Lecture 3 - Theoretical Approaches
Lecture 3 - Theoretical Approaches POL-UA-530-001
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This 13 page Class Notes was uploaded by Sara Mendez on Saturday February 13, 2016. The Class Notes belongs to POL-UA-530-001 at New York University taught by Pablo Querubin Borrero in Spring 2016. Since its upload, it has received 47 views. For similar materials see Latin American Politics in Political Science at New York University.
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Date Created: 02/13/16
Lecture 3: Theoretical Approaches – Institutions -Latin America diverged dramatically with respect to the U.S in terms of economic and political development -There have been other extreme cases of the same type of divergence: North Korea and South Korea are an example Dictatorships vs. democracy; dramatically different despite being so close Proximate vs. Fundamental Causes of Divergence -Some accounts of divergence focus on proximate causes of underdevelopment Example of Proximate Causes Solow Model in economics countries with better technology and more saving rates are more successful -Some countries are less developed because… Save less Bad technology Low education levels, etc. -This model is good enough for economists but unsatisfactory for us -Why do some countries save less than others? -Dig deeper! What are the underlying causes? Another Example of Proximate Causes -Some countries are less democratic because… Voters sell their votes Politicians do whatever they want The state is weak Although these are all true, we need to focus on more FUNDAMENTAL causes -dig deeper than proximate causes -keep asking “why?” -peel the reasons apart like an onion Competing Theories 1) Institutions we will learn about this theory in this lesson 2) Geography some countries are more developed than others due to their geographical location -In Guns, Germs, and Steel, Jarred Diamond argues that Europe is more developed than Africa because it is more latitudinal than longitudinal. -Latitudinal = easier to transport goods and to travel without changes in climate 3) Culture/Modernization some countries are more developed because they have “better cultures” -Democracy is a luxury good -Don’t try to force it upon poor countries; they will become democratic once they become wealthier 4) Dependency rich countries are rich at the expense of poor ones Institutions Douglas North’s definition of: “Institutions are the rules of the game in a society… humanly devised constraints that shape human interaction… they structure incentives in human exchange, whether political, social, or economic…” -Without “rules of the game” people don’t have incentives to follow the law -“humanly devised constraints” implies a choice -When rules are tilted to benefit a certain group, incentives to keep playing disappear for the disadvantaged side Distinction between Political and Economic Institutions Economic Institutions: slavery, property rights, patent system, barriers to entry, etc. - Without a patent system, people have no incentives to invent because they won’t profit from their inventions - Slavery provides no incentives for innovations; your idea won’t buy your freedom - If property rights are not well-defined, no incentives for investing on infrastructure Political Institutions: democracy v. autocracy, constraints on the executive, parliamentary v. presidential, etc. Economic Institutions, Economic Performance, and Distribution The first element of this theory is… - Economic institutions are FUNDAMENTAL determinants of economic performance and distribution of resources - They determine incentives to invest in human capital, physical capital, and incentives to innovate Economic Performance (t) Economic institutions (t) Distribution of resources (t+1) t = a time period Where Do Economic Institutions Come From? -Institutions are CHOICES or DECISIONS made by societies (except for religious ones) So… Why do some societies choose some institutions but not others? Theories of Institutions 1) Efficient Institutions View -Societies always put in place the most efficient institutions given the circumstances -“Efficient” greatest aggregate level of production -Bargaining takes place to achieve the most efficient output -This view has some holes in it… What about lack of information? How do they KNOW they are making the most efficient decision? Only concerned with the economic aspect; neglects the political aspect Commitment problems incentives to cheat in the bargaining process Example of Commitment Problems Pretend we have 2 pies: Pie of size 60 Pie of size 100 -There is slavery -No slavery -Slave owners get 60 -Slave owners get 90 -Slaves get 0 -Slaves get 10 Both players (slaves and slave owners) would be better off with a pie of size 100 (90>60 and 10>0) Why would they choose the smaller pie? Slave owners wouldn’t want to risk losing power by giving the slaves some of the pie; there are incentives to cheat 2) Ideology View -What the right institutions are is uncertain -People try to choose what they believe will be the best but they’re not always right -Example: people who believed in communism thought this was the best approach to follow -Holes in this argument Cannot explain adoption of institutions known to be bad Doesn’t explain persistence after failure Why are clearly inefficient institutions kept? 3) Incidental Institutions View -Institutions are an unintended consequence of something (i.e. the structure of the economy) Example: Common Law v. Civil Law -Common Law is known to be better than Civil Law -Yet… most countries have adopted Civil Law. Why? -It’s an inheritance issue Common Law: inherited by North America from Great Britain Civil Law: passed on from France Spain Latin American colonists -So why don’t they just change to Common Law? It’s hard! Lawyers would be very unhappy… 4) Social Conflict View** (most convincing view) -Institutions are chosen to maximize the welfare of those with POLITICAL POWER -People want to see in place institutions that make them better off -Who decides which institution is put in place? Whoever has more power! -This is why institutions known to be inefficient are kept they benefit those with political power -This view implies that… in order to understand which institutions are put in place… those with political power today, decide which economic institutions are put in place today Political Power (t) Economic Institutions (t) De Jure v. De Facto Power De Jure: political power originates from political institutions - Ex: the president, congressmen, governors, mayors, judges, etc. Political Institutions (t) De Jure Political Power (t) De Facto: political power originates from sources outside political institutions - Ex: wealth, use of force (lobbies, guerillas, riots, etc.) Distribution of Resources (t) De Facto Political Power (t) Closing the Argument What determines political institutions? Whoever has more power!! Political Power (t) Political Institutions (t+1) A Framework of Institutional Dynamics econ perf (t) pol Instit (t) de jure power (t) econ instit (t) dist of res (t) pol power (t) dist of res (t) de facto power (t) pol instit (t+1) This model has two “state” variables: 1) Political institutions 2) Distributions of resources - If we understand these 2 variable at time (t), we can predict who has political power - Once we know who has political power at any point in time, we can predict the economic institutions and political institutions that will be put in place - Those with political power will make sure to follow their own interest - This model leads to substantial persistence and path-dependence - It is hard to get reform/change under this framework - Those with power today will put in place institutions that protect their power in the future What would need to happen in order to bring about a change? - A change to political institutions and/or distribution of resources - Critical juncture shock to the system that affects one of the 2 state variables Example: Brazil’s economy is highly dependent on rubber production Production of SYNTHETIC rubber would shock the system and prompt a change to the state variables - If a critical juncture doesn’t happen, Latin America will remain path-dependent Extractive vs. Inclusive Institutions Extractive Economic Institutions: small group benefits at the expense of others without giving anything back - Lack of law & order - Insecure property rights - Entry barriers & regulations preventing functioning of markets & creating a non- level playing field (i.e. incumbent monopolies can keep raising prices because of lack of competition) Example: slavery, encomienda, Mita, marketing boards (gov. forces farmers to sell goods to them below market value), excessive regulation, Neopotism Extractive Political Institutions: political institutions concentrating power in hands of a few, without constraints or checks & balances Example: absolutism, franchise restriction laws Inclusive Institutions (everyone is included) Inclusive Economic Institutions: - Secure property rights (everyone has incentives to invest) - Law & order - Markets and state support (public services & regulation) for markets - Open to relatively free entry of new businesses - Uphold contracts - Access to education and opportunity for great majority of citizens Inclusive Political institutions: political institutions allowing broad participation (pluralism) and placing constraints and checks on politicians - Rule of law - Some degree of political centralization to keep order Synergies Inclusive political institutions people exert pressure (voting, etc.) to make sure the institutions stays in place Extractive political institution people in power make sure they keep their power by putting in place institutions that benefit them If a country has an EXTRACTIVE POLITICAL INSTITUTION and AN INCLUSIVE ECONOMIC INSTITUTION or vice versa… - No stability - One institution will try to change the other - The more powerful one will succeed but this is hard to predict Let’s pretend we have both extractive institutions in a country… if you could change only one (political or economic) to become inclusive, which one would you choose? - Inclusive political institution! - Political power is at the core of everything - This would make it easier to move to an all-inclusive system Example – China - Moved to inclusive economic institutions (open to world trade, etc.) - But politically it is still extractive Example – South Africa - Moved to inclusive political institutions first (abolished the apartheid) - Gradually became economically inclusive as well The Geography Hypothesis Some scholars argue the reason countries diverge politically and economically is because of their geography - Map shows that tropical countries = poor; out of tropics = wealthy countries - This is what we see at first glance… countries farther away from equator are wealthier - Latin America is mostly around tropical areas - Someone agreeing with this view would say “Latin America is poor because it was out of luck and got stuck in the tropics” 3 main variants of geography hypothesis: 1. Effect on people’s attitudes 2. Technological diffusion 3. Disease environment Montesquieu Argues… (slightly racist) - People from tropical areas are lazy and not hard working - Humidity interferes with creativity no innovation - People in cold countries are more vigorous, more innovative Holes in this view: technological innovations that help with heat/humidity (air conditioning) Agricultural Productivity Tropical soil is thin - Subject to erosion by torrential rains - No nutrients retained Availability of domesticable plants and animals - Zebras native to Africa cannot be domesticated because they don’t reproduce in captivity - Latin America got llamas not very useful - Temperate areas got the more useful animals (horses, cattle, pigs) East- West vs. North-South orientation of continents made it hard for technology and other species to diffuse - Technology is very latitude specific - Same crops can be planted across latitudes, not longitudes Disease Environment Malaria more prevalent in tropical climates - Affects productivity, human capital accumulation, etc. - “Africa is poor because it has malaria” Critique: - The south of the U.S had malaria too - Countries have been able to eradicate it - Africa has malaria because it is poor, not the other way around (no resources to invest in its eradication) Weakness of Geography Hypothesis th Latin America fell behind in the 19 century - Did geography change in the 19 century? NO! - This hypothesis doesn’t explain specific event that brought change (i.e. Industrial Revolution) - Geography has always been constant, but divergence started 200 years ago - Cannot explain divergence in Nogales or the Koreas (same geography) - Cannot explain differences within the same continent - Disease is a product of poverty, not the cause of it
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