OF SUBSTANCE AND SPIRIT
It was the Royal Swedish Academy of Sciences that announced the winners of the Nobel Prize for Economics at a press conference in Stockholm last week. They were Daron Acemoglu of Massachusetts Institute of Technology (MIT), Simon Johnson also of MIT, and James Robinson of the University of Chicago. They collaborated in working on the linkage between political institutions, economic development, and long-term prosperity. We have been citing their work in many previous economic briefings on the Philippines’ failure to translate its decent economic growth since 1999 until the 2020 pandemic into real progress and catch up with its ASEAN neighbors.
In particular, Acemoglu and Robinson co-authored the book “Why Nations Fail.” In addition, they produced an earlier book, “Economic Origins of Dictatorship and Democracy,” and later, “The Narrow Corridor: States, Societies, and the Fate of Liberty” (2019). Acemoglu also co-authored with Johnson “Power and Progress: Our Thousand-Year Struggle over TechnoIogy and Prosperity” (2023). It is difficult to dismiss such Colossal research work. “Why Nations Fail” was anchored on 15 years of research. But the actual research collaboration among the three Nobel laureate spanned over two decades. This is definitely not a piece of cake.
RAND Corporation’s Warren Bas in “Washington Post” of April 20, 2012, about a month after the book’s publication, described it as an engaging, in fact very absorbing, endeavor to explain the persistence of poverty among 1.29 billion people in the developing world who struggled to survive on less than $1.25 a day. At the time, the average American was seven times richer than an average Mexican, 10 times than the average Peruvian, 20 times than the average inhabitant of sub-Saharan Africa, and about 40 times than the average citizen of such poor economies as Mali, Ethiopia, and Sierra Leone.
It's not about geography or culture. It’s all about key shifts in economic and political institutions that can either be inclusive such as power-sharing, productivity, education, health, technological advances and digital transformation; or extractive which include grabbing wealth and resources away from one part in favor of a few. Inclusive institutions allow the citizenry to participate in economic activities. It is one where people’s talents and skills are best harnessed by society.
Think of Congo’s Mobutu Sese Seko who dominated the Democratic Republic of Congo from 1965 to 1997. He made airstrips of such an impoverished economy wide enough to accommodate the giant Concordes he rented from Air France. He exploited Congo’s natural resources, sucked them dry. His country’s economic and political institutions were too weak to deliver basic services to the people but just strong enough to secure Mobutu and his cronies.
Think of Philippine politicians who had exclusive access to the nation’s forests and mining rights, even black sands, who opposed deregulating the economy and liberalizing it to make markets more contestable to business people including foreign investors. All these years, even elections have fallen to the extractive control of politicians and the ruling elite fighting over whatever is left to fight over.
Acemoglu and Robinson would contend that a combination of corrupt regimes, exploitative elites and selfish institutions, as well as weak state apparatus could only produce poverty and backwardness, economic lethargy, intramurals among the ruling elites. This is one sure recipe for failure.
“Why Nations Fail” is indeed “bracing, garrulous, wildly ambitious and ultimately hopeful. It may, in fact, be a masterpiece.”
Bass was correct because after 12 years, “Why Nations Fail” is one of the major reasons for the award of the Nobel Prize.
Whether we like it or not, the Philippines should have learned from their works. One reason: it was first published on March 20, 2012, more than 12 years or two presidents ago. Second reason: the lesson can be summarized in one sentence with two words “Institutions matter.” A corollary statement may also be appropriate, and that is the importance of property rights and the rule of law. And finally, the World Bank flew Robinson, one of the book’s two authors, to Manila to explain to the country’s economic managers, academics, and business leaders why some nations are wealthy, while the rest are dirt poor. That was 12 years ago.
We could have learned that if we maintain poor rule of law and institutions that exploit, rather than uplift, the population, we would not generate enough growth to address poverty and income inequality. Democracies, on the other hand, that adhere to the rule of law and protect individual human rights are the ones that could generate growth.
We could have learned that a reversal of fortune could happen to colonized states like those in South and Central America. These countries ended up poorer after colonization. Many of us in Southeast Asia are former colonies of both European and North American colonial masters. But it looks like in the Philippines, among the ASEAN 5, time stood still. Our colonizers established mostly extractive, rather than inclusive institutions that protected property rights, enforced the rule of law, educated their population, and encouraged innovation and entrepreneurialism.
We could have learned that despite its spectacular growth as a new model of authoritarian growth, China’s model did not impress the two economists. Calling China’s institutions as extractive, Acemoglu and Robinson argued that such regimes can, and did, produce temporary economic growth but only as long as these remain politically centralized. For them, notwithstanding China’s transition from essentially extractive to more inclusive institutions, it is “still saddled with an extractive regime.” It still plays a game of catch up. Whether it will succeed or not will be seen in the next few decades.
When nations fail, and their political system guarantees that the elites remain in the driver’s seat, this year’s Nobel laureates proposed that no one will trust the political leadership’s promises of future economic reforms. That is why, no improvement, no progress is made.
When nations fail, and the threat of a revolution becomes more imminent even if peaceful like what the Philippines mounted in EDSA in 1986, those in power and authority would face a dilemma. To keep power, they would try and placate the electorate by promising future reforms, something that disappear when the threat vanishes in thin air. But in the future, the population would grow skeptical about those promises, and there would be no ownership of public policy. By that time, the only option available is to transfer power and revive democracy.