Wednesday
Aug012012

Mitt, Jared and David

We were doing so well. Writing about economics and politics for the last five months here without once mentioning the US presidential race. But it’s all over. Mitt Romney has given us no choice, wading into the debate about the origins of inequality and prosperity around the world.

Here is what Mitt says:

I was thinking this morning as I prepared to come into this room of a discussion I had across the country in the United States about my perceptions about differences between countries. And as you come here and you see the G.D.P. per capita, for instance, in Israel which is about $21,000, and compare that with the G.D.P. per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality.

He continues:

Culture makes all the difference. And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things. One, I recognize the hand of Providence in selecting this place. 

Mitt Romney also identifies the origins of his thinking as David Landes’s The Wealth and Poverty of Nations and Jared Diamond’s Guns, Germs and Steel (though presumably not the origin of his numbers, which are incorrect; the gap between per capita in Israel and West Bank and Gaza is about tenfold).

Well actually, Jared Diamond doesn’t say much about culture. In fact, his thesis is about how geographic and ecological conditions led to the differential development paths and prosperity among otherwise identical peoples. In fact his theory would predict that Israelis and Palestinians should have identical levels of prosperity.

Readers of this blog and of Why Nations Fail have already heard us inveigh against geographic determinism. Those interested in this debate can start from Jared Diamond’s engaging and critical review of our book in the New York Review of Books, and then look at our letter and Jared’s response. Perhaps it’s just us. But doesn’t Diamond just say that he disagrees with us but without substantiating how he counters our arguments?

In any case, we digress. Mitt Romney is instead taking his cue from David Landes. But as we show in Why Nations Fail, cultural differences cannot explain differing levels of prosperity. Deng Xaioping didn´t change Chinese culture after 1978 to make the economy grow, but he did change economic institutions a lot. Indeed, many cultural differences we see are the outcomes of different institutional choices. This is surely the case between North and South Korea, for example. After all, does Mitt and David think that there were huge cultural differences between the north and the south of the 38th parallel before the separation of Korea into two?

Of course the difference between Israel and Palestine is not the same as the two Koreas. It was created by the migration of Jewish people, mostly after World War II. Many came from much more developed parts of the world than Palestine which had endured centuries of debilitating Ottoman and then British colonialism. They brought more advanced technologies and high levels of human capital, which in themselves were the result of the institutions and incentives that they faced. As Maristella Botticini and Zvi Eckstein point out in their book The Chosen Few: How Education Shaped Jewish History, the origins of these very high human capital levels are in the historical adoption of institutions in Jewish society. This is where the roots of Isreal’s current prosperity lie. They have further been strengthened by Israel’s integration into the world economy, which has enabled it to continue the process of technology transfer and encouraged trade and investment.

Why hasn’t this prosperity spilled over to the Palestinians since the British left in 1948? A definitive answer would need to be based on much more research, but a plausible one comes from the reaction of Saeb Erekat, an aide to President Mahmoud Abbas of the Palestinian Authority, to Mitt´s remarks:

this man doesn’t realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation.

It seems to us that Mr. Erekat, not Mitt Romney, has the right idea.

We end this by agreeing with what Sandeep Baliga and Jeff Ely say on their blog. Mitt should do some more reading.

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