Tyler Cowen: disagreement

Transcript context

…Of course, but again, I’ll say it repeatedly, I’ve never said institutions don’t matter. I’ve said institutions aren’t the only thing. I find often that people take an idea and carry it to an extreme. It’s not surprising that different things matter at different times and different places. Of course, institutions make a difference. The art of good economics, in my view, is trying to figure out what’s important, where, when, and in which context. Here’s a claim you’ve made. It’s very striking. It’s one of the most important claims in development economics. Personally, I think it’s true. When you reviewed Acemoglu and Robinson, you said, “If we go to the year 1960, even knowing who the winners and losers have been, much less forget about forecasting, it’s very hard to come up with a metric of institutions that predicts which countries end up doing well and which countries end up doing poorly. ” When I read that, I tend to think somehow we’re mismeasuring institutional quality. We really need a better measure of institutions, which we don’t have yet. Institutions will someday matter again, but I’m looking for this in vain. Where does your thought stand on this now? Do you actually think there’s some deeper understanding of institutions that will rescue this proposition? When you throw out North Korea and some other crazy countries, institutions don’t really have the predictive power for growth. What are your thoughts on this, given that in the across-country regressions, they can do so poorly within the set of semireasonable countries? Acemoglu and Robinson’s book Why Nations Fail was one of my least favorite books. I think it is just a bad book, because it takes one thought and tries to drive it as the only explanation of history. That’s not a good approach in my view to history, which is a very interesting, complex tableau. They missed one fundamental point right from the start, which is that when you look at development, there are at least two fundamental drivers, not just one. The one that they talk about is innovation, and innovation as being a fundamental driver of growth. There’s a lot of truth to that in the history of the world. But there’s a second fundamental aspect when we look out in the world and say, “Who’s doing well? Who’s doing badly? Why?” and so forth. That’s what is sometimes called “catching up.” The phenomenon of catching up is very different from the phenomenon of forging ahead at the front of the technology horizon. When you take that simple distinction, it helps to explain a lot of the post-1960 question that you’re asking. The most successful countries in the world in the last 50 years have been basically the East Asian economies and Southeast Asian economies. Very rarely do they look like the textbook model of Acemoglu and Robinson of the free market economy and so forth. In fact, the People’s Republic of China they characterize as just — that’s an anomaly that is going to collapse in the future so we don’t have to explain it now. I think that’s a huge mistake and a misunderstanding of the basics. China’s in a catching-up mode. The institutions of catching up are quite different from the institutions of being the technology leader, for example. Just understanding that would give them a little more clarity about institutions, per se.…

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