Its the politics, stupid

I’ve started reading Daron Acemoglu and James Robinson’s eagerly-awaited book,

, and am enjoying it.

[amazon_image id=”1846684293″ link=”true” target=”_blank” size=”medium” ]Why Nations Fail: The Origins of Power, Prosperity and Poverty[/amazon_image]

I think the book is going to prove one of the classics of political economy, as the argument links economic outcomes to political institutions but also endogenises the politics. So that notorious Clinton phrase from the 1992 campaign, ‘It’s the economy, stupid,’ in fact got it backwards. It’s all about the politics.

Its early chapters have reminded me of Mancur Olson’s

(1982), in which he applied the logic of collective action to differing international economic trajectories, arguing that the emergence of increasingly powerful special interest groups steadily caused a kind of furring of the arteries of each economy. As he put it: “Special interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.” (p47) This process over time would cause the relative decline of what was the leading economy, and see the rise to prominence of a less sclerotic rival. His book compares the 20th century fortunes of the UK and US.

[amazon_image id=”0300030797″ link=”true” target=”_blank” size=”medium” ]The Rise and Decline of Nations: Economic Growth, Stagflation and Social Rigidities[/amazon_image]

A batch of new books about American decline and China’s revival – reviewed by Gideon Rachman in the Financial Times today and including Arvind Subramanian’s

– bring this dynamic into the 21st century. For it’s hard not to see the Olson logic of cartelisation and special interest politics dominating America today. My review of Acemoglu and Robinson will follow in a few days.

[amazon_image id=”0881326062″ link=”true” target=”_blank” size=”medium” ]Eclipse: Living in the Shadow of China’s Economic Dominance[/amazon_image]

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4 thoughts on “Its the politics, stupid

  1. “For it’s hard not to see the Olson logic of cartelisation and special interest politics dominating America today. ”
    Does that argument not apply to China potentially, too? Think of the preferential treatment of big, party-affiliated firms, regional nepotism, bias of the financial system…There is certainly potential for all kinds of lock-in. How open is the Chinese model for development? I think the jury is still out.

    • I would agree with you. What happens to economic growth in China in the next couple of decades is a big test of any theory of development and growth.

  2. This sort of thing is fascinating and exactly why I’m so glad to be teaching a module on China and the Global Economy to sixth formers as part of the Cambridge Pre-U Economics course. If young economists aren’t exposed to what will undoubtedly be the biggest story of the next decade, and possibly beyond, then the system of education is failing them.

    I’m also somewhat amused by the tone of Marc’s response – it’s almost as if he expects China to adhere to impeccable standards in every regard. A little bit harsh, I feel…

    PS: Reading “The Reinvention on the Bazaar” on your recommendation. Three chapters in. First-rate stuff.

    • Employers certainly want econ graduates to have this bigger picture as well – this became apparent at the recent Bank of England conference (details on the Enlightenment Economics website). And fun to teach!

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