Political Barriers to Economic Growth

Political Barriers to Economic Growth
Economists have a good idea of the broad requirements that are needed for
economic growth, or rather they at least know what not to do! And yet many
governments continue to choose to maintain what everyone knows to be
disastrous policies and institutions that inhibit or even destroy incentives,
productivity growth and entrepreneurial activity. Such regimes are also characterized
by excessive corruption (Aidt, 2003). Since policies and institutions
seem to be ‘first-order’ determinants of the economic performance of countries,
why don’t governments learn from their mistakes and switch to better
policies? What explains the persistent and repeated adoption and maintenance
of inefficient institutions and proven bad policies (Robinson, 1998)?
This is clearly one of the most important contemporary questions in political
economy. Is there a rational choice explanation that does not have to assume
that dysfunctional political leaders, such as Mobutu in Zaire, are simply mad
or irrational and ideologically blind to reason?
Acemoglu (2003b) and Acemoglu and Robinson (2000a, 2000b, 2000c,
2001, 2003) provide a political perspective on the origin and persistence of
economic backwardness. Their main line of argument runs as follows:
1. the introduction of new technology that will enhance economic efficiency
and economic growth will also influence the distribution of political
power;
2. groups who feel that their political power will be eroded as a result of the
introduction of new technology will deliberately block such change even
if it is to the overall benefit of society;
3. although new technology will increase future output, and hence the
revenue of the politically powerful groups, the incumbent élite also fear
that new technology will enhance the power of competing groups thereby
threatening the future of the élite;
4. therefore there is a trade-off facing any élite between the potential rents
that can be earned from allowing technological progress and the threat to
the élite’s monopoly of political power;
5. serious commitment problems prevent the élite from supporting growthenhancing
technological, institutional and policy changes and then
redistributing a part of the gains to themselves;
6. external threats may shock an élite into accepting change, for example,
the programme of ‘defensive modernization’ adopted in Japan in the late
nineteenth century following the Meiji restoration in 1868.
Using this framework, Acemoglu and Robinson examine the history of
political change and industrialization in the USA, Britain, Germany, Austria-
Hungary (the Hapsburg Empire), and Russia. They argue that where political
élites are subject to competition they are forced to accept change or be
replaced. Where an élite is deeply entrenched they are also likely to accept
change more readily. However, where an élite is insecure they will block
change. In the case of both Russia and Austria-Hungary unconstrained
absolute monarchies resisted the forces of industrialization because they
feared that this would lead to a loss of political power. In contrast, in the
USA, where political competition is guaranteed by the constitution and the
opportunity to extract rents is restricted by the separation of powers, change
was encouraged and promoted. In Britain, where the landed aristocracy that
made up the élite were ‘sufficiently entrenched’, incremental political change
accompanied the Industrial Revolution. A similar story characterizes the
German experience in the latter part of the nineteenth century.
Many of the worst cases of development failure have involved countries
that have suffered from the personal rule of ‘kleptocrats’ who use their
political power as a means to control assets and expropriate the wealth of
their citizens on a massive scale, usually for their own (their families’ and
their close supporters’) consumption and glorification. The best-known
kleptocratic regimes include those of Trujillo (Dominican Republic, 1930–61),
the Duvaliers (Haiti, 1957–86), Mobutu (Zaire, 1965–97), Amin (Uganda,
1971–9), the Somozas (Nicaragua, 1936–79) and Marcos (the Philippines,
1965–86). As Acemoglu et al. (2003b) point out, one of the most puzzling
features of kleptocracies is their longevity. Why don’t the oppressed majority
overthrow the kleptocrat? Acemoglu et al. suggest that this longevity is the
result of ‘weakly institutionalised polities’ that allow the kleptocrat to operate
a ‘divide and rule strategy’. The kleptocrat is able to survive by intensifying
the collective action problem, thereby destroying the coalition against him by
bribing the pivotal groups (Bates, 1981, 2001). In turn, the feasibility of a
divide and rule strategy is enhanced if the kleptocrat has easy access to
natural resource rents (oil, diamonds, copper and so on) and foreign aid flows
(see Easterly, 2003; Sala-i-Martin and Subramanian, 2003). Kleptocractic
regimes are also more likely to appear in low-income per capita countries
where bribes are more attractive to pivotal groups.
Where ethnic diversity is a feature of a country, the kleptocrat will use this
as a basis for divide and rule, with certain ethnic groups receiving bribes in
order to buy off their opposition. Mauro (1995) links political instability to
ethno-linguistic fractionalization and the impact that this has on the quality of
institutions. Easterly and Levine (1997) also trace much of sub-Saharan
Africa’s poor economic performance to political instability related to ethnic
diversity (see also Collier, 2001; Alesina et al., 2003).