One of the things I learned in a quarter of a century as a civil servant is that the public has a great deal of common sense.  Any minister or department which thinks it knows better than the broad swathe of public opinion (a) is probably wrong and (b) won’t last long anyway, whether they are right or not.

One thing that the public knows, which many development experts apparently do not, is that poor countries are poor because they are badly governed. According to Daron Acemoğlu and Jim Robinson, the authors of Why Nations Fail, the public is right: poor countries are poor because they have institutions which prevent growth and enable a small elite to capture the nation’s wealth.

Why Nations Fail is one of the most important books published about international development in the last decade. If you don’t have time to read 450 pages of analysis and evidence, you can get a flavour of the book by listening to my hour-long Development Drums podcast with the authors. They argue that bad government – in the form of bad institutions and policies – explain why some nations have achieved economic success and other have not. (If podcasts are not your thing, you can read the transcript here.)

Acemoglu and RobinsonThe importance of institutions for development is not very exciting: it is already obvious to everyone down the Dog & Duck even if many development experts do not wish to believe it. But that is only the first part of the story.

The interesting part of Why Nations Fail is the explanation of why these bad institutions and policies persist. If the nation would be more successful with better policies and institutions, why don’t governments fix them? According to Acemoğlu & Robinson, bad institutions and policies are not the result of ignorance, geography or accident but of deliberate choices by governing elites who benefit from those bad policies, even if their fellow citizens do not.  The nation as a whole might be better off with more competitive markets, a more educated population, the spread of property rights, or liberalised telecommunications, but the current ruling elite almost certainly will not be. Bad institutions persist because they suit the powerful.

In short: it’s the politics, stupid.

So how does change happen? This is where I found Acemoğlu & Robinson least helpful. They say change happens at what they call “critical junctures”. These moments are difficult to anticipate, and it is dangerous to try to trigger them; it is also hard to predict whether the change which ensues will put the country on the path towards a more inclusive set of institutions, or just lead to the establishment of a new elite. The outcome depends on very fine grained details about the situation and perhaps a bit of luck. That doesn’t take us very far towards a theory of what, if anything, people can do to bring about and accelerate positive change.

At risk of undermining my claim that the ‘public knows best’, I think many people in richer countries overestimate the role that outsiders can play in bringing about political change. If Acemoğlu & Robinson are right that bad institutions are there for a reason then it seems unlikely that that those reasons will be altered much by earnest efforts of development cooperation such as policy dialogue and technical assistance. If a country’s elite is not inspired to remove the obstacles to economic development by the benefits it would bring for their people, the threat that some aid to those people might be withdrawn is hardly likely to change their mind (even if such a threat were credible, which it hardly ever is). If a country’s elite wants to improve public financial management, they can easily and cheaply obtain the expertise they need without any help from donors; and if they don’t want sound public finances, then donors pushing it down their throat won’t make it happen.

The aid business has long recognized that change only happens when there is “country ownership”, an idea which has been elevated to one of the five internationally-agreed principles of aid effectiveness. In the world of policy dialogue, the principle of “country ownership” is honoured more in rhetoric than reality. The donor dilemma is this: if political and institutional change requires commitment more than money, then it is hard to see what role donors can usefully play. Either the governing elite supports change, in which case donors bring nothing to the party, or the elite is happy with how things are, in which case no amount of donor pressure is likely change their mind.

So Acemoğlu & Robinson’s theory suggests that the normal array of development policy instruments - technical assistance programmes, aid conditionality, and backing reformers – are very unlikely to work to accelerate political and institutional change. What’s more, that prediction is amply borne out by experience.  Aid works to vaccinate children or send them to school, but there is scant evidence that donors have done anything to bring about beneficial political change. 

This is all very discouraging for development agencies. The common-sense view – given academic heft by Why Nations Fail – that poverty is  caused by bad institutions which are the result of an unhappy but self-perpetuating political settlement is bad news for development agencies who don’t have many lines in this script. Rather than accept that there is little place for the well-meaning outsider wanting to accelerate change, aid agencies fall back on optimistic talk about the “science of delivery“, as if the challenges were technical rather than political, which they can support with their “solutions bank“.

If we think of politics as an endogenous characteristic of a complex system, then perhaps we have more hope of accelerating development by trying to tweak the internal feedback loops, and so shaping future system dynamics, than by offering exogenous solutions from the outside. I discussed this in two other recent episodes of Development Drums, one with Rakesh Rajani and Martin Tisné on openness and accountability, and the other with Duncan Green on his book, From Poverty to Power.  Matt Andrews also discusses the role of outsiders in The Limits of Institutional Reform in Development (video of his presentation at ODI here).  Inspiring as these thinkers and doers are, these conversations have left me believing that lasting political change happens from within, and there is little that we can do with our aid programmes to affect it.

That does not make me an aid sceptic: on the contrary, it makes more more convinced than ever that we should give aid to improve the quality of people’s lives, which it demonstrably can, for as long as it takes for development to take place in their country; and if we want to be optimistic we can hope that this might help countries to build more inclusive political institutions in the long run. But in general we should judge aid by its direct impact on people to whom it is given, not by its effects on political change or economic growth.

Nor do I think we should be entirely passive about the politics of developing countries. There is plenty of scope to change our approaches to investment, trade, illicit financial flows, corruption, international tax, migration, openness, global institutions, intellectual property, arms sales, peacekeeping, and security in ways which could help accelerate positive political change in developing countries. It seems to me a shame that we look first, and often only, to our aid programmes when we want to make a difference.

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25 Responses to It’s the politics, stupid

  • Nice piece Owen, I think I was a bit less impressed with the book than you – see my review on http://www.oxfamblogs.org/fp2p/?p=12752

  • It’s hard to know when a government is “bad”. South East Asian states were lauded as “good” government that fostered economic development and growth (although Acemoğlu & Robinson are not proponents of the Developmental State theory). Now however, souch states are increased facing the threat of survival as citizens clamour to have their way–Malaysia’s election for example. From “good” to “bad”?
     
    PS, how to keep the font size constant? I copied and pasted the author’s names.

  • I come from Malaysia where it is common to go overseas for education. In my own family, my mother trained as a teacher in England under a scholarship and Dad studied engineering in Australia when tertiary education was free at that time even for overseas students. My siblings and I studied in Australia and worked overseas. 
    The opportunities to study and work in other countries seem to be an effective way to develop a country’s human capital and bring about change. 

    • Kien, are you talking about government sponsorship for education, a hallmark of the Developmental State?

      • Hi, Jiesheng.  I’m not sure what “Development State” theory means here.  I’m merely observing that the experience of studying, working and living overseas makes a direct contribution to the development of human capital.
        A good way for a “well meaning outsider” to effect change in a developing economy is to open up its borders to allow in migrant workers and overseas students.  The home country should also let its citizens hold dual citizenship and encourage its people to migrate overseas. (Concerns about “brain drain” are misplaced in my view.) There needs to be more movement of people between countries.
        I know of a Malaysian family (not mine) who had enough funds to send just their eldest son to study engineering in the University of Melbourne.  He later won admission to a PhD program, and with the scholarship money was able to bring his youngest sibling to study in Melbourne.  His younger sibling is now a partner in an accounting firm in Malaysia, while the eldest son now holds a senior position at Australia’s CSIRO doing important work on climate change. Within a single generation, this family has moved from lower middle income to upper income. 

  • It is a brilliant book and the more it is disappointing that the logic stops halfway in identifying patterns. The reader, overwhelmed by the richness of facts, illustrations, discussions and facts, is left helpless and with even less orientation and understanding than before.
    I think you make the point about the contradiction in a perfect way: exclusive institutions are evil, but we do not how why and how they emerge and the whole mystery on economic development comes back, but just in two dimensions.
    Maybe we play around for a moment, add a pattern and propose a solution: (Inclusive) institutions have the tendency to degenerate. But there is an always equilibrium in society: The power of elites is limited, with – in this respect – minor differences between a democracy and a dictatorship. If future well-being plus current costs of structural reforms are higher than current political power, change happens. The understanding of well-being is evolving over time and space. So, for example, the current consensus of GDP as a measurement for development is relatively short-lived (80 years) and already contested. This, bloodiest dictators behave quite rational. They even might even prefer to go for greater public good than for their own interests, even if this kind of behaviour is from our current point of view absolutely short-lived and unacceptable. Thus, we have a mechanism between inclusive and exclusive institutions.
    Why some nations are rich and others are poor? First of all, lack in time and history. Other regions tried hard, but the winner was the West 250 years ago. First reason: geography. Additionally and more important, a breakthrough happened. Technology provided higher returns in economic potential and, subsequently, in political power. Increased wealth from inventions and the transatlantic trade financed a trial and error process in institutional development. Inventing new institutions as formal and informal rules is the most expensive, resource-intensive and non-linear process in human activities. Spain and Portugal failed, the Netherlands succeeded a bit (financing with the rents from the monopoly in shipbuilding England’s economic boom), but England won the lottery. The first capitalist nation was born. The emergence of capitalist English institution cannot be explained by national factors, they are a global phenomenon. Exporting English textiles ruined local Indian producers. England gained as a producer from scale, and India gained as a consumer from lower costs. This process sent both countries on very different institutions development and value-creation trajectories. India had access to the latest achievements of technology, without having the extremely high costs of an institutional discovery and change process. It is pure economic logic and very rational that India preferred to keep stability in the country and to participate in (Western) wealth and import textiles (o.k., sometimes with the assistance of cannons, but this proved to be more and more inefficient, today lawyers have a much better cost-benefit profile).
    No major changes until today. Acemogluy and Robinson described the mechanism with a mathematic model in an article as an asymmetric equilibrium, limited, however, their thinking to cutthroat US capitalism and cuddle welfare-state Scandinavian countries and to rather minor measures like patent registration.
    I think that asymmetric economic growth is rather a global pattern. Even in the most remote area, people have access to air conditioning, flights connections, and mobile Internet – a wealth, local institutions benefit and consume, but are not able to generate on their own. But access is only one side of the coin. There is also a price to pay. National institutions in poor countries are extremely challenged to cope with the pressure of modernization in a competitive global environment. The state in fragile nations keeps the last defence in coping with ongoing modernization pressure, it has lost the battle in failed states. Conflict and war follows. Institutions get weakened and exclusive (to save what is possible to save in irrational situations). Depending on circumstances and personality, change happens, sometime terrible wrong.
    The global economy is a win-win-situation for all, but, unfortunately, risks and opportunities are spread very uneven. There is a lot of work out there, including for international donor organizations!
    Thus, putting inclusive and exclusive institutions in the coordinates of the need to keep a political equilibrium and global asymmetric growth during the last 250 years, it was pleasure to reread the book and to learn, how inspiring – and limited – development is.

  • Nice piece Owen – the reaction by some agencies to what they regard as a lack of attention to inequality by the High Level Panel on post 2015 seems to be the latest example of the industry struggling with the new script

  • Owen is the language of ‘within’ and ‘outside’ still a useful way of thinking about transnational relationships, particularly outside of the bilateral aid arena?

    • Chris – thanks. That’s a good question. I certainly feel as if I have more legitimacy in, and expertise about, British policy making than Syrian policy making.

      • In your case that is clearly true. What about if you were part of a diaspora? 

  • I agree that change must come from within- it is the only place it should come from. And also believe that donors, researchers  and companies, including entrepenuers can use technologies to amplify the power of people’s collective voice in a country to hasten a more accountable govt.

    • Thanks Maura. I don’t disagree that donors and other can “amplify the power of people’s collective voice” but I would like to see more evidence that we can play a role that does more good than harm. I am struck that external investment had little impact on the Arab Spring, and that the subsequent trajectory has been very varied.

      • I tend to disagree: the impacting work was indeed not directly on the television, with high level people supporting it. Of course not, the elites of the west and east don’t like this slow digging work. Nor rocking the boat.
         Around 2006 we were supporting work passing under the radar, creating a consensus amongst middle management on what the price of corruption is, how a public prosecutors should do is job, what independence of parliament means.
        This is complex system, and this kind of systemic approach is difficult for attribution. But when the time came, the knowledge was around and people were trained. 
        i remember joking: if ever the Arab region is democratic, everybody will say “this is thanks to the invasion in Irak, because nobody will know that these programmes happened.

      • Owen, you note that “Either the governing elite supports change, in which case donors bring nothing to the party, or the elite is happy with how things are, in which case no amount of donor pressure is likely change their mind.” Seems to be a pretty black-and-white picture of a unitary elite, no?
        One of the commonplace critiques of donor agencies is their inability to absorb political understandings of context. If one imagines a donor trying to work on expanding health care in Germany or the US, it would be pretty clear that there are a lot of forces arrayed for and against these efforts, and it’s not a simple question of knowing how “the elite” thinks about things. Let’s not fall into that trap.
        For more specifics on the question of what donors can do, I’d recommend recent research such as the ODI “unblocking results” study: http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8409.pdf. The prospects it points to are much humbler than creating an Arab Spring, but then good development work should be about nudging the trajectory of growth, and I think that’s a plus overall.
        It’s a topic ripe for further conversation – the theories of change and strategic role that donors can play to support and advance local voices for reform. In most cases, those will be about how water or health services are delivered in a certain area, not about replacing a dictatorship with elected leaders or radically altering the national economic sphere; that still leaves a tremendous amount of valuable work to be done.

  • A brilliant book, but the logic of your last paragraph escapes me. I would expect that you would conclude that the way to go is the empowerment of the non-elites, support their organization, work with civil society instead of NGOs, human rights: strengthening the opposition to the status quo. 
    Instead, you imagine that the development crowd has the strength to win from the international trade and  finance elites?
    We cannot even manage to get back to the post 1930 common sense  banking regulation to seperate investment- and savings banks.  We cannot even impose a minimal financial transaction tax that would lighten the burden on labour.
    We can have marginal effect, such as Nike not using child labour anymore. Child labor however is the result of the distribution of power. The international system is very badly equipped to democratize countries.

  • Fantastic as always, Owen.  Thanks for capturing the essence of the book.  Here’s what I take away from your comments:
    1) Aid has relatively limited significance in development.  Still, for what it’s worth, aid can do some good.  We should focus on giving aid where we know it can have a direct impact on individuals, and tone down the rhetoric re: using aid to shift systems, transform politics in developing countries, etc.
    2) As outsiders concerned with seeing improvements in developing countries, we should focus the bulk of our “change-creating” efforts on altering the policies and approaches of our own countries’ involvement in investment, trade, illicit financial flows, climate, openness, etc etc. In a nutshell, I’m better placed to have an influence on Canadian policies that constrain global development, as opposed to exerting influence in how Uganda, for instance, makes its own decisions.

    Is this a fair interpretation?  
    I also appreciate Duncan Green’s views in “From Poverty to Power”: 
    “Citizens and states in rich countries should concentrate on putting their own houses in order, cracking down on harmful activities, such as the arms trade, restrictions on the free flow of knowledge and technology, corporate malpractice, the forced liberalization of trade and capital markets, and grotesque levels of planet-destroying carbon emissions. This ‘stop doing harm’ agenda should be complemented by ‘global citizenship’ – active solidarity by people and governments in the rich world with the struggles of poor people and their communities within developing countries.”
    In view of your comments about aid specifically, how would you recommend development agencies use their aid resources?
    Sincere thanks!
    James

  • brilliant blog owen… 

  • Thanks for your thoughtful blog and great summary of this book. I really agree with your arguments that aid really isn’t the solution here. We used to talk about ‘policy coherence for development’ but this seems to be out of fashion now and I’m not sure the development community in the UK has always been very good at extending its links and influence across Whitehall. How do you think we should broaden our networks and approach?
    At the same time, it would be great to know your thoughts on the recognition that aid hasn’t always been very good at delivering on improvements in people’s lives - it may have built schools but hasn’t always improved the quality of education, for example. Part of the story is the lack of attention paid to incentives, power relations, institutions. So, I think the real ‘aid question’ should be how do we make aid more politically aware or politically smart without presuming it can ‘fix’ political institutions? This is where I think we now need to direct our efforts – and get better at capturing lessons and examples on how to do this well, something we will be discussing at ODI later today, please do join the discussion if you can! http://www.odi.org.uk/events/3207-aid-governance-collective-action

  • Thanks Owen – I really enjoyed that episode of DD. And your post is an excellent think piece too.
    I agree entirely with you when you say: “But in general we should judge aid by its direct impact on people to whom it is given, not by its effects on political change or economic growth.”
    I see one other possible role for aid in improving political governance which is as follows.
    Even A&J concede, as I understand it, that there is some reverse causality — poverty, lower human capital etc contribute to worse governance. And there’s evidence from Pol Sci to suggest that poverty is a cause of one of the big pathologies of developing country politics: clientelism. So I think that aid can, by nudging growth up and helping with things like education contribute at least in some small way to better governance. Sure most of the causal flow is in the other direction but I think there’s at least a little bit of space for help here.
    Also, at least in Western Melanesia which shapes my thinking, it seems like aid agencies serve as a (small) of countervailing force against the worse centrifugal forces pulling at the institutions of governance. They help hold things together and this, while not development itself, provides space for development to occur, to grow organically, even if over the medium to long term.
     
    Cheers

  • Owen, a very interestig blog.  You say that this does not make you an aid sceptic -  however, do you think that the provision of aid, in the form of support to education and health etc may in part blunt the desire of poor citizens to demand reform from the ruling elite? 

  • Its a good book which to appreciate its full flavour should be read in conjunction with other material listed in the index – especially North’s “Violence and Social Orders” and Harrison’s “Culture Matters”. Missing from the index however is Beinhocker’s popular review of complexity economics: “The Origin of Wealth”.
    Basically, one of his arguments is that the larger and more complex an organisation, the more sensitive it is too change. In order words, any small change will have a cascading effect throughout the organisation building up the often times conflicting constraints to any change. Hence in the private sector we see repeatedly the phenomena of larger corporations failing through their failure to adapt to changes in their competitive environment whereas smaller corporations will make such a transition successfully. Countries being large complex organisations also face this challenge, hence the requirement for encompassing hierarchical institutions.
    For the development world, Beinhocker has a delightful line (page 157) for which anyone, who has suffered through a stakeholder gathering can attest to: “One can see a recipe for creating a dysfunctional organization: just mix unpredictable behaviour, a flat hierarchy, and lots of dense interconnections – the chances of getting anything done would be roughly zero”.

  • Good review, important issues.  Only thing is that if you say it’s all about the politics, people get turned off as that word has such negative connotations for so many people.  So I prefer the distinction between technical change (or challenges, or whatever) and adaptive change.  As set out here http://hbr.org/2001/12/the-work-of-leadership/ar/1 

  • I like the sentiment of your post, Owen, but I’m a bit surprised of how much attention Acemoglu and Robinson have generated with their book. I’m finding it surprising that the insight that institutions and the political economy contain a fundamental determinant of development is considered novel. E.g. their core argument is laid out in this twenty year old journal article in 8 pages. <a href=”http://www.svt.ntnu.no/iss/Indra.de.Soysa/POL3503H05/olson.pdf“>Mancur Olson: Dictatorship, Democracy, and Development</a>

    What’s more, I’m disappointed to see the outdated and simplistic perception of institutions being promoted by the authors. The vast majority of more recent research on institutions points to their constitution being much more complex, than the strictly rational approach that Acemoglu and Robinson apply. Further, it appears to me that there’s some confusion over the role of exogenous institutional factors. They’re present trough much of the book but the authors still manage to portray the two Koreas, for example, as if their present institutions developed mostly in isolation from global events!

    So to finish, I believe (agree with you) that there’s every reason in the world to approach institutions as emergent properties of complex systems. However, I fail to see the reason to exclude exogenous factors from that system – which, by the way, corresponds to your listed things that donors could do. And related, Acemoglu and Robinson describe the synergies between political and economic institutions and that with good reason. However, I think they’re missing that the key reason for that is not so much because of a circular causal link as because of the shared elements from which the institutions emerge. 

  • I’m surprised you didn’t also mention the Development Drums podcast you did a few years ago with Daniel Kaufmann and Mushtaq Khan. In that podcast, Khan quite effectively challenges a lot of the assumptions in the argument that you put forward here in support of Acemoglu and Robinson’s point – that ‘poor countries are poor because they are badly governed’. Khan argues that it’s the other way round: poor countries are badly governed because they are poor. It’s important to acknowledge this direction of causality as well.

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