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Archive for the ‘development’ Category

At e3ne.org, I have posted some reflections on my last discussion with the Ethics & Economics Challenge students, on the topic of private property rights. The work of Acemoglu, Johnson, and Robinson on how property rights support high levels of development plays a prominent role. Here’s a scatter plot from their famous 2001 paper:

property rights and development

Source: Acemoglu, Johnson, and Robinson (2001)

Economies with greater protection from expropriation have higher per capita incomes. There are plausible reasons to think the relationship is causal. As I note in the post,

If I have a stock of lumber in a warehouse in Oregon, and I hear that a hurricane in New Jersey is causing prices to spike there, I have an incentive to ship lumber there only if I can enjoy the profits of doing so. If the government taxes my profits at 100%, I have no incentive to ship the lumber where it’s needed most. Even if the tax is only 70% or 60%, it reduces my incentives enough that I’m not going to incur a lot of time, effort, and cost to ship the lumber. Similarly, if the government owns the lumber, or no one does, then no one earns the profit from shipping the lumber where it’s needed, and so no one wants to ship the lumber where it’s needed.

Still, private property rights are not sufficient for development:

If private property rights are so great for the economy, why didn’t the economy grow tremendously during the age of classic feudalism, when aristocrats held absolute property rights in their land, and serfs had to work on their estates for low pay? It should be clear that just as prices without property rights do little good, so do property rights without real markets. When a small group of people own vast quantities of land and use their ownership of land to oppress everyone else, you won’t get economic progress. We need private property rights, but they need to be dispersed enough to prevent the biggest property owners from converting their wealth into effectively absolute political power.

For that reason, I’m willing to consider comprehensive redistribution of land in former conquistador states, where owners of the great latifundias work the land inefficiently with hired laborers and convert their market power in the rental market into political power.

The other benefit of private property rights I talked about with the students was environmental. Private property rights can solve the “tragedy of the commons,” whereby people tend to overuse and deplete open-access resources. In that vein, I shared with them this very interesting article on different property regimes in the Maine lobster fishery. Where (communal) property rights are strictly defined and enforced, lobster are not overfished: lobster caught are larger and more mature, and lobstermen earn higher wages.

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Chavismo and the Economy

Back before the collapse of the Soviet Union, there were plenty of examples of what happens once the price mechanism is suspended and decisions regarding resource allocations are assigned to the state. Fortunately, Venezuela provides us with some modern day examples. Here are a few quotes from an interesting piece by William Neuman in the NYT:

“The bottlenecks at a major port were so bad this year that Christmas trees from Canada were delayed for weeks, and when they did show up they cost hundreds of dollars. A government-run ice cream factory opened with great fanfare, only to shut down a day later because of a shortage of basic ingredients.  Foreign currency is so hard to come by that automakers cannot get parts and new cars are almost impossible to buy. And all this happened while the economy was growing…”

and

“Mr Chávez’s own record is mixed. After doing little to address a deep housing shortage, he has given away tens of thousands of homes, but the rush to build meant that many were plagued by construction flaws or other problems. He has used price controls to make food affordable for the poor, but that has contributed to shortages in basic goods. He created a popular program of neighborhood clinics often staffed by Cuban doctors, but hospitals frequently lack basic equipment.”

Venezuela stands at the intersection of socialism, crony capitalism, and the resource curse.  The future looks quite uncertain given the legacies of current policies, the impending recession, a stagnant oil industry, and  the intense power struggles that will arise post-Chávez.

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  • Libertarianism.org – Finally! A non-technical, one-stop shop for the major ideas in the philosophical tradition of liberty. Cato Institute project.
  • Governance Without a State: Policies and Politics in Areas of Limited Statehood (Columbia UP) – File under “order in anarchy.” Mostly European scholars giving somewhat different takes than you get with the UK-US “economics of anarchy” research. Nothing blindingly new to students of Olson, Ostrom, and Axelrod, and many of the contributions simply address political economy issues in developing countries, not “failed states” or “anarchies” strictly defined, but the chapters by Schuppert and Chojnacki & Branovic are worth reading.

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The last issue of The Economist has a feature on “middle-income fragile and failed states” (MIFFs). It compares the World Bank list of countries by development level (high, middle, and low) to the OECD list of “fragile and failed states,” finding that fragile and failed states are by no means exclusively low-income:

[S]ome 15 of the 56 countries on the bank’s lower-middle income list (ie, over a quarter) also appear on the list of fragile and failed states. . . They range from Côte d’Ivoire to Yemen; the most important of them are Pakistan and Nigeria. State failure, it appears, does not necessarily go hand in hand with other human woes, such as poverty.

The article then bemoans the fact that because of their lack of absolute destitution, MIFFs often do not qualify for as much foreign aid. The unstated premise, of course, is that more foreign aid would do them good – but where is the evidence for such a claim? The article notes that the list of fragile and failed states includes both countries in “total collapse (Somalia, Chad) and those which merely contain large ungoverned spaces.”

Should governments and international institutions be aiming at making these fragile states stronger? The Economist assumes so. But might the phenomenon of middle-income fragile states instead tell us something about the comparative irrelevance of state strength, as such, for bringing people out of poverty? Admittedly, the list of MIFFs includes some countries that are non-poor purely by virtue of large mineral deposits (Nigeria, Equatorial Guinea), and these countries often feature yawning income gaps between the rent-seeking rich and the powerless destitute. But when it comes to MIFFs like Cameroon, Djibouti, Kiribati, Pakistan, Papua New Guinea, and Solomon Islands – would they really be better off if their states were more empowered? Or have the “large ungoverned spaces” served them well? As Ben Powell and Peter Leeson stress in their work on Somalia, the only way to answer those questions is by considering the alternatives that are realistically available. Liberal constitutionalism is not coming to Pakistan. So the real question is – do we want Pakistan to have a dysfunctional, powerful state or a dysfunctional, weak one? It’s not an easy question to answer, and I wish complacent journalists and aid agencies would acknowledge that.

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