Jeff Sachs Replies to the Response From Acemoglu and Robinson

|Peter Boettke|

As you know by now, Jeff Sachs reviewed Why Nations Fail, and Acemoglu and Robinson provided a response on the webpage for the book.  Sachs doesn't like the exclusive focus on political institutions, and instead prefers multiple factor explanations.  But as Acemoglu and Robinson argue a framework that doesn't exclude factors in the explanation is not much of a framework.  Sachs now responds that a linear model of economic history misses out on critical contingencies in history, he prefers what he calls multi-dimensional dynamic model of economic history and development.  Sachs doesn't deny the role of political institutions, but he argues that technological, cultural and geographic factors also matter.

A lof of work over the past 20 years by scholars influenced by the Austrian school of economics, as well as Public Choice economics, have focused their research attention on this area of economic inquiry.  Peter Leeson's varioius examination of development economics and comparative institutional analysis; Chris Coyne's work on failed and weak states and the political economy of post-war reconstruction; Virgil Storr's work on culture and development; Ben Powell's work on the economics of sweatshops; and Claudia Williamson's work on the role of informal institutions in the "institutions rule" debate all come immediately to mind.  Given the issues Sachs rasies, obviously this professional debate isn't going to end anytime soon.  It is my expectation that the work of Austrian/public choice thinkers on development will continue to grow and flourish and penetrate the thinking within the profession that informs the cutting edge of this scientific inquiry into the nature and causes of the wealth and poverty of nations.

Comments

[Jonathan M.F. Catalán]

I've thought the same; the focus on institutions is a great "in" for Austrians into an important, popular debate in economics.

One thing these back-and-forths between Sachs, Acemoglu & Robinson, Diamond, et cetera, remind me of is what I experienced when I read some of the immigration theory literature last year. There are a lot of theories out there which are compatible with each other, but since the scholars are interested mostly in defending their theory it seems as if they adopt a monocausal approach to their field. I feel that something similar happens in development economics, when everyone probably realizes that development is multicausal.

[Troy Camplin]

While there is little question that complex processes are multicausal, the fact remains that if we are going to understand complex processes, we are going to have to try to isolate out each of those causes to see their effects and to understand how they all interact with each other.

[Christopher Hartwell]

Sachs has been sounding this bell since the 1990s, but really ratcheted it up around 2004 when he, Rodrik, and Acemoglu had an ongoing research tiff about the primacy of institutions for growth (sample article title from Sachs: "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income"). As an Austrian/public choice/institutional economist who has done extensive work in this area (my book on institutions in transition economies is coming out with Palgrave Macmillan early next year), I lean much more towards the Acemoglu/Robinson explanations than Sachs, who posits geography as the be-all, end-all. But this is entirely an area ripe for Austrian analysis, mainly since the mainstream of economics is moving in this direction. It is actually rather sad that Austrians haven't engaged on this front, because institutional economics has all the hallmarks of Austrian analysis: problems of information, transaction costs, coordination, incentives and their mediation, translation of individual preferences into societal norms, etc. I hope to further develop the literature in this area, but I agree with Jonathan above - this is a place where Austrians should be jumping in with both feet.

[Peter Boettke]

Chris,

The researchers that I listed have in fact jumped with both feet into this institutional rules debate.

I look forward to reading your book.

Pete

[McKinney]

I never have liked Sachs' econonomics and his response to A&R makes me dislike him even more.

Sachs: “Diffusion of technology (meaning the spread of innovations to more places) is also a key part of growth, indeed the main explanation for catch-up growth (rapid growth in economies not at the technology frontier).”

So why would diffusion not relate to institutions in the same way innovation does? If institutions stifle innovation, they will stifle diffusion as well. Sachs should understand that from his work in Russia.

Sachs: “Second, the kinds of institutions that foster innovation are not necessarily the same as the kind of institutions that foster diffusion. As much as one might prefer democracies for many reasons, authoritarian regimes can be quite proficient at speeding technological diffusion. This accounts, for example, for the rapid and effective economic development promoted by many authoritarian regimes in Asia during the past half century, and of course, most notably China.”

A&R have a chapter on China that addresses Sachs’ critique directly. They acknowledge that authoritarian regimes can cause development in very backward and poor nations, such as China, but the institutions in place limit the potential and will cause China to hit the middle development wall that so many other places have hit and stop development.

Sachs: “Economic development was shaped by the global location of major coal deposits.”

So how did Japan develop? And why do nations with large coal deposits not develop? Why do developmental economists speak of the curse of natural resources? Institutions matter.

Sachs: “According to Acemoglu, Robinson and co-author Simon Johnson (hence AJR), colonizers decided this on the basis of disease, migrating and settling in the healthier places and exploiting the less healthy ones from afar.”

I agree that is a weak area of the book. Development in the European country determined the pattern of settlement vs. exploitation. England and the Dutch Republic had sound institutions which gave the people the wealth they needed in order to immigrate. Spain had bad institutions so only the nobility and the Church had the wealth to migrate to the colonies.

Sachs: “Acemoglu and Robinson do more than assert that political institutions matter. They assert that only political institutions play a significant role in accounting for economic performance.”

That’s a straw man.

Sachs: “Such a mistaken conclusion would ignore the pertinent facts that the oil deposits had not yet been discovered 150 years ago…”

[Greg Ransom]

It seems like these child Harvard wonderkins always turn out to be duds.

The only one who didn't that I can think of was Nozick.

Roberto Unger, Alan Dershowitz .. embarrassments.

Sachs is another who thinks he's too brilliant to have to, you know, actually get anything right.

Straw man arguments? Bogus history of ideas. What, me worry? That's seems to be the Sachs attitude.

[McKinney]

I cut my post off too soon. This

"Sachs: “Such a mistaken conclusion would ignore the pertinent facts that the oil deposits had not yet been discovered 150 years ago…”

should have been followed by this:

The ancient Greeks discovered oil in the Middle East. They just didn't know what to do with it except to launch it to set ablaze enemy ships. The Arabs didn't develop their known oil reserves, Western private companies operating in an environment with good institutions did the work and then the Arab/Iranian governments stole everything.

But the curse of natural resources has afflicted the oil states like Saudi Arabia and Iran. Their per capita income peaked in about 1973 and had slid downhill since, just as A&R wrote they would.