How Ideas Matter

In the last several posts (here, here, here and here), we have discussed the role of leadership in political economy and organizations. What about ideas?

For example, Dani Rodrik has recently argued that ideas are much more important than the political economy literature admits.

Is this true? If so, how could this role of ideas be incorporated into political economy and more broadly economics?

There are two senses in which ideas could be important in political economy. The first is that important political dynamics can be explained mainly by certain ideologies or ignorance. This is a view we have argued against in Why Nations Fail, for example in our discussion of the “ignorance hypothesis”.

We also pointed out on this blog that even the best case for this view, the emergence and persistence of communist regimes, isn’t so clear-cut. In fact, these regimes cannot be understood as a result of people slavishly following an ideology. Nor is the state control over resources, production and distribution something that was invented out of thin air by the followers of Karl Marx. Rather, it was “invented” in history many times over because it has an attractive political logic for those dominating political power.

The second sense in which ideas matter is more plausible. Ideas interact with institutions and interests.

There are several ways in which this may happen.

First take once more the case of communism. As we have argued, communism would not have emerged and lasted if it was simply a (mistaken) worldview in which well-meaning, selfless leaders and their followers came to believe in. Rather, it became a powerful system because of the interplay of the interests of the party leaders and the ideological framework it provided for them and their followers. In particular, communism became a powerful “ruling ideology” because it successfully centralized political power in the hands of the party leaders; because it provided them with economic tools to extract resources from society (e.g., collectivization and state control of much of production); and because it also created a language and a set of beliefs that, combined with the right type of repression, kept a sufficient part of the population silent or even willing to collaborate. North Korea’s dystopic dictatorship powerfully highlights all of these points, even though Soviet Russia and China also illustrate the same ideas.

Second, consider our discussion in Why Nations Fail of state centralization among the Bushong. We put a lot of emphasis there on King Shyaam’s being able to centralize power, which was beneficial for him and for the Bushong elite. But how did he do that? Ideas probably played two important roles. First, the idea that a stable order with the Bushong elite centralizing power in their hands could be forged may not at first have been obvious. Somebody had to come up with this idea and make it operational. So there was an aspect of “idea innovation”. Second, this process of state centralization likely went hand-in-hand with its own brand of indoctrination — or manipulation of beliefs. For example, King Shyaam was presented as a powerful religious leader in addition to being a political leader.

Third, consider the march of democracy in 19th-century Britain, which was also discussed at length in Why Nations Fail. Though this was mostly a classic political economy problem, as we argued in our first book, Economic Origins of Dictatorship and Democracy, ideas and beliefs played an important role also. Organizations vying for greater political inclusivity often used arguments and imagery from earlier periods to legitimize their claims. For example, Chartists named themselves after the “Charter,” the Magna Carta, with the argument that their demands for the broader franchise were simply a continuation of the process that the Magna Carta started.

In all of these examples, ideas play an important role, but this is not despite of interests or institutions. They do so by strengthening, organizing or enabling underlying interests, and they became powerful in the context of a given set of institutions and political conflicts.

In view of this, we agree with Rodrik that ideas need to be more systematically integrated into economics models, but not with the conclusion that “ideas trump interests”. Rather, ideas become powerful in conjunction with interests and institutions.

And what about modeling them more systematically? Well that’s easier said than done, but as we will argue in our next post, there are also some promising directions here within the economics literature.

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