Your humble blogger is currently knee-deep in a pedagogical project on the foundations of economic prosperity. You can imagine my delight, then, that Daron Acemoglu and James Robinson have a new book coming out on that very topic: Why Nations Fail: The Origins of Power, Prosperity, and Poverty. There's an excerpt in the Montreal Review -- let's see how it opens, shall we?
To understand what these institutions are and what they do, take another society divided by a border. South and North Korea. The people of South Korea have living standards similar to those of Portugal and Spain. To the north, in the so-called Democratic People's Republic of Korea, or North Korea, living standards are akin to those of a sub-Saharan African country, about one tenth of average living standards in South Korea. The health of North Koreans is in an even worse state; the average North Korean can expect to live ten years less than their cousins to the south of the 38th parallel.
These striking differences are not ancient. In fact they did not exist prior to the end of the Second World War. But after 1945 the different governments in the north and the south adopted very different ways of organizing their economies....
It should be no surprise that the economic fortunes of South and North Korea diverged sharply. Kim Il-Sung's command economy soon proved to be a disaster. Detailed statistics are not available from North Korea, which is a secretive state to say the least. Nonetheless, available evidence confirms what we know from the all too often recurring famines: not only did industrial production fail to take off but North Korea in fact experienced a collapse in agricultural productivity. Lack of private property meant that few had incentives to invest or exert effort to increase or even maintain productivity. The stifling repressive regime was inimical to innovation and adoption of new technologies. But Kim Il-Sung, his son and successor, the "dear leader" Kim Jong-Il, and their cronies had no intention to reform the system, or to introduce private property, markets, private contracts, and economic and political freedoms. North Korea continues to stagnate economically, and there is no sign that anything will be different under the new "dear leader" Kim Jong-un.
Meanwhile in the south economic institutions encouraged investment and trade. South Korean politicians invested in education, achieving high rates of literacy and schooling. South Korean companies were quick to take advantage of the relatively educated population, the policies encouraging investment and industrialization, the export markets, and the transfer of technology. South Korea became one of East Asia's `Miracle Economies,' one of the most rapidly growing nations in the world. By the late 1990s, in just about half a century, South Korean growth and North Korean stagnation led to a tenfold gap between the two halves of this once-united country---imagine what a difference a couple centuries could make. The economic disaster of North Korea, which not only prevented growth but led to the starvation of millions, when placed against the South Korean economic success, is striking: neither culture nor geography nor ignorance can explain the divergent paths of North and South Korea....
The contrast of South and North Korea illustrates a general principle: inclusive economic institutions foster economic activity, productivity growth and economic prosperity, while extractive economic institutions generally fail to do so. Property rights are central, since only those who have secure property rights will be willing to invest and increase productivity. A farmer, for example, who expects his output to be stolen, expropriated or entirely taxed away would have little incentive to work, let alone any incentive to undertake investments and innovations. But extractive economic institutions do exactly that and fail to uphold property rights of workers, farmers, traders and businessmen.
It will not shock you, my dear readers, to learn that I agree with Acemoglu and Robinson. Indeed, as Ezra Klein showed with the following chart, the divergent paths of North and South Korea represents ironclad evidence about the power of instituions to determine prosperity:
Well, that's pretty damn persuasive, isn't it? It seems pretty friggin' obvious which institutions work and which ones don't!
Actually, to be more accurate, it seems pretty friggin' obvious now. Here's another chart that extends that graph back another two decades:
Things look sightly different in this chart. That massive divergence is still there, but what's stunning is that for the 25 years before that, the DPRK and ROK looked exactly the same in terms of per capital income. Indeed, as Nicholas Eberstadt notes:
Around the time of Mao Zedong's death (1976), North Korea was more educated, more productive and (by the measure of international trade per capita) much more open than China. Around that same time, in fact, per capita output in North Korea and South Korea may have been quite similar. Today, North Korea has the awful distinction of being the only literate and urbanized society in human history to suffer mass famine in peacetime.
My point here is not to defend Kim Il Sung or suggest that the DPRK's economic institutions are underrated. Rather, my point is that as data analysts, we're all prisoners of time. Had Acemoglu and Robinson written Why Nations Fail in the mid-1970s, it would have either made a different argument or it would have had a much tougher case to make about the merits of inclusive vs. extractive institutions (during the 1970s, commodity extracting states were looking pretty good).
Keep these charts in mind whenever anyone confidently asserts the obvious superiority of a particular model of political economy. Because, I assure you, there was a point in time when such superiority was far from obvious. And there might be another such point in the future.
One of my favorite passages of fiction comes from Douglas Adams' The Restaurant at the End of the Universe:
It is a curious fact, and one to which no one knows quite how much importance to attach, that something like 85% of all known worlds in the Galaxy, be they primitive or highly advanced, have invented a drink called jynnan tonnyx, or gee-N'N-T'N-ix, or jinond-o-nicks, or any one of a thousand or more variations on the same phonetic theme. The drinks themselves are not the same, and vary between the Sivolvian 'chinanto/mnigs' which is ordinary water served at slightly above room temperature, and the Gagrakackan 'tzjin-anthony-ks' which kill cows at a hundred paces; and in fact the one common factor between all of them, beyond the fact that the names sound the same, is that they were all invented and named before the worlds concerned made contact with any other worlds.
What can be made of this fact? It exists in total isolation. As far as any theory of structural linguistics is concerned it is right off the graph, and yet it persists. Old structural linguists get very angry when young structural linguists go on about it. Young structural linguists get deeply excited about it and stay up late at night convinced that they are very close to something of profound importance, and end up becoming old structural linguists before their time, getting very angry with the young ones. Structural linguistics is a bitterly divided and unhappy discipline, and a large number of its practitioners spend too many nights drowning their problems in Ouisghian Zodahs.
As someone in transition from being a young structural IR theorist to an old one, I've now seen enough to recognize when certain patterns begin to recur. For example, I've now read enough articles about the North Korea's Worker Party Congress to know the following:
1) This was a Very Big Deal
2) Kim Jong Il's family got some promotions
And after reading all of this, I can now state with confidence the following: no one knows exactly what the f*** is going to happen in North Korea once Kim Jong Il dies. There are plausible stories that can be spun any which way. But no one really knows.
I hereby encourage all young political scientists to get excited about this Party Congress and convince me that something very important and of profound significance was revealed in the past 48 hours.
One of the glib jokes I like to make is that one country in the world needs to maintain a communist, centrally-planned economic structure. This would serve as a public service warning to future generations of policymakers. Some of them would inevitably romanticize prior communist efforts as noble in their aspirations and unfairly maligned by the capitalist writers of history. At that point, you get on a plane and fly them to the Last Remaining Communist Country in the World to show them just how bad real life can be.
My nominee for this country was always North Korea. China's economy doesn't really fit Stalinist dicta anymore; neither does Vietnam. And keeping Cuba as a communist country is just a fabulous waste of culture and resources. No, North Korea seemed to be the ideal museum of blinkered economic thinking.
After reading Sharon LaFraniere's heartbreaking front-page story in the New York Times about North Korea today, however, such jokes ring a little hollow:
North Koreans are used to struggle and heartbreak. But the Nov. 30 currency devaluation, apparently an attempt to prop up a foundering state-run economy, was for some the worst disaster since a famine that killed hundreds of thousands in the mid-1990s.
Interviews in the past month with eight North Koreans who recently left their country — a prison escapee, illegal traders, people in temporary exile to find work in China, the traveling wife of an official in the ruling Workers’ Party — paint a haunting portrait of desperation inside North Korea, a nation of 24 million people, and of growing resentment toward its erratic leader, Kim Jong-Il.
What seems missing — for now, at least — is social instability. Widespread hardship, popular anger over the currency revaluation and growing political uncertainty as Mr. Kim seeks to install his third son as his successor have not hardened into noticeable resistance against the government. At least two of those interviewed in China hewed to the official propaganda line that North Korea was a victim of die-hard enemies, its impoverishment a Western plot, its survival threatened by the United States, South Korea, and Japan.
South Korea’s charge that North Korea sank one of its warships, the Cheonan, in March was just part of the plot, the party official’s wife said.
“That’s why we have weapons to protect ourselves,” she said while visiting relatives in northern China — and earning spare cash as a waitress. “Our enemies are trying to hit us from all sides, and that’s why we lack electricity and good infrastructure. North Korea must keep its doors locked.” (emphasis added)
The emphasized part is what gets me. The party official's wife -- presumably, one of the DPRK's elite -- has to work as a waitress to earn extra income.
None of this is news. Marcus Noland wrote about this here at FP.com back in March. For a more detailed analysis, see his Peterson Institute for International Economics' brief with Stephan Haggard. The highlights from that brief:
Respondents portray a judicial and penal system characterized by high rates of arbitrary detention and release. Horrific abuses are characteristic not only of the camps for political prisoners, but are found at all levels of the penal system. In the survey of more than 1,300 refugees conducted in China between August 2004 and September 2005, nearly 10 percent reported incarceration in political and correctional detention facilities. Among this group, 90 percent reported witnessing forced starvation, 60 percent deaths due to beating or torture, and 27 percent executions. These findings are broadly confirmed by a second survey of 300 refugees conducted in South Korea in November 2008, which also included more detailed questions about initial arrest and detention, the types of facilities in which respondents were held, and the conditions they witnessed while incarcerated.
The emerging portrait of the North Korean penal system suggests a vast machine that processes large numbers of people engaged in illicit activities for relatively short periods, but which exposes them to terrible abuses while incarcerated. This pattern serves to effectively intimidate; our surveys reveal an atomized society in which barriers to collective action are high and overt political opposition minimal. However, repression has not served to eliminate market-oriented activity, in part because of the continuing poor economic performance of the regime. Rather, our surveys suggest a changing political economy in which corrupt officials extract bribes from those in the market, exploiting their ability to limit entanglement with a brutal penal system.
There is another simple reason why a social revolution is unlikely to topple the North Korean regime -- starving people might lack the energy to do anything other than search for something to eat.
Developing... in the most depressing manner possible.
PETER PARKS/AFP/Getty Images
Since visiting Cuba a few weeks ago, I’ve been thinking about the visual assault on our lives. Climb in a New York taxi these days and a TV comes on with its bombardment of news and ads. It’s become passé to gaze out the window, watch the sunlight on a wall, a child’s smile, the city breathing. In Havana, I’d spend long hours contemplating a single street. Nothing — not a brand, an advertisement or a neon sign — distracted me from the city’s sunlit surrender to time passing. At a colossal price, Fidel Castro’s pursuit of socialism has forged a unique aesthetic, freed from agitation, caught in a haunting equilibrium of stillness and decay. Such empty spaces, away from the assault of marketing, beyond every form of message (e-mail, text, twitter), erode in the modern world, to the point that silence provokes a why-am-I-not-in-demand anxiety. Technology induces ever more subtle forms of addiction, to products, but also to agitation itself. The global mall reproduces itself, its bright and air-conditioned sterility extinguishing every distinctive germ.OK, first of all, Roger Cohen has never ridden in a NYC cab with small children -- because those little TVs are godsends when traveling with little ones who might ordinarily get carsick being in a real New York cab. Now, as it happens, I have also spent significant amounts of time in empty spaces as well. And while the aesthetic along certain boulevards of an absence of advertising and neon can be lovely, the fact is that 90% of these places would really benefit from some of the global mall. Paris has its charms, but the rest of the world is not Paris. Having lived in Donetsk, Ukraine fore a year, I kept thinking, "at least some advertising would bring a little color to a drab part of the globe." So, no, I didn't feel a "why-am-I-not-in-demand anxiety" when I was in these places -- I felt bored.
Paris, of course, has resisted homogenization. It’s still Paris, with its strong Haussmannian arteries, its parks of satisfying geometry, its islands pointing their prows toward the solemn bridges, its gilt and gravel, its zinc-roofed maids’ rooms arrayed atop the city as if deposited by some magician who stole in at night. It’s still a place where temptation exists only to be yielded to and where time stops to guard forever an image in the heart. All young lovers should have a row in the Tuileries in order to make up on the Pont Neuf. Yet, for all its enduring seductiveness, Paris has ceased to be the city that I knew. The modern world has sucked out some essence, leaving a film-set perfection hollowed out behind the five-story facades. The past has been anaesthetized. It has been packaged. It now seems less a part of the city’s fabric than it is a kitschy gimmick as easily reproduced as a Lautrec poster. I know, in middle age the business of life is less about doing things for the first than for the last time. It is easy to feel a twinge of regret. Those briny oysters, the glistening mackerel on their bed of ice at the Rue Mouffetard, the drowsy emptied city in August, the unctuousness of a Beef Bourguignon: these things can be experienced for the first time only once. So what I experience in Paris is less what is before me than the memory it provokes of the city in 1975. Memories, as Apollinaire noted, are like the sound of hunters’ horns fading in the wind. Still, they linger. The town looks much the same, if prettified. What has changed has changed from within.What I love about this section is the 100% certainty that, fifty years from now, some op-ed columnist will write an essay containing the exact same nostalgia about the anaesthetized, packaged Paris of today. Similarly, fifty years ago I guarantee you someone wrote this exact same essay, complaining that the Paris of Roger Cohen's fond remembrance is merely an anaesthetized, packaged version of the "true" Paris. This section is not about Paris changing -- it's about Roger Cohen aging (which, to his credit, he kind of understands).
At dinner with people I’d known back then, I was grappling with this elusive feeling when my friend lit a match. It was a Russian match acquired in Belgrade and so did not conform to current European Union nanny-state standards. The flame jumped. The sulfur whiff was pungent. A real match! Then it came to me: what Paris had lost to modernity was its pungency. Gone was the acrid Gitane-Gauloise pall of any self-respecting café. Gone was the garlic whiff of the early-morning Metro to the Place d’Italie. Gone were the mineral mid-morning Sauvignons Blancs downed bar-side by red-eyed men. Gone were the horse butchers and the tripe restaurants in the 12th arrondissement. Gone (replaced by bad English) was the laconic snarl of Parisian greeting. Gone were the bad teeth, the yellowing moustaches, the hammering of artisans, the middle-aged prostitutes in doorways, the seat-less toilets on the stairs, and an entire group of people called the working class. Gone, in short, was Paris in the glory of its squalor, in the time before anyone thought a Frenchman would accept a sandwich for lunch, or decreed that the great unwashed should inhabit the distant suburbs. The city has been sanitized.I've visited parts of the global that have been sanitized and parts of the globe that have not. I vote for sanitation. For every charming pungent aroma that Cohen claims has disappeared, there are five aromas that I'm happy to see diminish in scope: no one misses the pungency of stale urine, vomit, moldy beer, rotting garbage, and worse smells, but they tend to parallel the ones Cohen claims to miss. I'll take that tradeoff without blinking. And, apparently, so will the rest of Europe.
But squalor connects. When you clean, when you favor hermetic sealing in the name of safety, you also disconnect people from one another. When on top of that you add layers of solipsistic technology, the isolation intensifies. In its preserved Gallic disguise, Paris is today no less a globalized city than New York.Likely true, and if Cohen wants to bemoan the cultural cost of globalization, I'm not so blinkered as to suggest it doesn't exist. But I'll trade the minor cost to Paris for the massive culinary benefit that globalization has had on other metropolises, like, say, London.
Havana has also preserved its architecture — the wrought-iron balconies, the caryatids, the baroque flourishes — even if it is crumbling. What has been preserved with it, thanks to socialist economic disaster, is that very pungent texture Paris has lost to modernity. The slugs of Havana Club rum in bars lit by fluorescent light, the dominos banged on street tables, the raucous conversations in high doorways, the whiff of puros, the beat through bad speakers of drums and maracas, the idle sensuality of Blackberry-free days: Cuba took me back decades to an era when time did not always demand to be put to use.For Pete's sake, you can go lots of island resorts without a Stalinist economy and still experience that kind of slowing down. Hell, there are even, dare I say, commercials that make this point.
I thought I’d always have Paris. But Havana helped me see, by the flare of a Russian match, that mine is gone.I've visited a lot of communist locales that preserve Cohen's pungency. As a general rule, all of them are better off after the pungency has gone.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.