Disrupting Dysfunctional Equilibria

In Why Nations Fail we characterize poor countries as being in an equilibrium where extractive political institutions lead to extractive economic institutions. To experience economic growth a country has to move out of this situation. It can secure growth, even in the short run, by moving economic institutions in a more inclusive direction, as China did in the late 1970s. For such growth to be sustained, however, it also needs to move to inclusive political institutions. In the book, we emphasized how institutional transitions occur at critical junctures which disrupt the balance of political power and often solve the collective action problems for those wishing to challenge extractive institutions.

In the next few blogs we examine what sorts of things, even “interventions”, might break up extractive equilibria. These may give hints about what types of policies might have similar effects.

Though in the book we presented our framework using a dichotomy between inclusive and extractive at a national level, in reality shades of grey are everywhere. Some societies are more extractive than others, and even within a broadly inclusive society there are places which are deeply extractive as the South of the United States was prior to the 1960s. Indeed, the story of the US South is a vivid example of how bottom-up discontent and movements combined with interventions from outside can help break up dysfunctional equilibria.

In this context, it is useful to recall that despite President Eisenhower’s claim that “law and force cannot change a man’s heart” — implying that there were deep cultural roots to the ‘Southern equilibrium’ — in fact law and force did exactly that (see our post on this). The Southern equilibrium was disrupted by such interventions as Brown versus Board of Education, and perhaps more centrally by such things as the Voting Rights Act, which politically empowered black voters.

This breaking of the “Southern equilibrium” is one example of a much broader type of change from which we might be able to learn how to make society more inclusive.

In the next few posts, we will focus on how dysfunctional political equilibria can be disrupted and broken, starting with the unraveling of clientelism.

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