and the level of bickering and finger pointing, one might be tempted to say: anything goes (but, lesson no. one: do no harm - not even this is easy...). In retrospect, some nice theories/creeds/schools of thought have been active.
(For those of you who know better and dislike a 'kick-and-rush' approach to science may roll their eyes upon reading the following. Apologies! But it seems like things are done this way over here).
After WWII, people wondered how to help poor nations. Given a lack of theoretical models, the experiences of the Marshall plan as well as one's own history of industrialization and development formed the basis the 'stages of growth' model by Walt Rostow: economically, there are the five stages: traditional society, pre-conditional stage for take-off, take-off, drive to maturity and the age of mass consumption/welfare. This was described as a linear development (epitomized by Harrod-Domar model, or a sort of AK model). [btw: our time: 1950/60s, big-time econ dev in the West, belief in progress and sunshie]
Some things change, some things don't. In the 1970's, a bunch of societal, political and economic disruptions have taken place.
One new model (or better: way of thinking) was talking about "structural changes" (cf. Arthur Lewis, Hollis Chenery) and commonalities in "patterns of development", i.e. structural transformation in developing countries would have several key features that are largely similar in several countries. Changes would need to take place in econ./pol./soc./institutional realms both domestically and internationally. Given the increasing interdependencies globally, internal/external factors could hinder (constraints) or promote development. Some themes: shift from agricultural to industrial production, accumulation of physical and human capital, enhanced and diversified consumer demand, urbanization and smaller families.
Unclear is whether these are the themes found, or the consequences of development or the actual causes. At least, the way of thinking led one to assume that a 'correct' approach with mixing the right policy ingredients would determine a positive development.
(btw: you may forget the two sector Lewis model with labor surplus in the agri-sector - it sounds just too funny).
Uiiih, conspiracy theories exist everywhere. In the 1970s international dependence models emerged.
First, hard-core marxist thinking contributed to the center-periphery approach in which industrialized (evil capitalists...ahem) exploit dev countries, keep them small and dependend, while a willing group of compradores (elites in dev countries) gather their perks and keep their countries from reforming. Hence, this thinking suggests an externally enforced (and internally secured) underdevelopment and looks pessimistic about future prospects. Uaaa.. luckily, history did largely run different from this grimm thinking.
Second, a bit more benign, "False paradigm" approach claims that underdevelopment is a consequence of ill-fated and faulty advice given my experts, narrow-minded and herd-behaving scholars etc. with biased/ethnocentric recommendations about how to develop, forgetting to adequately recognize differences in traditions, social structures, mentalities etc.
Third, a dualistic way of thinking is almost always applicable, same here. Superior vs inferior groups of countries can coexist, may not change, the junior may not be able to gain from the senior's nice experience, and their development may even diverge, instead of converge.
(look at South Korea, and you wonder who came up with marxist gugus; ok, look at other countries and draft your own theory blend).
After ol' Solow from the fifties, stirring a bit with neoclassical ingredients and funny AK-models, you get the 1980's resurgence of neoliberal models, (yeah, the time of Reagan, optimism and the fall of uncle USSR), the emergence of the Washington consensus (ask Williamson), and a bunch of different models with funny growth ingredients (productive public goods, Barro; human capital, supercharged etc.).
Besides the purist free-market approach, you may also want to consider the application of public-choice-thinking (basically about corrupt, vested-interests driven bureaucrats hijacking public institutions for filling their own pockets; have you heard of Rod Blagojevich and Chicago-style pay-to-play? ... multiply by 10^10 and you get a clue) in dev policy realms. Or, look at the World Bank and be "market-friendly", while recognizing that it takes a government to mend market frames, come up with nice policies to make sure there is actually a market. Market failures are common in dev countries (DC), as well as incomplete info, market power situations etc. Include externalities and you get to endogenous growth models and the conviction, that institutions matter.
Yeah, institutions. Let's ask Douglass North.
(For those of you who know better and dislike a 'kick-and-rush' approach to science may roll their eyes upon reading the following. Apologies! But it seems like things are done this way over here).
After WWII, people wondered how to help poor nations. Given a lack of theoretical models, the experiences of the Marshall plan as well as one's own history of industrialization and development formed the basis the 'stages of growth' model by Walt Rostow: economically, there are the five stages: traditional society, pre-conditional stage for take-off, take-off, drive to maturity and the age of mass consumption/welfare. This was described as a linear development (epitomized by Harrod-Domar model, or a sort of AK model). [btw: our time: 1950/60s, big-time econ dev in the West, belief in progress and sunshie]
Some things change, some things don't. In the 1970's, a bunch of societal, political and economic disruptions have taken place.
One new model (or better: way of thinking) was talking about "structural changes" (cf. Arthur Lewis, Hollis Chenery) and commonalities in "patterns of development", i.e. structural transformation in developing countries would have several key features that are largely similar in several countries. Changes would need to take place in econ./pol./soc./institutional realms both domestically and internationally. Given the increasing interdependencies globally, internal/external factors could hinder (constraints) or promote development. Some themes: shift from agricultural to industrial production, accumulation of physical and human capital, enhanced and diversified consumer demand, urbanization and smaller families.
Unclear is whether these are the themes found, or the consequences of development or the actual causes. At least, the way of thinking led one to assume that a 'correct' approach with mixing the right policy ingredients would determine a positive development.
(btw: you may forget the two sector Lewis model with labor surplus in the agri-sector - it sounds just too funny).
Uiiih, conspiracy theories exist everywhere. In the 1970s international dependence models emerged.
First, hard-core marxist thinking contributed to the center-periphery approach in which industrialized (evil capitalists...ahem) exploit dev countries, keep them small and dependend, while a willing group of compradores (elites in dev countries) gather their perks and keep their countries from reforming. Hence, this thinking suggests an externally enforced (and internally secured) underdevelopment and looks pessimistic about future prospects. Uaaa.. luckily, history did largely run different from this grimm thinking.
Second, a bit more benign, "False paradigm" approach claims that underdevelopment is a consequence of ill-fated and faulty advice given my experts, narrow-minded and herd-behaving scholars etc. with biased/ethnocentric recommendations about how to develop, forgetting to adequately recognize differences in traditions, social structures, mentalities etc.
Third, a dualistic way of thinking is almost always applicable, same here. Superior vs inferior groups of countries can coexist, may not change, the junior may not be able to gain from the senior's nice experience, and their development may even diverge, instead of converge.
(look at South Korea, and you wonder who came up with marxist gugus; ok, look at other countries and draft your own theory blend).
After ol' Solow from the fifties, stirring a bit with neoclassical ingredients and funny AK-models, you get the 1980's resurgence of neoliberal models, (yeah, the time of Reagan, optimism and the fall of uncle USSR), the emergence of the Washington consensus (ask Williamson), and a bunch of different models with funny growth ingredients (productive public goods, Barro; human capital, supercharged etc.).
Besides the purist free-market approach, you may also want to consider the application of public-choice-thinking (basically about corrupt, vested-interests driven bureaucrats hijacking public institutions for filling their own pockets; have you heard of Rod Blagojevich and Chicago-style pay-to-play? ... multiply by 10^10 and you get a clue) in dev policy realms. Or, look at the World Bank and be "market-friendly", while recognizing that it takes a government to mend market frames, come up with nice policies to make sure there is actually a market. Market failures are common in dev countries (DC), as well as incomplete info, market power situations etc. Include externalities and you get to endogenous growth models and the conviction, that institutions matter.
Yeah, institutions. Let's ask Douglass North.
Sonntag, 11. Januar 2009
Swiss Design - starring Hans Erni
'Connecting Thoughts 1993'
'Dove and Pegasus 2005'
Commemorating his 100th birthday next February 21, 2009, we can safely say that he is one of the greatest artist, Switzerland has ever seen (and almost forgotten). Still alive and active as usual, he produces paintings that may lead some layman like me to remember MC Escher, Picasso or Paul Klee. He combines geometric, strict forms with artful colors and soft lines.
His works reflect art and politics, and have been internationally acclaimed. Some appeared on post stamps, or some supported the Red Cross, or have been related to the UN. 20 years ago, a museum dedicated to him opened as part of the 'Verkehrshaus' (Transportation Museum) in Lucerne, his hometown in Switzerland.
get insipired and visit:
www.hans-erni.ch
Freitag, 2. Januar 2009
Financial Institutions I
Before anyone did anything, Matsukata did [almost] everything.
Sadly, if you study financial development and institutions, you rarely come across prominent figures from Asia of the 19th century, as most literature deals with Western financial development. The more fun is to read about a Japanese (seemingly) multitalent. His story (according to wikipedia, as of today).
He was/is:
Matsukata Masayoshi (松方 正義), 1835-1924, prince, president of the Japanese Red Cross Society, privy councillor, gijokan, member of the House of Peers, and Lord Keeper of the Privy Seal of Japan. Later, he was given the title of prince and genrō.
He did/acted as:
- governor of Hita prefecture (1868-71?)
- drafted new Land Tax Reform (1873-81): highlights: pay taxes in money, not in rice, fixed rate 3%, calculated on price of estate.
- Home Minister in 1880
- Finance Minister 1881: fiscal austerity, boosted confidence in currency and fin. institutions
- tried to protect Japanese industry (at the time: uneven treaties with West), launched big government industries, (needed to) hand over to private sector --> evolved into zaibatsus.
- established Bank of Japan (issued paper money) in 1882.
- wrote Meiji constitution (1889) articles 62-72
- Prime Minister 1891/92 and 1896-98 (and simultaneously finance minister)
- produced at least 24 children
(Alexander Hamilton has done much, but could he meet this standard:-)?)
Sadly, if you study financial development and institutions, you rarely come across prominent figures from Asia of the 19th century, as most literature deals with Western financial development. The more fun is to read about a Japanese (seemingly) multitalent. His story (according to wikipedia, as of today).
He was/is:
Matsukata Masayoshi (松方 正義), 1835-1924, prince, president of the Japanese Red Cross Society, privy councillor, gijokan, member of the House of Peers, and Lord Keeper of the Privy Seal of Japan. Later, he was given the title of prince and genrō.
He did/acted as:
- governor of Hita prefecture (1868-71?)
- drafted new Land Tax Reform (1873-81): highlights: pay taxes in money, not in rice, fixed rate 3%, calculated on price of estate.
- Home Minister in 1880
- Finance Minister 1881: fiscal austerity, boosted confidence in currency and fin. institutions
- tried to protect Japanese industry (at the time: uneven treaties with West), launched big government industries, (needed to) hand over to private sector --> evolved into zaibatsus.
- established Bank of Japan (issued paper money) in 1882.
- wrote Meiji constitution (1889) articles 62-72
- Prime Minister 1891/92 and 1896-98 (and simultaneously finance minister)
- produced at least 24 children
(Alexander Hamilton has done much, but could he meet this standard:-)?)
On Wisconsin Ave
The journey starts in the center of a fanzy shopping mile - M Street - in Georgetown. You pass a building with a golden dome, formerly a farmer and merchants bank (today PNC is in there). Numerous galleries, nail shopes, restaurants, boutiques etc. are along the quite narrow road.
The more north you get, the broader becomes Wisconsin, less crowded, less colorful, less upscale. Brick buildings here and there, a Safeway, a public library.
Then, on the left, a huge territory and a tall, white-grey building (a hybrid between a palace and a bunker): the Russian embassy.
Further north, just past the intersection is the beautiful National Cathedral, built between 1907 and 1990 (probably one reason why the Indiana limestone-structure is still so clean and nice: it's so young). The central tower is 301' 3" high. Highlights are Woodrow Wilson's sarcophagus and the extensive underground rooms (about half of the cathedral has underground chapels/walkways etc). And ... we're in America ...: one of the busts on the Northwestern Towers depict Darth Vader (I did not see him, it was already dark, but check out the website).
http://www.nationalcathedral.org/about/darthVader.shtml
Beyond the cathedral complex, there are many apartment buildings and you wouldn't get the feeling that you're actually in DC. Just when it get's a bit downhill again, there's Fannie Mae on the left-hand side, the big semi-public (given its inception in 1938), private (since its chartering by congress in 1968) and now entirely public (since Sept. 6, 2008) mortgage enterprise.
Nearby is also the embassy of (the Republic of China on) Taiwan, or how the plate says: "Taipei Economic and Cultural Representative Office in the US" (the building is much nicer than the name).
Further north is Tenleytown and some American University buildings with radio antennas (WAMU 88.5 FM, National Public Radio). Walking back via Albemarle Street (through a nice neighborhood) and Connecticut Ave (past DC University), I encountered a chanting crowd: protesters call for a free Palestinian state (cf. the recent Israeli action in/against the Gaza strip...).
At an earlier point, but time and again worthwile a visit is the Smithsonian museum on American Indians
http://www.nmai.si.edu/
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