Raghuram Rajan: belief

Transcript context

…Jeff Sachs wrote a famous review of Acemoglu and Robinson, and he pointed out that if you go back in time and try to predict which countries will do well on the basis of their institutions, it’s very hard to predict, using institutions, which countries will be the high-growth winners. To most economists that sounds counterintuitive. We feel in our bones institutions have to matter. Are we mismeasuring institutions? Are we not looking at the right ones? How do you account for this paradox? I think what happens is, more than institutions is the political environment in which these institutions are created that matters. The political dispensation. That’s a lot of what the book is trying to say — that you need the right political structures to emerge. Take, for example, the US Constitution, which Liberia adopted. But you would not say that the checks and balances we have in the US, the distribution of power in the US transferred to Liberia. So the institution, that is, the constitution being imposed in Liberia didn’t necessarily mean that they inherited the same sort of structure. And I would say that’s true of country after country. The same institution can function very differently if the distribution of power is different, which is why in this book, I emphasize it’s that distribution in which markets play a very important role that we need to think about to have stable, functioning democracies. What do you think will prove enduring from Indian fiction?…

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