Loading summary
Transcript40 lines
- [00:00]
A
So, good evening, ladies and gentlemen. Thank you for coming. My name's Tim Besley. I'm the director of the Suntory Toyota International Centers for Economics and Related Disciplines that is supporting this Morishima Lecture. The lecture is named in honor of and memory of the founder of Stikard, Michio Moroshima. He was born in 1923, and from 1970 until his retirement, he was professor of Economics at the lse, and importantly to us in Stickard. He was the founder of Stickard, raised the endowment that we now enjoy, and was responsible also for setting its intellectual direction, which I think is maintained very much in the spirit of what he envisaged, a close link between economic theory, applied economics and related disciplines and their role in influencing and informing policy debate. While Michio is sadly no longer with us, it gives me great pleasure, though, to welcome Mrs. Yoko Morishima, who is here with us this evening. Back to the lse. Your support to Michio and to the LSE over the years has always been greatly appreciated, and it's wonderful to see you here this evening. Michio had immensely wide interests, moving comfortably from mathematical economics, Marxism, to the study of growth and industrial society. And perhaps of all Michio's work, his book why Japan Succeeded is perhaps the most relevant to Jim's topic, which I'll introduce in a moment. But it's one of those books where he also gives away the answer in his subtitle, Western Technology and the Japanese Ethos. And for those of you who haven't read the book, it was actually the very first book I ever read by Michio Moroshima. I strongly recommend it. Our speaker this evening is Jim Robinson from Harvard. Like Michio Moroshima, Jim is an economist of enormous breadth. In fact, I don't think I've ever met anyone who combines his knowledge and learning in history, politics and economics. And in a world where so many of us are becoming very specialized, Jim really does stand out from the crowd in the way that he's embraced a number of different fields in his. Now, I'd like to say, even though we value diversity at LSE in all of its dimensions, I'd like to say that the career path that Jim has followed is one I would hold up, certainly as a paragon. Jim was an undergraduate here at the LSE, went on and did a PhD in economics at Yale, and taught at a number of distinguished institutions, including Berkeley and now at Harvard. He very much at one point was, I think I used to describe you as the flavor of the month everybody was trying to hire Jim Robinson. He was very much one of the hottest academics on the market before he landed at Harvard. On a personal note, Jim has been one of the people I think in the last decade who's probably taught me more different and interesting things than any other person I can think of. He made a remarkable transition from having an economics PhD at Yale to now being a full and card carrying member of the political science fraternity. And he's in the government department at Harvard. He's also a good friend of mine and we've even written a paper together. So it's wonderful to see you here this evening. Now Jim's probably his most influential work is his work with Darren Acemoglu, which many of you will know, on the political economy of development. And this has reignited debates about the role of institutions in economic development. And I'm sure that will be a central theme in Jim's. Of course many of you will know his paper on the colonial origins of comparative development is already something of a classic paper in the development field. And almost every student who ever studies development reads that paper and is intrigued by it. And as I say, it's created a huge amount of debate. And I think in many ways what we're going to hear from Jim tonight is building on the ideas that were developed there, which has now become in a sense a a complete worldview I think we're going to learn this evening. And what we're going to hear tonight is a presentation based on a book with Darren that is now, I'm told, finished. And we're getting in a sense a preview prior to what will be, I'm sure, a very extensive world tour where Jim will present the ideas when the book comes out in December. But we're lucky enough to have him here this evening to talk about these ideas and as I say, to get a preview of Jim's book. It's a real delight to have you back here at the LSE gym. And it's all over to you.
- [04:48]
B
Thanks. Thank you very much, Tim for that very generous introduction. It's always great to be at the lse and I'm particularly happy, as Tim knows, to be giving the Morishima lecture because in a sense I was converted to studying economics by Mikio Morishima. I came to the LSE to study political science, but these were the days of Mrs. Thatcher and monetarism and privatization and all sorts of things like that. So I was very interested in politics and political science, but it was all about economics. I had no idea what the money supply was or why anyone cared about the money supply. So I was desperately trying to teach myself economics at high school, and. And I found in my school library Richard Lipsey's Introduction to Economics. So I got to the LSE and there was this economics class which was for political scientists, and they were using Lipsey's book. And I thought, I know that stuff. I'm not reading that book again. So I looked around for something else to do, and there was this class called Economics B that Professor Morishim was teaching. So I thought, okay, this is what the serious economists do. I'm going to take this class. So what were the textbooks for the class? The textbooks for the class were Max Weber's Protestant Ethic and the Spirit of Capitalism, Schumpeter's Capitalism, Socialism and Democracy, Hicks Value in Capital, and Professor Moroshima's own books. And it was just a fantastic class. I was taking this, and I was taking Political Science. In political science, I hope there's no political scientists in the audience who I'll be insulting. We were learning about the Belgian electoral system, which is very complicated, unless you haven't studied it. In Miki Moroshima's class, we were learning about why central planning hadn't worked, why the Industrial Revolution happened, what was the role of the Reformation in Industrial Revolution. We were learning about, you know, the Great Depression, what caused the Great Depression. So it was this incredibly inspiring class, which wasn't just about. It was about everything. You can see from just from the titles of the books. It was about democracy. It was about industrialization. It was about socialism and capitalism and about Marx and Ricardo and Volra and general equilibrium theory. And I was probably completely lost half the time. That's a sort of underestimate. But it was so inspiring. I thought, oh, political science, forget it. Economics, this is where the action is. So I switched into economics. Of course, it was completely wrong. It was in the sense that economics is not about. It's not about. I mean, the way that Miki Moroshima thought about economics is not the way that most economists thought about it. So for years I struggled trying to figure out that stuff that Maurice was going on about. It's not in this class, you know, should I be taking a different class? You know, maybe I'm taking the wrong subjects, you know, so. But I, you know, But I feel that the class, you know, in some sense, had this. It had an immediate practical impact on my career because I switched into economics, and I had many fantastic teachers when I was at LSE I was taught by John Sutton, by Tony Atkinson, by John Moore, by, you know. But the impact of Economics B has kind of always stayed with me. And even though in the end I ended up back in political science, in some sense the topics that I've always remained interested were the ones that we thought about in that class. So, anyway, you can see I'm particularly happy to be giving the Morishima lecture. So it's a great honor. So what I'm going to do is try to talk about a 570 page book in an hour, which I'll probably fail miserably to do. As Tim was saying, it's a book joint with Daron Ashimolu, also alumni of the lse. And the title is why Nations Fail the Origins of Power, Prosperity and Poverty, which has one of those sort of grandiose titles which makes you think we're hoping to sell a few copies of the book. And so I better do a good job and perhaps you'll be tempted. But exactly as Tim said, the point of this book is really to try to put together in an accessible, big picture way a lot of the research that we've been doing over the last decade together, Daron and I, and also with Simon Johnson, and try to make it sort of exciting and accessible.
- [09:01]
C
For.
- [09:01]
B
People across the social sciences and also hopefully outside academia. So I thought I'd start with a story to try to motivate what the whole book is about. Okay, so. And the story is about. So the book is about what? Well, the book is about this picture, I suppose you could say, even though for some reason technological incompetence, it's a rather fuzzy picture. The book is about, you know, in some sense, what many people in development economics are interested in, which is the norm, the enormous inequality that exists in the world today, what causes it today and how did it emerge? So this is a picture just of historical income per capita, which comes from Angus Madison, which kind of picks up this phenomenon of this enormous divergence in levels of prosperity in the last 250 years between some parts of the world and other parts of the world. And the book is about what caused that, but it's also what causes it today. But it's also very historical in the sense that we focus a lot trying to understand how it emerged. So the story I'm going to tell you is a story, sort of historical origins and how differences in income levels emerged in the Americas. And I'll try to use that story as a way of sort of, I'll try to abstract from that story, some concepts which form the basis of the book. So what's the story? Well, if you think about the history of the Americas, you go back sort of 500 years when the project of colonization of the Americas was taking place. The Americas, there were certainly differences in prosperity technology within the Americas, and there were differences in the types of Europeans that went here or there. But the Europeans all more or less had the same kind of idea and the same motivation. So, for example, in 1516, the Spanish first started investigating the Rio Plate estuary, exploring the River Plate estuary. At the time, what now became Argentina was inhabited by groups of people. The people who were in the. What's now Buenos Aires and the southern Uruguay, the Charuas and the Kerandi, were essentially Stone Age people with Stone Age technology, mobile, not sedentary, hunter and gatherers. The Spanish called this area Buenos Aires because the Rio de la Plata. Well, the Buenos Aires because they thought the air was nice, and the Rio de la Plata because they found silver. And they got very excited about the silver. Then they discovered that the silver didn't actually come from there. The silver came from the Inca empire, thousands of miles away up in the Andes. And then they found something else which was very problematic, which was that the Charus and the Keranti were very difficult people to deal with. They ran around, they attacked them, they fired arrows at them. You know, they couldn't. They couldn't get. You know, they couldn't get them under control. So they started sending out expeditions. And they sent one expedition up the Parana river and it discovered the Guarani. Now, the Guarani were a completely different bunch of people from the Charruas and the Kerendi. They were a sedentary, hierarchical society up the river in what's now Paraguay. And so the Spanish abandoned Buenos Aires, they moved up the river and they took over the Guarani, because their idea of how to run a colony was to take over the indigenous society and then base the society on the exploitation of the indigenous people. And that provided a kind of model for the entire Spanish colonization of the Americas in Central, in Mexico, in South America. So the early colonial society developed on the basis of exploitation of minerals and gold and silver, but principally the indigenous people, because even when it came down to having gold and silver, that wasn't much use unless you had a lot of indigenous people to mine it. So this is a very similar pattern to the colonization everywhere. So what emerged was a political system dominated by a very narrow group of Spaniards, and underneath them, a large indigenous population being Exploited to the benefit of the Spaniards. What happened in North America? Well, in North America, the colonization of North America. The United States started systematically in 1607, when the Virginia Company set up a colony in Jamestown. What model of colonization did they have? They had the same model. The way you colonize the Americas is you capture, first of all, you capture the Indian chief. And once you capture the Indian chief, then all of the Indians come. The indigenous people come, they work for you. You kind of live in this sort of rentier society, hopefully with gold and silver and precious metals problem in Virginia. Virginia was like Buenos Aires without the Guarani up the Parana River. So they couldn't find any large populations of sedentary indigenous people in the Americas. So that was a problem. What did they do early on? Well, they starved to death. Because after all, you know, you didn't work when you colonized the Americas. You exploited the indigenous people. So they didn't bother planting crops and foods in Jamestown. And by the second winter, 2/3 of them had starved to death. So then what happened? Well, the Virginia Company, after all, was a profit making enterprise. So it said, okay, there's no indigenous people to exploit. Let's exploit the English people. Okay, so after three years, they started introducing a new regimen. They basically introduced this draconian rules. Here's some of these rules. You see, the first rule is kind of interesting. No man or woman shall run away from the colony to the Indians upon pain of death. Okay, why was that the first rule? You can see that punishment by death is the sort of punishment of first resort in these rules. But why this emphasis on running away to the Indians? Because when you started trying to coerce the indentured laborers that the Virginia Company had sent out, they immediately ran off and went to live with the Indians. So it was very difficult to coerce. So they spent several years trying to coerce them. And then they decided coercing them wasn't a successful strategy. It was very unsuccessful. So then they tried something else. They said, okay, if we can't coerce these people, let's try to incentivize them. So in 1619, they switched to a system. They abolished basically all of these coercive institutions. They gave 50 acres of land to all the settlers and they introduced a general assembly which gave universal male suffrage. This is the 17th century, so we've got to be reasonable. Universal male suffrage. So they completely changed the political institutions from this draconian control by the Virginia Company. They set up these nascent democratic institutions where the settlers themselves could Decide on the political and the economic institutions, and they started giving people access to land. They freed them from their indentured contracts. So they also gave them freedom of kind of economic choice and economic occupation. So these two very different types of societies that emerged had enormous consequences for how Latin America and North America developed. So if you go back 400, 500 years, the development levels were very, very similar. In fact, if anything, development levels were higher in Latin America. So if you look at the technology or the organization of the Inca empire or the Mexicas in the central Valley of Mexico, they had more sophisticated technology. They had public goods, they had money. They had stuff that people in Northern Indians and indigenous people in North America didn't have. But that proved to be important for the way those societies got shaped in the colonial period. That initial divergence reproduced itself again and again over time. So think about this headright system. When you get to the 19th century, you have in all of Latin, all the Americas, Latin America, North America, South America, you have frontier expansion. So there's these huge populations expanding. The world economy is expanding. Land becomes much more valuable. You have these big open areas. Frontier. How does the frontier get allocated in North America? Well, there's the Northwest Ordinances, there's the Homestead Act. Laws get passed giving open access to land in the frontier. How do Latin American countries deal with the frontier? The frontier becomes completely oligarchized and divided up between members of the political elite in country after country. Costa Rica maybe being the one exception to that. So these initial differences in the way the polity and the economy were organized had enormous consequences which reproduced themselves over time. Okay. And in the book, we argue that this is the historical roots, in some sense, of both the institutional divergence and the economic divergence within the Americas. I'll say a little bit more about what I mean by institutional divergence. So let me try to abstract a few kind of concepts from that. That story. Okay. You know, how do I know any of this matters? Well, the most famous, the largest and most intense system of forced labor in the Spanish colonial period was what's called the Potosi mita. So the Potosi mita was an enormous system of forced labor for mobilizing indigenous workers to work in the silver mines in Potosi in Bolivia. This was a huge catchment area in modern Peru and Bolivia, from which a seventh of the adult males always had to be working in the silver mines. And this is some research by a student of mine in Daron, Melissa Dell. Looking today at the Potosi meter. And today, if you look at the boundary of the Potosi meter. And you look at places that are inside what was the meter catchment area and outside the meter catchment area, within the meter catchment area, Even right at the boundary, you see much worse development outcomes. Consumption is about. Consumption per capita is about a third less. Involvement in market activities is much lower. There's much lower infrastructure, until recently, much lower educational outcomes. This line is the boundary, and that line is supposed to show you consumption. How would I know this was true? Well, here's a very specific example of the legacy of a very specific colonial institution from Latin America. Okay, so how to make sense of this divergence? I think there's, you know, there's lots of ways you could sort of approach this. In the book, we talk about alternative, different alternative hypotheses stemming from economics and sociology and history and other things. What I'm going to sort of emphasize today and what the book is about is sort of. It's the way these societies were organized that was important. Okay, I told you a sort of specific story in some sense about what caused this differential organization. It wasn't about the fact that it was the British that colonized Virginia and it was the Spanish that colonized Paraguay. That's irrelevant in the story. What's important in some sense is initial conditions. Okay, now, that's only one source of variation in how societies get organized. Okay, this is a very specific story, you could say, about a specific historical period and a specific historical kind of dynamic. But what I want to try to do is to abstract from that some concepts which we can hopefully apply more generally to think about institutional variation and institutional dynamics and institutional change, and to try to understand and use that, to talk about kind of economic divergence and economic change as well. Okay, So I want to emphasize here that I want to use this language that Tim mentioned at institutions. I want to say that, you know, what are institutions? Well, institutions are just in some sense, the rules, the rules that govern economic and political behavior. And, you know, I think I want to be just kind of very specific. I was trying to be very specific, give very specific examples about those difference. The differences in the way the economy worked in colonial Latin America or colonial North America, the differences in the way politics works and in the way political power was distributed, and to say that it's that that really matters for this economic divergence within the Americas. Okay, so now you have these huge differences in incomes between North America and Central and Latin America, and that's the root of that. So let me try to abstract some concepts from that. So and just here's some sort of terminology which I hope will be useful, which is at the sort of the core of the book as a kind of way of organizing your thinking about institutional differences and institutional change. And this is a sort of very simplistic dichotomy. And, you know, so I'm going to call the types of institutions that economic institutions that were set up in colonial Latin America, like the Potosi mita, this huge system of forced labor, we're going to refer to that as a sort of extractive economic institution. So what does extractive mean? Well, the Potosi mita was like slavery or coerced labor more generally, was specifically designed to. To control one group of people to the benefit of other people, to extract wealth and income from one group of people and transfer it to another. So extractive economic institutions, as I'll discuss, come in kind of many forms. But coerced labor is in some sense one of the most obvious. 1 the opposite of that is going to be we're going to refer to as inclusive economic institutions. So by inclusive economic institutions, I mean in some sense, economic institutions that allow people to take advantage of their talents and their ideas, that allow a sort of free allocation of resources. It's a very, very natural idea to economists, in some sense, most of microeconomics, if you study microeconomics, it's all about inclusive economic institutions, about how allowing people to make their own choices in markets, allocate scarce resources efficiently. And in some sense, that's what economic, inclusive economic institutions is about. And, you know, in the example of North America, I was kind of emphasizing free labor. And, you know, of course, you could say, hold on, what about slavery? That's true that slavery, of course, is very important in the United States, and I'll come back to that. But the crucial period where both political and economic institutions, at least for white people, were being determined in North America was before the slave economy took off. So when I'm talking about colonial Virginia, this was before slavery took off completely. And I guess we see that as the sort of pivotal period. But I'll certainly talk about slavery. Slavery is certainly an example of an extractive economic institution, and it's an example of an economic institution that held back the south of the US For a very long time. But I want to also emphasize here not just the economics of these things, but the politics that lies behind that. So the reason that the Potosimita got set up was because indigenous people had no political power to influence the type of society that they lived in. All the Powers wielded by the people who benefited from the potosimita. So lying behind extractive economic institutions is something I'm going to call extractive political institutions. Extractive political institutions are just political institutions that concentrate political power very narrowly in society. And what lies behind inclusive economic institutions is also fundamentally a distribution of political power. But there's two parts of that. One is, you know, you could say, well, it's obvious that the opposite to kind of narrowly distributed political power, like in the Spanish colonial world would be broadly distributed political power. And in fact, in some sense, you know, the story about colonial Virginia is a story about how the initial conditions spread political power widely within the settler population. That was why it was very difficult for the. That was why it was very difficult for the Virginia company to exploit people. We're going to call that broad distribution of political power pluralism. Pluralistic. Okay, but that's not the only element, in some sense that you need to talk about the creation of inclusive economic institutions that favor economic development. And that's because, you know, let me give you an example. Somalia is an example, a very pluralistic distribution of political power. If you read about, you know, the history of the Somali clans, the Somali clans, you know, this is a sort of society without a state, without really political institutions. But Somali clans were very democratic, in a sense, very pluralistic. How did clans make decisions? Well, adult men. Sorry, here we go again. Adult men would get together and decide what to do. They'd decide who to raid. They decide where to move their cows, where to go to pasture. So this was a very. Most stateless societies actually have very egalitarian distribution of powers, at least within men. But of course, Somali society was also very chaotic and anarchic. This was not a society where there was any institution able to provide public services or order necessary to have something like modern economic development. So we also want to emphasize that political centralization is key to having developing inclusive economic institutions, because inclusive economic institutions are about these market institutions that I talked about, but they're also about the provision of public services and the key role for the state in providing order. So if you look around the world today, of course, one place I'm going to is to say, if I look around today and I look at societies that are poor, then I want to say those societies are places with extractive economic institutions. And part of that story is really a story about a kind of failure of the development of state institutions. It's not just about extraction in the sense of the Potter Zimita. It's Also about the inability of states to provide order and services. Okay, so these concepts are extractive, inclusive political institutions, extractive and inclusive economic institutions. There's many synergies between those things. And here's a sort of simple way of thinking about that. And I want to emphasize a few things about this. You know, you can see why the synergies. You know, you can see why there's sort of synergies between extractive political institutions and extractive economic institutions. And understanding the sort of synergies are important for understanding the enormous persistence in the organization of society. So I started off by telling a story about the Americas, which meant that. Which kind of implied that if you wanted to understand why Guatemala was poorer than Canada, you have to go back, you know, 500 years. And the reason for that is that once societies get set up in a particular way, that's very persistent over time. And you could see that that's kind of built into this, you know. So, you know, if you think that societies have extractive political institutions, political power is narrowly concentrated, then society would tend to get set up in a very extractive way, like in the Spanish colonial period. That, of course, creates enormous inequality, as it did in colonial and modern Latin America. But that inequality of wealth and assets tends to reinforce the initial distribution of political power. So you'd expect that, for example, extractive economic institutions and extractive political institutions mutually reinforce each other and tend to persist over time. Whereas you'd expect that for similar reasons, inclusive political and inclusive economic institutions tend to reinforce each other, that a broad distribution of political power tends to distribute income and assets more broadly, which tends to reinforce that distribution of political power. So the diagonals, using a kind of more nerdy term, the diagonals are very sort of stable here. Now, in the off diagonals, you have mix between inclusive institutions and extractive institutions, and they're very unstable. Okay, so let me give you one very topical example, which is Tunisia. So what did Tunisia have for a long time? Well, since independence, it had very extractive political institutions. It basically had a dictatorship, but it had reasonable economic institutions. It had reasonably inclusive economic institutions. That's not stable. Why is that not stable? It's not stable because concentrated political power can't really live with broad economic rights. There's always an incentive to basically take over the economy. And that's basically what's happened in Tunisia, that over time, the political power concentrated in the Ben Ali family, led to more and more and more intervention in the economy. It led to 5% on every contract. It led to 10% on every contract, it led to 15% of every contract, it led to a cut in people's businesses. So the inclusivity of the economic institutions gradually was eroded over time by the very concentrated political power. So why do I emphasize this so much? Because this element of sort of persistence is kind of very important, I guess, in our way of thinking about the world that in some sense, if you want to think about the inequality in the world today, you need to think about how institutions got formed historically and how they persisted over time. So I guess I'd say that's one reason why you have to sort of study the history of societies in order to think about kind of world inequality. Okay, so why emphasize inclusive institutions? Well, as I said, I think that's a very conventional thing for economists. They unleash all sorts of good things. Factor accumulation, investment, efficient allocation of resources, broad based participation. I think that Moses Findlay, the great classical economic historian, argued that the reason that the classical world was so technologically uncreative was because of slavery. Because. Because slaves can generate a lot of income, possibly in a sugar plantation. But of course you can't force a slave to think creatively or have ideas or invent stuff. And slaves of course, have no incentive to do so. So if you have something like the Roman economy, which was based on slavery, essentially slave production, industry and agriculture, it's very difficult to have technological dynamism. And I guess that's a sort of obvious idea, but I think it's a powerful idea about why you'd expect extractive economic institutions not to generate technological change or innovation. We want to emphasize a lot here that growth, economic growth unleashed by inclusive economic institutions is a process of. You know what, Schumpeter? Something I learned a long time ago in Preston Murashima's class reading Capitalism, Socialism and Democracy, Schumpeter coined this term of creative destruction that innovation generates creative destruction by, you know, there's winners and there's losers and there's new forces and old forces go out and that's very powerful. So inclusive economic institutions create this economic growth. So why would you have extractive economic institutions? Why would extractive economic institutions ever occur in society? Well, that's for the reason that, that's for the obvious reason in some sense that any set of economic and political institutions distributes wealth and power in particular ways. And what may be good for some group of powerful people may not be good for the society as a whole. If you think about, go back to the Spanish colonial world, you could say that the type of Economic institutions like the Potosimita was very bad for the prosperity of Bolivia or Peru, but it was extremely good for the people who were benefiting from this extraction. So that's a sort of simple and familiar idea. But that's really the logic that kind of underpins extractive economic institutions. Okay? So extractive economic institutions, for the obvious reason, will not generate economic growth now. At least they won't do so in a sustained way. Okay? So there's some possibility of growth under extractive political institutions. And I want to emphasize again, very much the off diagonals. You know, when I was emphasizing this mismatch between extractive and inclusive, I wanted to emphasize that that's a sort of unstable situation or that's an unsustainable situation. Okay? That could be unsustainable for different ways. You know, one can imagine a situation like in the Soviet Union, for example. Go back to think about the Soviet Union, which had an extractive political institutions in our terminology. So there was a dictatorship. It had very extractive economic institutions in the sense that there was a kind of command system which organized the way the economy functioned. And I vividly remember Mika Morishima talking about. He had all these wonderful examples from the Soviet era about how difficult it was to actually get. And he had this example, I remember very well, of the roofing factory. So the roofing factory was first told, you should produce roofing according to weight on the base of weight. So they produced this incredibly thick roofing that was so thick and heavy you couldn't put it on a house. So then they thought, that's a bad idea. So let's get them to produce roofing according to area. So then they produce this incredibly thin roofing that broke as soon as you picked it up. But how did the Soviet Union generate economic growth under extractive institutions? Well, basically the central planning took people who were producing nothing in the rural sector and stuck them in factories. Now, while that moving those people was going on, that generated big improvements in labor productivity. It didn't generate technological change, but it generated very rapid growth for quite a long time. And in fact, it generated such rapid growth that lots of economists and the CIA were fooled into thinking that the Soviet Union was going to overtake Western countries. And, you know, this is perhaps vividly illustrated by Paul Samuelson. I don't want to beat up on Paul Samuelson, but this is just the picture I always have in my mind, Paul Samuelson, continual predictions that the Soviet Union, this is the Soviet Union at the bottom here. This is us. That the Soviet Union was going to catch up with the U.S. now, this was happening in 1961. It was going to happen in the year 2000. By 1970, it had been delayed to 2010, and the next edition had it happening in 2020. So you could say the verdict is still out. You know, the Soviet Union still has, well, nine years to go. But just to show you that this process of growth was so rapid and spectacular at the time that many people thought that this was sort of the wave of the future. And indeed, many people in the former colonial world in the 1960s had the same idea that Soviet was the way to go. Okay. Of course, this wasn't sustained. It wasn't sustained because it couldn't generate technological change. Other instances of growth under extractive institutions are unsustained because, as in the Tunisian example, that there's just. There's a sort of. There's a kind of inconsistency between this system. So you can't have inclusive economic. You can't have, in a sustained way, inclusive economic institutions and extractive political institutions. And the same the other way around, you can't have extractive economic institutions with inclusive political institutions because the polity is going to open those institutions and make them more inclusive. Okay. All right. So how long do I have left, Tim? Okay, so out of that American experience, I wanted to make this distinction between extractive and inclusive economic and political institutions. And I'm going to end up by sort of giving some examples today of particularly poor countries and trying to sort of illustrate the different ways in which they have extractive economic and political institutions. One of the ways which makes it sort of complicated, I think, is that. And one of the things we grappled with a lot is that there's a lot of variety. There's many ways to skin a cat, my mother would have said. And so there's a lot of variety in what tools are used to kind of extract. And I'll give some examples of that. But to go back to my first slide on the lay of the land, I now have the task of sort of explaining in some sense how the great divergence happened. So you already got the idea that in the Americas that the great. This divergence within the Americas, this sort of little great divergence happened because North America US Developed kind of inclusive economic institutions, and Latin America developed extractive political and economic institutions, and that created this divergence. Particularly. What explains the timing of this divergence? Well, the timing of divergence is basically determined by the British Industrial Revolution. So it's really, you know, that Divergence comes when societies with inclusive economic institutions are able to take advantage of all of this new technology, forms of organization, power, transportation, that come with the Industrial Revolution, whereas those things don't disseminate to countries with extractive economic institutions. So that means that to understand the timing of that divergence, we want to sort of study how the Industrial Revolution took place. And that's really a story of the emergence of inclusive political and economic institutions in Britain. Okay, so I need to talk more about the dynamics. So far, I've only emphasized how these things tend to be very persistent over time. And once you get stuck with extractive institutions, you tend to keep having extractive institutions, or once you have inclusive institutions, you tend to keep having inclusive institutions. Institutions. But obviously there's a possibility for change, even though that's unlikely or difficult. And the origins of that great divergence really come from the development of inclusive institutions, political institutions, and then economic institutions in Britain. And here's the sort of language we use to try to talk about this. Implicit in this view is a lot of conflict. Okay, so there's a lot of conflict over institutions. If you think about extractive institutions, we could always organize society to, you know, the benefit of the Spanish colonists and the indigenous people, all, you know, at the expense of the indigenous people. There's going to be a lot of conflict over that. The indigenous people don't like that. They'd like to reorganize society. They'd like to change the system. There's going to be struggle. There's always conflict over institutions, conflict over political institutions, conflict over over economic institutions. But conflict in itself doesn't change necessarily the system. Conflict could be unsuccessful. So you have successful conflict, perhaps in Tunisia, but you have unsuccessful conflict in Syria, because in some sense, the dominance of the regime is too strong to be overthrown. So what we emphasize is that there's some moments, and I'm giving you some very specific examples in the context of European history in a second, there are some moments where big shocks to the system in some sense create a much greater flux in terms of power relations which allow for a change. And we use a terminology which is kind of hallowed in political science called a critical juncture. So a critical juncture is a sort of confluence of events which in some sense allow for the possibility of undermining the status quo. So let me give you a very specific example about which comes from European history, which is the Black Death. Okay, so if you go back to before the Black Death, which comes in the 1340s, in the middle of the 14th century, you see very, you don't see very large differences between economic or political institutions in Western or Eastern Europe. You have, you know, a sort of feudalism. You have serfdom. What happens when the black death comes? Perhaps 30, 40% of the population gets wiped out. In England, very well documented, what happens. Laborers have disappeared, labour is scarce. Landlords start competing for labor. Workers start saying, well, you know, these feudal services we had to do, we don't want to do them anymore. You know, the wages you are paying us, we'd like higher wages. Now the elites try to stop this. They pass this statute of laborers to try to put a lid on wages. But there's lots of court cases showing that, you know, these contracts got renegotiated. So the scarcity of labor created in some sense empowered a lot of the people at the bottom of the social scale and allowed them to change economic institutions. Now in Eastern Europe, something very different happened, okay, that the same incentives and same power struggle was there, but there's another logic at play. Because when labor is very scarce, in some sense it becomes even more valuable to coerce it. Okay, so labor may have less scarce, they may have more power, but it's even better to coerce them. So what happened in Eastern Europe is that the other motive won out over the. Over the motive that won out in Britain. And instead of having a relaxation in feudalism, you had a kind of intensification which accumulated in the so called second serfdom. So here's a situation where differences weren't so large to start with necessarily. But then the interaction between small differences and this large critical juncture led to a big institutional divergence. Now, Britain didn't look so different from Western Europe at that time. But then along came another critical juncture which was the discovery of the Americas and the expansion of Atlantic trade. There were small differences in economic institutions, political institutions, but you know, they all had the same sort of thing. 17th century Stuart monarchs in Britain had this project of establishing absolutism. There was absolutism in Spain, absolutism in France. There were parliaments which had slightly different abilities or perquisites or prerogatives. But there were small differences that mattered when this critical juncture came along. And one thing became very important was the ability to control or monopolize trade. The British monarchy was much less good at monopolizing trade. The Spanish monarchy was very good at monopolizing trade. What was the consequence of that? Well, that shifted political power quite dramatically in Britain because the monarchy couldn't control trade. A large class of independent merchants arose, which created a demand for a very different set of economic institutions than had been favored by the Stuarts, the sort of putative, absolutist monarchy in Britain. So that led to this divergence between Britain and the rest of Western Europe. So if you think about this is just sort of telling you the story of, in some sense, how there's this gradual institutional divergence that take place going back in history. You wouldn't think Britain was a sort of. Britain was a backward kind of marginal place for most of history, and even right up to this period before this, during the Tudor period. But this interaction between small differences in institutions and critical junctures ultimately led to a very large divergence in institutions that culminated in these political conflicts in the 17th century, the civil War and then the Glorious Revolution, which created a very different type of political system where policy was determined not by the monarchy or the Privy Council, but by Parliament. Parliament was open to pressure from society in a way which is completely different. So the political revolutions led to large changes in economic policies and economic institutions after the Glorious Revolution that we argue were critical for determining the Industrial Revolution. So that, again, that's a very kind of traditional argument. But what we want to try to put that in as a context is a sort of historical discussion of how institutions diverged historically in Europe between Western and Eastern Europe, and then between different parts of Western Europe, particularly between Britain and. And the rest of Western Europe. So this is our sort of diagram to try to talk more generally about institutional divergence. This is a different story about institutional divergence than the story I told in the case of the Americas. That's a kind of very clean situation, because colonialism had such a large impact on the way those societies function that it's kind of a nice way, I think, to illustrate some of the building blocks of the theory. But of course, it doesn't help you explain what went on in this European case or how British political and economic institutions diverge from those in the rest of Europe. Okay, I think I said enough about that. I'm not going to talk about Mexico. Okay, so this is just summarizing the emergence of inclusive institutions in Britain. I told Tim I'd have too many slides, and I deleted some, and I still have too many. Okay, so how did world inequality emerge? Well, world inequality emerged because after this radical transformation of British institutions, there were some parts of the world that had reached inclusive institutions by different paths. North America, one case. I haven't got time to talk about that. We talk about a lot in the book is Australia. So Australia is a sort of fascinating case which has many parallels to the struggle over institutions in Jamestown after 1607. In Western Europe, institutions diverged from Britain in the 17th century, but they weren't very different. They followed very similar paths in the late medieval and the first part of the early modern period. But many parts of the world had very intense extractive institutions. Eastern Europe, the Ottoman Empire, those places were not equipped to sort of take advantages of the new technologies and types of organization emanating from the industrial revolution. And also they were very threatened by them because of this process of creative destruction. So creative destruction redistributes income and wealth, but it also redistributes power. And one of the ways we try to illustrate that in the book is by the antipathy in both the Austro Hungarian and the Russian Empire to railway construction. So in both empires, they saw building railways as being something very destabilizing. Building railways was going to create a proletariat, it was going to create political instability, and it was going to make it very difficult to govern in the way they had. So they saw industrialization and development of transportation systems as something which would undermine. Create a destruction, which would undermine the political status quo. So those parts of the world kind of kept their extractive institutions and they persisted over time, so they diverged even further. Other parts of the world, of course, had extractive institutions thrust upon them by European colonialism. So the story about Latin America is a story about how extractive institutions were created by European colonization. Of course, that's something which happened all over the world. Okay, that happened in Asia. It happened in sub Saharan Africa. Although the story that we tell in sub Saharan Africa, I think is again, it's a very different. It's a very different story about historical development of institutions where European colonialism in some sense, just part of a long kind of path dependent process of institution creation. For example, even before formal colonization, sub Saharan Africa was heavily impacted by the Sub Saharan Africa's political and economic institutions were heavily impacted by the slave trade in a very extractive direction. So towards extractive political institutions and extractive economic institutions. And in some sense. But you know, in some sense, the most striking example, you know, in Africa would be South Africa. So South Africa, it's not a coincidence that South Africa has had levels of inequality, has levels of inequality very similar to Latin American countries. It's very like a Latin American country. South Africa was set up under the apartheid system to exploit black labor, African labor, for the benefit of the 20% of the white people in society. And, and how did that system work? Well, it worked because white people had all the political power, so they were able to structure labor market institutions, economic institutions, the ownership of assets in a way which benefited them at the expense of the Africans. So that's a sort of striking example. And the same thing happened in Rhodesia, in Namibia and other places. So those types of societies are very similar in some sense to the Latin American case. But other parts of Africa, there's other kind of longer run historical mechanisms influencing their institutional dynamics. So if you think about the, you know, there's many ways in some sense you could get to extractive institutions. And I think colonialism is part of the story, but it's not the whole story, you know, as you can see just by thinking about Western versus Eastern Europe. Okay, so in some sense, you know, it's this variation in institutions, this historically determined variation, institutions that creates this great divergence in the sense that the Industrial revolution disseminates to some parts of the world and not other parts of the world that creates this income divergence. How does that persist into the modern world? It persists because these institutional nexuses are very persistent over time, as I already kind of emphasized. So in the book, we use this concept of a sort of vicious circle and a virtuous circle to try to emphasize how once you create inclusive institutions, they tend to have these kind of feedback loops that reinforce themselves. And that's the same is true with kind of extractive institutions. So let me not talk about any of that, about extractive. Let me kind of end, I should probably end soon by talking about why nations fail today and try to be a bit more optimistic. And maybe I can talk about some of the implications of theory. So this is a very sort of grand theory. And, you know, you'll be, you know, and you'll probably be, it'll probably be clear that it doesn't have very tight kind of predictions about what, you know, what will happen or, you know, what could happen. But there are some implications I think that I'd like to like to emphasize, you know, but I, and I think, you know, we do emphasize this persistence a lot. But I always think, you know, one of the examples we give in the book is that, you know, if you think about the Americas, you take, take the Americas and you line up the Americas from the sort of richest to the poorest countries. So the top you have the US And Canada. The middle you have Argentina or Chile. At the bottom you might have Guatemala or You know, Bolivia, Peru. And you go back, you know, 50 years, the rankings almost identical. You go back 100 years, the rankings almost identical. If you go back 150 years, the rankings almost identical. So that suggests to me that there's some very persistent features determining the inequality of natures. Now you could say, well, any persistent feature could be explained by some persistent characteristic like, you know, geography or something like that. But I'll argue strenuously against that if someone wants to raise it in the questions and answers. Okay, so we sort of talk about this development of this emergence of inclusive institutions in Britain and how different historical paths led to this variation institutions in the world at the time of the Industrial Revolution, how that impacted the diffusion of the Industrial Revolution in some sense and created, you know, modern world inequality. So that today, if we look around the world and we look at, you know, we compare poor versus rich countries and we ask about their political and economic institutions, we're going to characterize, you know, rich countries as having relatively inclusive economic and political institutions, and. And poor countries having extractive political and economic institutions. Let me just give you some examples because, you know, to try to emphasize the sort of variation in that. So what are some of the countries you talk about? Well, you know, here's a great story that you may have missed, which is when President Mugabe won the lottery in Zimbabwe. So there's not only a powerful man, he's a lucky man too. And it's from the BBC, so it must be true. So President Mugabe's name drawn from thousands of customers, top prize in a lottery organized by a partly state owned bank. So here's a country where. Here's a country, a sort of development disaster over the last couple of decades, where clearly political power is very concentrated around President Mugabe and the army and his. A kind of clique of people. And they're able to, you know, both organize political institutions, they're able to kind of undermine any chance of kind of more democratic society, and they're able to organize the economy to their own benefit. Okay, here's a very different type of example from another Latin American country, which is Colombia. Who are these gentlemen? These gentlemen are Colombian paramilitary leaders. George Forte. You see, he signs himself George Forte, Jorge Quarenta. The gentleman at the top is Don Berner, and the gentleman at the bottom with the nice looking sunglasses is called Diego Vecino. These are all, you know, kind of nom de guerres in some sense. What is this pact? Well, this is a pact where. Who are these people? These are sort of Gangsters, basically, who had private armies who went around murdering people, extorting, kidnapping, you know, massacring, stealing land, dealing drugs. This is an agreement they signed with a bunch of politicians. The politicians include the governor of Cordoba, that's the department in Colombia where this Santa Fe de Ralito is, where the pact was signed. The governor of Sucre, next door. National senators, national senator, national congressman, another national congressman. So these gangsters got together with these national politicians and signed a pact calling for the refounding of Colombia. Okay, so what was their idea of refounding Colombia? Their idea of refounding Colombia was fixing the 2002 elections. So around about a third of the congressmen and senators in Colombia that were elected in 2002 were elected by these guys with their guns. Now, what's the point of this? The point is that in Colombia, the central state doesn't control vast areas of the country. Instead, Don Bernard and George Forte control vast areas of the country. The Colombian state is just incapable of providing order or services in possibly a half of its territory. Okay. Of course, there's many other examples of this in sub Saharan Africa. In the Congo, for example, would be another example where the central state has very little control over what goes on in large amounts of the country. So this is a case, the Zimbabwean case is not a case of weak state centralization. President Mugabe actually kind of took over a fairly bureaucratized, effective state by African standards, albeit a very extractive state, another state set up for the benefit of white people at the expense of Africans. And, you know, he took over the state, and instead, you know, he created a different ruling clique and set it up for their benefit. In Colombia, that's not. That's a different problem. It's more fundamental, as in the case of Somalia, where there's this fundamental lack of a state which is able to provide order and services in large parts of the country where you can't have a situation where you can't have a situation of inclusive economic institutions when George Forte could come along and kidnap you or kill you or take your land. And the state is incapable of providing public services. So this is a different type of failure of inclusive institutions. Here's another example, my last example from Uzbekistan. Here's another example of very extractive political and economic institutions. After the fall of the Soviet Union, Uzbekistan was taken over by Ismail Karimov, who was a former Soviet official. So he's, you know, he's life president. He's lining up his daughter, maybe he has two daughters, one of them for the next who's going to take over? He wins elections with 98% of the vote. What happens to the state? What does the state do? Well, the main export of Uzbekistan is cotton. I think it's about 60% of exports. How do they pick cotton? Well, during the Soviet period, there were a couple of hundreds of collective farms growing cotton. They disappeared with the Soviet system and the tractors got rusty and human capital deteriorated. So President Karimov came up with another great idea. We have all these school children sitting around in schools, not doing anything. Why don't they go and pick the cotton? So every year, when the cotton ripens, the schools are emptied and the children are sent off into the schools, into the fields to pick cotton for a couple of months. So that's, you know, this is now. So child labor is organized by the state is the way that the cotton harvest is brought in in Uzbekistan. So here's another example of a kind of very narrow distribution of political power, creating a very kind of extractive form of economy. Okay. Of course, thinking about the British case, the British case, Britain started off with extractive political and economic institutions. There was a lot of conflict over that. And out of that, inclusive political and economic institutions emerged. So clearly there's a possibility for change, despite the fact that I've been emphasizing a lot, this kind of persistence, and we talk about several examples of that which I haven't got time to go in. The US south is a wonderful example. Of course, the US south is a case where there was a very extractive system, the slave economy, before the Civil War. The Civil War freed slaves and enfranchised black men, but it didn't really change power relations fundamentally in the US South. And after 1877, when the north gave up reforming the South, a very similar type of economy recreated itself, albeit with different instruments. Slavery was gone, but instead there was the Ku Klux Klan, there was Jim Crow, there was segregationist legislation, there was vagrancy laws. Many other ways were used to get the black labor force under control. But the change, the dramatic change that took part in the southern economy starting in the 1940s and 1950s and 1960s, which is something else that Tim wrote a seminal paper about, actually is an example of a transformation in political power. Think of the civil rights movement, which had a fundamental impact on the distribution of political power in the US south, which then had a fundamental impact on the economic institutions. And we also talk about Botswana. So Botswana is a wonderful case of a very successful sub Saharan African country where historical struggles going back to the 19th century between the Swana tribes, both with Afrikaners after the great trek, then with British colonial powers, and then after independence led to very relatively inclusive political and economic institutions in Botswana. Unfortunately, I haven't got time to talk about King Karma and so. All right, so let me wrap up because I do want to let people ask questions and express outrage or overwhelming approval. Yes. And just to say so this is a sort of very whirlwind tour. As I said, the book is 570 pages. And so it's very difficult to do it justice in such a short amount of time. But I hope I've given you some kind of flavor of the ideas. We try to use these historical stories to abstract some very simple building blocks from these historical stories which can help explain kind of differences in incomes today and in terms of institutional differences. But then try to trace back, using this very kind of simple ideas about dynamics, how this institutions diverged kind of in the world. And let me just end by kind of saying one thing. I think one of the things that sort of, you know, struck me in sort of studying is studying this for a long time is that, you know, this is a, you know, there's a. Although at some level this looks, you know, you could say this was sort of very, you know, it's sort of very pessimistic or it's a very historically grounded. I guess I just think that that's how the world is. It also implies that the world could have looked very different. So this is one very big difference between this and a sort of geographical view of the world such as Jared Diamond's is that there's no reason here that any particular part of the world is more prosperous than another part of the world. There's no reason why Peru couldn't have much higher levels of income than the United States today. That wasn't historically, it wasn't sort of determined by anything other than particular conditions, a particular juncture where institutions in that society got created. And I think that applies all over the case in a lot of the research I've always been done. I've always been sort of struck by. I've never understood why it was that in many African countries, for example, they have just as much economic potential as other parts of the world. I don't think there's any reason why, if historically institutions or society in a place like Sierra Leone or Ghana had been structured differently, those places couldn't be just as prosperous as England or North America today. So I think that part of the theory is kind of, you Know, I think that's very. That's sort of very optimistic for the future in some sense. But obviously I'm also emphasizing a lot that it's very difficult to break the particular institutional equilibrium that societies are in. So it's possible to make large improvements in development outcomes, but it's very difficult for that change to be engineered, I guess. I would say so. Okay.
- [62:39]
A
So Jim has left us a little bit of time for questions and comments. Can I ask that first of all, you announce who you are before you ask your question. And also could I ask people to keep it brief so that we can have maximum participation? We would want to have inclusive institutions here. So I saw a hand down there first and I've seen one over there and one there. So there's roving mics. So can I ask you to wait for the microphone before you start? So we're going in the middle here to begin with. There should be mics upstairs as well. Okay, I'm seeing some hands upstairs as well, so I'll make sure I roam. Okay, chase behind, behind, behind you in the. Okay, we'll go there first. You'll be next.
- [63:19]
C
I'm Addie Roberts.
- [63:20]
B
I'm a member of the public. How would you classify modern day China?
- [63:24]
D
Because it's quite successful economically and yet politically it is concentrated. Power is concentrated.
- [63:31]
C
And you've had things like the Jasmine.
- [63:33]
B
Revolution recently, which was suppressed, and political dissension isn't something that's encouraged there. So that's why I showed you those pictures of Paul Samuelson's forecasts of growth of the Soviet Union. So I think that, you know, what this approach implies is that there's no way that the current situation in China is sustainable. The Soviet Union grew very rapidly for 40 years and fooled everybody into thinking that this was a sort of successful way to organize development. And of course, now everyone sort of laughs when you tell them that. But my sense is that the situation with China is very similar. And China actually has some big advantages over the Soviet Union Union in the sense that when the Soviet Union was doing it, they couldn't export anything because the Cold War was going on. China can export stuff. So that actually gives them a lot more sort of potential. But I would say, you know, you could always say, you know, people will come with hundreds of arguments about, oh, China is different. And, you know, but I'd say, you know, that, you know, studying these historical cases, you can't think of an example of kind of sustained economic growth which has this combination of institutions that China has and So I guess I would say it's very rare as Tim would know, that I ever make predictions about anything. But if the theory has one prediction, it is that the current situation in China is unsustainable. That either it will go the way of Tunisia or it will possibly go the way of South Korea. In some sense, you think about growth in the South Korea and the General park was a very kind of extracted political institutions, but that growth was sustained because they made a transition to a sort of inclusive political set of political institutions in South Korea. So that's the thing with China.
- [65:11]
A
Okay, if you pass the microphone along to this gentleman here. Hello.
- [65:18]
E
Thank you. My name is John Robertson. I'm a professional economist. My question is related to a recent book I read by Danny Roderick. I don't know if you. You had the chance to read it, but my question is how your. What you're saying here relates to the trade between countries and the relations of different institutions. Danny Roderick proposed the. His book suggested that there's also conflict between the institutions and global trade and that democracy will always trump the trade. But that goes against some of the interventions by the IMF and other global organizations. And I was wondering whether you could give me a flavor of what you see as the development of institutions and the interaction of institutions across the world.
- [66:18]
B
Well, I don't know. I mean, actually, I have to admit that I haven't read Danny's book, although I ought to have done. I mean, I would just say. So let me say one thing about how does trade enter into this? Trade enters. If you think historically about trade, it plays a very complex role with institutions. When I talked about the second serfdom, the second serfdom in Eastern Europe actually happened in the context of a big trade expansion. So it was actually the expanding market in Western Europe for Eastern goods, particularly grain exported from the Elbe Basin and further east, that encouraged landlords to intensify extraction of labor. In 19th century Latin America, world trade expansion, coffee, many tropical products, went along with enormous intensification of extracted institutions in Guatemala or El Salvador, in Bolivia. So I think trade and institutions kind of interact, but trade can have very perverse effect on institutional as well as beneficial effects on institutions. Of course, the slave trade, which I mentioned, was an example of trade having very perverse effects on institutions. So I'm not sure that the concepts that we have allow me to talk about the kind of issues he's interested in. I haven't said anything about, I hardly said anything about democracy, for example, because I think that in our view of the world. When I talked about inclusive political institutions, that's definitely not the same thing as democracy. So I think you can have democracies where political power is not very inclusive. Colombia, for example, if you look at how people rate democracies, people would say Colombia is a democracy. And I think it's probably true that the current president Santos was preferred by a majority of the population. But that's not a country we'd say has very inclusive institutions, even though at some level it's a democracy. Democracy can be very sort of dysfunctional. And I guess that's one of the reasons why, if you look at the last 50 years, for example, there's very little correlation between democracy and economic growth. And that's so I guess, you know, so I'm not sure I really have the concepts here to talk about. Denis ideas so or can do them justice.
- [68:29]
A
Okay, let's go upstairs.
- [68:32]
B
Can I just have a short question?
- [68:34]
A
No, because I think we need to share it around afraid. Let's go up there just on yeah. If you pass it along into the middle there and then we'll come back down in a moment.
- [68:46]
D
Junaid Smyo, STUDENT of GLOBAL politics Point of correction in terms of the view you have given on Somalia and the tribal lawmakers, I'm afraid they call it Somali natural law. And I found it that you haven't done enough research on that issue and would urge you to look into it before you give what I perceive to be a negative comment. My question, therefore, is in relation to John Burke's economical hitman book that you wrote about how the west have used economical hitman to extract wealth from third world countries mainly. You haven't commented anything on also imf. Could you elaborate more of those areas?
- [69:52]
B
Let me say something about so I'm not saying anything negative about Somalia, actually, I think, you know, I agree with James Scott, you know, that creation of states is a terribly coercive and unpleasant business, you know, that people resist state formation. I think one of the genius you know, the historical genius about many African societies is that they were able to resist the creation of centralized state kind of authority. What do centralized states do? They tax, they coerce. They stick you in the army, you know, they take your lands, they regulate you. I mean, so, you know, my own sort of view is that, you know, of course not having centralized states turned out to be terribly disadvantageous, you know, in the modern world when Europeans developed states and military technology and stuff like that. But historically, if you want to talk about welfare, you know, you could argue that in many sub Saharan African countries the lack of these centralized states was actually, I mean, that's what James Scott would argue, that that was actually good for welfare. So there's nothing negative about that. It's just that. I'm not saying anything negative about that. I think it's just a factual matter that a centralized state didn't emerge historically in Somalia because of the way the clans interacted and because of the way it was very difficult to create a centralized state in such an environment. So I think that has important consequences today for the provision of services and development. But I don't want to say, I don't say anything. I don't want you to. I think you got the wrong kind of connotation out of that in terms of the IMF and the World Bank. I mean, I've always thought the IMF and World bank are very marginal players in this situation. There's a lot of discussion in the book about the impact of European colonialism, which I think had a kind of first order effect on many of the institutions in the world. But compared to European colonialism, I think the World bank and the IMF, pretty pathetic really. And I mean, maybe my knowledge of this is not sort of restricted in some sense, but in the countries that I've worked where there's been a lot of World bank intervention in sub Saharan Africa, I've always been incredibly impressed by how the World bank has been, A, had no idea what's going on most of the time and B, completely powerless to do anything about it. So I guess there is a lot of sort of international stuff here, but I guess we see that's not discussed very much because we see it as being sort of very small compared to these other things that we talk about. So the World bank can't solve all these problems, but neither did they create them.
- [72:24]
A
Okay, can we pass the mic to the woman in the middle there, please?
- [72:29]
F
Yes. My name is Yumi, Development grad student. You stated that once the wheels of power start turning, both exclusive and inclusive institutions, it's really hard to get out of that. And I was wondering what about in the case of after post conflict in particular, like within Sub Saharan Africa and especially with the new wars that have rised in Sub Saharan Africa and how after post conflict these countries, they have failed and collapsed institutions. Would you agree that such a return to such an evil playing ground, if you will, is more insightful for the creation of new institutions, or would you say that they will continue to be on that wheel of previous institutions that they had before, whether inclusive or exclusive.
- [73:35]
B
Yeah, well, I mean, I could tell you, I could talk about one case that I know quite well because I've been doing a lot of research in Sierra Leone over the last few years, and Sierra Leone is a very interesting case where there was this civil war and there was the war. There was a lot of international intervention, including Tony Blair inspired intervention, which helped and also, but probably more importantly by the guinea army, which helped end the war. And so you might think, so here's the civil war's over. This is a post conflict society. There ought to be a lot of potential for kind of changing political equilibrium. And I think that's true. And I think at some level, the war, there's some evidence that the war itself has quite a large impact on the, you know, the way people thought about the society. And it permanently changed some of the institutions, particularly at a local level, that were probably partially, at least partially responsible for the civil war. But also the thing that really strikes one about Sierra Leone, if you go there today about the politics, is how incredibly it looks like the politics that was there before the civil war. It's even a lot of the same people who were there when the economy was collapsing, when the state was collapsing back in power as we speak today now, you could say, well, the leopards could change their spots. They were kind of, they messed up in the past and they're going to be new people today. But I think that just ending the civil war and sort of even supporting democracy or supporting other things, decentralization, whatever, that in itself, it's possible that that could lead to a large change in the way the society functions in terms of politics and political competition, economic institutions. But I'd say that it's not necessarily true at all. And I'd say in Sierra Leone that of the two, there's far more evidence of persistence than there is of real change. Even though there's definitely some evidence of change, I think that the international community has sort of tried to do the right thing, but they neither understand nor are able to really fundamentally, no, nor possibly is it ethical even to try to fundamentally change the society in some sense. That's for the Sierra Leoneans to do that.
- [75:40]
A
Okay, what we're going to do is we're going to take now a collection of formal questions and then you can kind of respond at the end. So I'm seeing one down here, one down there, and then I'll come to the top for the last two.
- [75:52]
G
Thanks.
- [75:53]
A
Please keep them.
- [75:55]
B
Robert Wade, how would you test your hypothesis Your very striking hypothesis that the.
- [76:02]
A
Distribution of material prosperity across the territory of the world has very little to.
- [76:07]
B
Do with the distribution of geographical variables.
- [76:10]
A
Such as rainfall, such as temperature, such.
- [76:14]
B
As disease and all those kind of things.
- [76:18]
A
You've really wound them up now, I can tell you.
- [76:22]
G
Yes, he is seem to imply that being extractive or inclusive is embedded in a country's cultural DNA and it's very difficult to change it. Examples I would give is that Germany in 1945 was down in its knees and people would have said this is going to become an extractive country. Yet within two years, sorry, 10, 15 years, it was back on its feet again. And after the fall of communism, people said Russia will now become a westernized European country and it'll be just like the UK or the US and these patterns seem to be very persistent. There are plenty of other examples, but I won't go on.
- [77:11]
A
Okay, thank you. So we've got time for two quick questions at the back there one there on that. So yeah, take the mic.
- [77:24]
C
Thank you. Yes, certainly a grand theory and also a theory with optimism for the societies which are somewhat backward. I propose even a grander theory if I may. And that is that the human beings how distant their evolutionary currents because of their ability to watch gold not generate knowledge generally technology, the creativity and all that kind of thing. And the same thing I feel that, that what you call was responsible for differentiating the. The human societies, that is societies which are better creating knowledge. They were, they. They went ahead and they were able to dominate those societies which were not so good at creating knowledge. But what you said earlier on about the Latin American, the original societies, that they were technologically advanced and yet they were dominated by a band of. A small band of what you call people coming from abroad. How it is possible that the technologically advanced societies could be dominated by what you call a band of people who are not so technologically advanced.
- [78:42]
A
Okay, can you keep. I'd like to get one more person in so someone down the row. Yes, if you could pass it down the road. Thank you.
- [78:50]
D
My name is Jason because. And I'm an energy economist. My question is do you agree with.
- [78:56]
B
The statement that the western developed world.
- [78:58]
D
Is actually has actually seemingly inclusive political institutions that are stifled by increasingly extractive economic institutions.
- [79:15]
A
Okay, Jim, so over to you. You've got a few minutes to respond to some of that and thanks. Thanks to all of you asked questions and apologies to those we. We weren't able to get to. But you'll have to buy the book.
- [79:29]
B
So first let Me answer Robert's question. So, I mean, that's. All of our early scientific papers are all about that topic, about trying to argue. Trying to show kind of statistically that it's institutional variation that explains income differences and not geographical variables or other types of variables. So I think most of the work, of course, there's correlations in the world between latitude and income per capita, for example, but we try to show that that's basically completely spurious. And how could that be spurious? Well, here's an argument from our work, which is, so why is it that countries closer to the equator happen to be poorer than countries further from the equator? Could it be that hot climates are worse for development than cold climates? And if you think about the institutional story that I was talking about and say, talking about the impact of European colonialism, one thing we investigated statistically was the impact historically of the disease environment on European colonial strategy and colonialism. So here's my favorite story to kind of illustrate the idea. The Pilgrim Fathers. If you live in Massachusetts like I do, the Pilgrim Fathers are very kind of famous. Chaps, chaps. And the word. Ladies, sorry, men and women. Pilgrim Fathers were these religious dissenters living in Britain that wanted to go and set up a kind of ideal religious community. Where was the first place they decided to go? Not Massachusetts. Terrible place. Terrible weather, cold, freezing. Guyana. So Walter Raleigh, the great explorer and adventurer, wrote a book about how Guyana, north of South America, was a paradise. Everyone should go and create colonies in Guyana and colonize Guyana. It was a fantastic place. So before the Pilgrim Fathers could get there, they were all planning to go to Guyana. So other English people got there first, and they all died of yellow fever. And the Pilgrim Fathers said, ah, you know, not such a great idea. Let's go Pan B, Massachusetts. So what's in that example is sort of interesting because it shows how. Now, first of all, one thing that affected patterns of colonialism, at least colonial migration, was the viability of having a society based on Europeans. So why did all those white people go to South Africa and not Ghana? Because Ghana was the white man's graveyard. They all died of tropical diseases. So in the colonial world, one of the things that influenced institutions. I haven't talked about it today very much because I think it's actually less important than other things. One of the things that influenced institution creation, the type of colonial societies that emerged, was patterns of European migration. Okay, so in Virginia, once they realized there was no. One of the things that affected institutions quite a lot was that once they realized there were no indigenous people to exploit. They realized that the only way to make money and have viable economy was to get Europeans to come, to get English people to come. And you had to have very different type of institution, institutions for that to work. But that wouldn't have worked in a society with tropical diseases. Very bad tropical diseases. So one of the reasons that that part we tried to show in the statistical analysis that there's a correlation between latitude and poverty is that historically, latitude through different channels, one being the disease environment, influenced the way colonialism created different institutions in different societies. So we try to show in many ways that a big part of this correlation is essentially created spuriously by features of the historical creation of institutions. So, of course, institutions are also correlated with latitudes and geographical variables. But once you try to do the statistical analysis properly, which I can't talk about in this context, geographical variables are not important. So we could talk about that more, But I'm not sure if I was very articulate. I mean, cultural DNA, that's not the story. I mean, it's not a story about. I mean, I haven't talked about culture. Culture appeared on the early slide, but I didn't talk about it. I mean, when I talk about institutions, institutions are often. Here's an example of an institution. So 1688, the glorious revolution. What did the Glorious Revolution do in England? Well, it created parliamentary supremacy. Okay. Before the six, before 1688, the king had to call parliament. And kings didn't like calling parliament. So often Parliament didn't get called. After 1688, the king still called Parliament. But parliament met every year. Parliament's met every year since 1688. Not only did it meet every year, it started meeting, on average, twice as much as it used to before 1688. So after the Glorious Revolution, authority switched to Parliament. The king was felt obliged to call parliament every year. It became institutionalized. There was no law, There was no constitution. It wasn't like the United States. But the king, you know, what would the queen. What would happen today if the queen decided not to call Parliament? I mean, it's sort of unthinkable because, you know, it became institutionalized in a sense. Okay, so. So that I think is. That's not a written thing. Is that a social norm? Is it culture? I don't think of it as being culture. It's a sort of pattern of behavior that kind of heavily influences everyone's expectations about what they think is going to happen that they think is going to repeat. That's going to influence many other things. Their Behavior, their investments, their activities. But of course, that's also very. I don't think that's written in DNA. Certainly that could change. You can imagine a world that could change. The First World War had a very kind of traumatic effect on institutions in Germany during the 1920s and the 1930s and afterwards. But I guess I would say that in the German case, obviously a theory working at this level of kind of abstraction is not going to be able to explain lots of types of historical dynamics about the rise of National Socialism or things like that, I guess, in the way we think about it. Germany, for example, fits squarely within the story of the divergence of Western Europe from Eastern Europe, the divergence of Britain from Western Europe, but then a convergence within Western Europe, which is driven by the fact that Western Europe experienced large, very similar processes, one of which being the French Revolution, which explains exported inclusive institutions to large parts of Western Europe, including most of Germany. So we can't really explain the sort of historical dynamics like the rise of National Socialism. We would see, in some sense, that's the German trajectory over the longer run, we would see as fitting pretty much into what I've described. But obviously, the type of dynamics that you're describing, that's kind of fascinating, but the theory is just not detailed enough to kind of cope with that. But, you know, so gentlemen up there, you know, so how did the churros, you know, you know, who clubbed to death, by the way, Juan de Solis on the beach as he was claiming the territory for Spain. How did they, you know, how did they manage to dominate the Spaniards? They didn't really dominate the Spaniards. I mean, if the Spaniards kind of really wanted to get them under control and, you know, they could have done. It's just that the Spanish thought they didn't see any potential for doing it. One of the great stories about colonial Brazil, for example, is that when the Portuguese decided to turn Brazil and northeast of Brazil into a sugar colony, they first decided to use indigenous people in Brazil to work, to do gang labor in the sugar colony. But the indigenous people wouldn't do it. They even committed suicide. Rather than work in a kind of slate plantation conditions. They just couldn't be coerced into doing it. Now, I don't know what the right way to think about that is. Maybe that is a sort of cult that had to be socialized. We all have to be socialized into behaving properly and doing certain things and obeying orders. And they came from a very different type of society where they weren't used to that kind of. They weren't used to paying taxes and being ordered around and socialized. And it was impossible. There's a beautiful book by Stuart Schwartz at Yale about this. It was impossible to get them to cut sugar cane. And then instead they started bringing African slaves instead because they could be coerced and you could do gang labor. So I think that's the real story, which is that the Spanish just realized that you couldn't, you know, you could have dominated. They could have dominated the churros, but that wasn't going to create a successful economy. And so they looked around for somebody else who they could dominate. The last gen. Simon's question is this about the financial industry? I didn't quite get the. Well, you have to ask my friend Simon Johnson about that. Simon Johnson has a wonderful book called 13 Bankers, which is about how the bankers are taking over the world. And in fact, I guess you could say, you know, Yeah, I mean, I'd have to think about that. I haven't, you know, I haven't thought about. I haven't thought about this too much. I guess I still think of economic institutions as being pretty inclusive, but perhaps the bankers will prove me wrong. Tim used to be a banker, so perhaps a central banker, so perhaps he has more insight on this question.
- [88:51]
A
Jim, thank you very, very much for what has been a wonderful lecture. And I think if we remind ourselves why we're here, it's to honor the memory of Michoe Murashima. I'm absolutely sure that he, like all of us, would have been fascinated by your lecture. I'm sure he would have disagreed with plenty of it and we'd have had a protracted discussion afterwards as we, as we probably all will, about the content. But it's been wonderful to listen to the ideas I'm sure you've got. Probably sold a few more of your books right here and now. Even though this isn't a formal book tour, I'm sure it's going to be a great success. And thanks very much for coming and entertaining us this evening.