Paths+of+Economic+and+Political+Development

Summary by Annie Gillman, 10/15/10 Abstract: This model sees the creation of democracy as determined by the political power struggle between citizens (who want democracy) and elites (who don’t). When citizens get de facto political power, they can use this to put into place the political institutions and economic institutions that lead to relative distribution of power and resources. Development (democracy and prosperity) trajectories tend to be path dependent, disrupted at critical junctures, and the causal arrow connecting these two aspects of development goes from democracy to prosperity (not the reverse). Details of model are described below, but I omitted the long winded description of how this model applies to Britain’s democratization. · Once a country gets on a particular development path it tends to stay on it. Question then becomes, how did it get on that path? Why are some countries rich? Why are some countries democracies? · Economic institutions o determine economic performance because they shape the incentives of key actors, and they determine distribution of resources (aka how “the pie is divided”) o are endogenous, as they are determined through collective decisions of society. These decisions emerge in the midst of conflicts of interest. o are ultimately determined by political power, which determines which group with conflicting interests will prevail in setting up the economic institutions that benefit them · Political power is also endogenous, and can be split into: o de jure political power (institutional—determined by formal structure, i.e. you’re the monarch) o de facto political power (which is determined by groups’ a) capacity to overcome collective action problem and mobilize, and b)economic resources) · Political institutions o determine economic institutions and economic performance directly and indirectly o change slowly, though are endogenous because their evolution is determined by the distribution of political power in the system (de jure political power wants to keep them, de facto wants to change them so they can achieve de jure political power) · There is a tendency for persistence in the model, based on two sources of durability: political institutions and distribution of wealth. However, “shocks” disrupt things, meaning at critical junctures this societies can get on different development paths. · The idea of non credible commitments is at the heart of the model. Groups with political power can not commit to not use their power to change the distribution of resources in their favor. Political institutions are needed to lock in these commitments, including for the future. · The key aspect of democracy is relative political equality. Hence citizens want it, elites don’t. To achieve democracy, citizens use their de facto political power to change to democracy, i.e. to lock in this new relative power balance with political institutions. Because this de facto political power is transitory (hard to mobilize folks, depends on context, etc) it is necessary to change institutions to secure it. · When citizens mobilize de facto political power, elites can: o try to give them what they want in the immediate term, but this won’t be credible later unless political institutions change, so the masses won’t go for it  o repress with force, but this is costly and risky · Democracy becomes consolidated (set of institutions which characterize it endure over time) when the military is not on the side of the elite, and when there isn’t sufficient turbulence for an elite takeover (coup). · Using comparative statics, you get good economic institutions (that in turn determine both the size of the pie and its distribution) when you get: o political institutions with checks and balances o political power in the hands of a relatively broad group with significant investment opportunities o only limited rents power holders can extract. The structure of the economy (agrarian, capital intensive, oil bearing or not) is key is this aspect and aspect number 2. · The conditions that give rise to good economic institutions (listed above) tend to also give rise to democracy. Democracy, in that it redistributes power to the masses of people, with an interest in broad-based property rights, should have a positive impact on per capita income. However, the causal arrow does not go the other way—per capita income has no effect on democracy.
 * Acemoglu and Robinson: “Paths of Economic and Political Development”**