Tuesday
Nov132012

A Couple of Economists?

In our last post we noted how Lord Lawson of Blaby used our arguments in Why Nations Fail to bolster his claim that Britain should not be committing itself to spend 0.7% of GDP on development aid. In his speech he noted:

A useful analysis, which I commend to the House, is to be found in a penetrating new study, Why Nations Fail, by a couple of economists, Acemoglu and Robinson…

A couple of economists? Actually, James Robinson likes to refer to himself as a “recovering economist”…

Why? Because to paraphrase Bill Clinton’s famous adage: “It’s the politics, stupid” — at least when it comes to understanding economic development.

But politics is notable in its absence in the report of the Select Committee. Let’s look at their 28 main policy recommendations, for example. Of these only one mentions politics, noting “Large and prolonged aid programs can have a corrosive effect on local political systems”. Yet as we argue in Why Nations Fail, the political consequences of aid on poor countries are likely second order. Of course one can find plausible examples, such as Zaire during the rule of President Mobutu, where international aid may have made a dire situation worse. But in Why Nations Fail, we argue that the political problems of Africa, for example, run much deeper and are much more firmly rooted in the institutional development of the continent. They were not recently created by aid, which was rather a response to the economic decline suffered by most countries after independence.

While politics, the heart of our argument, is conspicuously missing from the 28 policy recommendations, “corruption” appears frequently, even obsessively. For instance, recommendation #7 begins “The risks of corruption are greater in weak, unstable or failed states.” #10 notes “For the Government’s planned increase in aid to fragile states to have any chance of being effective we recommend careful selection of programmes and continuous evaluation of their effect, and a robust anti-corruption strategy.” #22 recommends “We recommend that DFID should continue to exercise vigilance in ensuring aid does not prop up oppressive regimes, even if they are not conspicuously corrupt in a financial sense.” #26 argues “The planned combination of much higher programme spending, especially in fragile states, with administrative staff cuts seems to risk weaker monitoring of programmes and less rigorous vigilance against corruption,” and #27 starts “There is corruption in many developing countries.”

Though Lord Lawson advocates our analysis of the problems of poor countries, the core of our argument is not reflected in these policy prescriptions. Instead of a clear discussion of politics and the political incentives and malfunctions that keep poor countries poor, there is instead a massive emphasis on corruption. Why?

Here is a conjecture: corruption is a way for many economists and policymakers to talk about bad political outcomes without talking about politics. As long as the discussion is not about politics, there can always be a simple, non-political solution, often designed and operated by some impartial clever politicians, advisers or economists. If there is corruption, then maybe bureaucrats should be paid a higher wage (to create better incentives), or more clever remuneration and promotion schemes should be designed (and yes you guessed it by some well-meaning impartial policymakers and economists), or maybe better information can detect them being corrupt.

Corruption is thus viewed as a malfunction, just like a market failure, which can be solved by a clever intervention, without fundamentally changing the political economy — or the politics — of a society.

Corruption is an attractive talking point for both politicians and many economists because it is fundamentally viewed as apolitical. But poverty, alas, is not.

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