Charles Leadbeater from Guardian:
"The public sector needs more organisations in which employees have a stake in delivering better outcomes for people.
This approach flies in the face of the reforms of the past decade, which shifted power away from frontline producers to consumers, managers and target setters in the central government. The last people who could be trusted with a service were those delivering it.
Yet detailed case studies of leading co-owned public services - Eaga, the energy agency based in the north-east, Sunderland Home Care Associates, community health provider Central Surrey Health, and Greenwich Leisure, which provides services to boroughs across London - tell a different story.
Organisations owned by their staff are less risk averse and more committed to innovation than pure public sector organisations. Staff in the former have a stronger shared interest, which promotes the collaboration often lacking in the silos of public services.
Co-owned organisations are more mission driven than private sector providers, which run contracted-out services with little incentive for innovation. The social mission of co-owned organisations drives their search for innovation, even if there is not much money to be made. Co-owned businesses also have advantages over the pure voluntary sector: they have an entrepreneurial outlook and can raise capital to match their ambitions.
The most important strength of co-owned organisations is their open, egalitarian culture, which encourages the lateral communication that allows people to combine their ideas easily, seek partnership with customers, and mobilises the "can-do" commitment needed to turn ideas into action. Staff in these organisations, because they are co-owners of the business and so have more freedom to respond, often speak of "going the extra mile" for consumers.
The opportunities to create more co-owned public service organisations are huge. In social care, Sunderland Home Care Associates provides a model for motivating low-paid and low-skilled public service staff that many other authorities could usefully follow as they seek more effective ways to meet the needs of an ageing population.
Indeed, co-owned organisations may make sense in some of the most troubled public services: social work with children, and families at risk and in care.
Imagine that, instead of local authority social work departments, the authority contracted out services to a set of competing, employee-owned social work practices, run rather like general practices, with perhaps eight to 10 social workers in each. Social work needs to retain and motivate skilled and committed staff. The co-owned culture of collaboration, peer-to-peer accountability and responsibility to clients is often lacking inside the public sector.
One response to the case of Baby P should be to pilot the creation of co-owned social practices that are owned by the staff but accountable to the public through local authorities that commission their services.
As politicians cast about for new recipes for less bureaucratic, more localised, personalised approaches, co-owned public service organisations should be part of that mix because they do something really potent: they motivate frontline staff to want to deliver a better service.
• Innovation Included: Why Co-Owned Businesses are Good for Public Services, by Charles Leadbeater, is published by the Employee Ownership Association (employeeownership.co.uk)
sábado, 17 de enero de 2009
viernes, 16 de enero de 2009
France, Germany and fissures in the eurozone
David Marsh from FT:
"International challenges spell good and bad news for the European Central Bank. On the positive side, the credit crisis has given the independent ECB and Jean-Claude Trichet, its president, unexpected authority on the world stage. Most observers agree the 10-year-old economic and monetary union has so far moderated the direct fall-out of the financial crisis for eurozone members. On the negative side, Europe this year faces probably the worst recession since the second world war. Depending on how Emu members react, latent nationalism within the single currency area may emerge as a disruptive force.
Battle lines are being drawn between the “stability first” principles of Europe’s strongest economy, Germany, and the more activist growth policies favoured by France. Mr Trichet, a veteran of fierce battles with the Bundesbank as head of the French Treasury in the early 1990s, has emerged as heir to the German central bank’s anti-inflation throne. The ECB’s president and decision-making council have come under sporadic pressure from European politicians to soften their monetary stance. After the mid-September collapse of Lehman Brothers, the US bank, the ECB cut interest rates three times between October and December – the first reductions since Mr Trichet took office in 2003. But despite recent signs of further economic weakening, there are strong indications that Mr Trichet will continue to garb himself in a mantle of Bundesbank-like firmness.
Emu has required improbable compromises – notably, that it would work without substantial fiscal transfers between countries of markedly different economic performance. Using a single currency to lash together 16 disparate nations has had effects similar to those among occupants of a life raft on a storm-tossed sea. The euro has provided members with an aura of robustness but also made them more prone to fissures caused by disturbances in their internal balance of forces.
A warning signal has come from the sharp rise in the gap or “spread” between yields on bonds issued by heavily indebted Emu countries and those on German government bonds. The crisis has driven up these spreads not only because investors take a less forgiving view of the risks on weaker countries’ debt, but also because of the blockages along what Mr Trichet formerly called the “financial channel” for ironing out discrepancies among member states. The yield spreads – now 2.3 percentage points for Greece, 1.3 points for Italy and 1.7 points for Ireland – are much less than the differences of up to 6 points before the euro was set up. Weaker southern and western states still derive considerable benefit from membership, but – should spreads widen further – that may fast diminish.
A prime reason for the widening spreads is that fixing exchange rates among countries with disparate patterns of prices and productivity has led to changes in relative competitiveness. Since 1999, Germany has gained an overall competitive advantage of more than 10 per cent, while Italy has suffered a loss of nearly 40 per cent, according to Organisation for Economic Co-operation and Development figures based on unit labour costs. During much of the euro’s first decade, the positive impact of generally low, stable Emu interest rates largely outweighed the negative influence of disrupted competitiveness. However, as economies contract, papering over the cracks will become more difficult.
That is exemplified by economic policy differences between France’s President Nicolas Sarkozy and Chancellor Angela Merkel of Germany. Continuing a French tradition shown by predecessors François Mitterrand and Jacques Chirac, Mr Sarkozy has irritated the Germans with his suspicion of central banking independence and has been still more outspoken than Mr Chirac in publicly criticising ECB interest rate decisions. Mr Sarkozy has clashed with Peer Steinbrück, Germany’s no-nonsense finance minister, telling him on one occasion Germany’s strictures spelled “the end of Franco-German friendship”.
At the root of France’s carping is the widespread French belief that Germany has gleaned unfair economic advantage from Emu. Germany has swung from a pre-Emu current account deficit of 0.8 per cent of gross domestic product in 1998 to a surplus of 6.4 per cent in 2008, according to the OECD. France, Italy, and Ireland, with surpluses of 2.6, 1.9 and 0.8 per cent of GDP respectively in 1998, registered deficits of 1.6, 2.6 and 6.2 per cent in 2008. Last year Greece, Spain and Portugal ran deficits of 10 per cent of GDP and more.
There has been no sign so far of any overt move to modify Emu’s “no-bail-out” clause, which prevents less well off states from demanding help from stronger members. However, if other Emu countries find borrowing progressively harder, non-German politicians may ask Germany to use its comfortable financial position to alleviate pressures on weaker Emu brethren.
The German government, which has rejected forming more demand to help out less competitive euro members, would certainly say no to changing the no-bail-out clause. If bond spreads rise towards pre-1999 levels, speculation may rise that one or more weaker states could suspend their membership. Mr Trichet dismisses such thoughts as “fantasies”. Yet leading European monetary officials stated months ago that precisely such an option – although unlikely – could not be ruled out. If 2008 has been tough for Emu, 2009 could bring still greater tests.
The writer is chairman of London & Oxford Capital Markets. His book, The Euro: The Politics of the New Global Currency, is published by Yale University Press in January/February
"International challenges spell good and bad news for the European Central Bank. On the positive side, the credit crisis has given the independent ECB and Jean-Claude Trichet, its president, unexpected authority on the world stage. Most observers agree the 10-year-old economic and monetary union has so far moderated the direct fall-out of the financial crisis for eurozone members. On the negative side, Europe this year faces probably the worst recession since the second world war. Depending on how Emu members react, latent nationalism within the single currency area may emerge as a disruptive force.
Battle lines are being drawn between the “stability first” principles of Europe’s strongest economy, Germany, and the more activist growth policies favoured by France. Mr Trichet, a veteran of fierce battles with the Bundesbank as head of the French Treasury in the early 1990s, has emerged as heir to the German central bank’s anti-inflation throne. The ECB’s president and decision-making council have come under sporadic pressure from European politicians to soften their monetary stance. After the mid-September collapse of Lehman Brothers, the US bank, the ECB cut interest rates three times between October and December – the first reductions since Mr Trichet took office in 2003. But despite recent signs of further economic weakening, there are strong indications that Mr Trichet will continue to garb himself in a mantle of Bundesbank-like firmness.
Emu has required improbable compromises – notably, that it would work without substantial fiscal transfers between countries of markedly different economic performance. Using a single currency to lash together 16 disparate nations has had effects similar to those among occupants of a life raft on a storm-tossed sea. The euro has provided members with an aura of robustness but also made them more prone to fissures caused by disturbances in their internal balance of forces.
A warning signal has come from the sharp rise in the gap or “spread” between yields on bonds issued by heavily indebted Emu countries and those on German government bonds. The crisis has driven up these spreads not only because investors take a less forgiving view of the risks on weaker countries’ debt, but also because of the blockages along what Mr Trichet formerly called the “financial channel” for ironing out discrepancies among member states. The yield spreads – now 2.3 percentage points for Greece, 1.3 points for Italy and 1.7 points for Ireland – are much less than the differences of up to 6 points before the euro was set up. Weaker southern and western states still derive considerable benefit from membership, but – should spreads widen further – that may fast diminish.
A prime reason for the widening spreads is that fixing exchange rates among countries with disparate patterns of prices and productivity has led to changes in relative competitiveness. Since 1999, Germany has gained an overall competitive advantage of more than 10 per cent, while Italy has suffered a loss of nearly 40 per cent, according to Organisation for Economic Co-operation and Development figures based on unit labour costs. During much of the euro’s first decade, the positive impact of generally low, stable Emu interest rates largely outweighed the negative influence of disrupted competitiveness. However, as economies contract, papering over the cracks will become more difficult.
That is exemplified by economic policy differences between France’s President Nicolas Sarkozy and Chancellor Angela Merkel of Germany. Continuing a French tradition shown by predecessors François Mitterrand and Jacques Chirac, Mr Sarkozy has irritated the Germans with his suspicion of central banking independence and has been still more outspoken than Mr Chirac in publicly criticising ECB interest rate decisions. Mr Sarkozy has clashed with Peer Steinbrück, Germany’s no-nonsense finance minister, telling him on one occasion Germany’s strictures spelled “the end of Franco-German friendship”.
At the root of France’s carping is the widespread French belief that Germany has gleaned unfair economic advantage from Emu. Germany has swung from a pre-Emu current account deficit of 0.8 per cent of gross domestic product in 1998 to a surplus of 6.4 per cent in 2008, according to the OECD. France, Italy, and Ireland, with surpluses of 2.6, 1.9 and 0.8 per cent of GDP respectively in 1998, registered deficits of 1.6, 2.6 and 6.2 per cent in 2008. Last year Greece, Spain and Portugal ran deficits of 10 per cent of GDP and more.
There has been no sign so far of any overt move to modify Emu’s “no-bail-out” clause, which prevents less well off states from demanding help from stronger members. However, if other Emu countries find borrowing progressively harder, non-German politicians may ask Germany to use its comfortable financial position to alleviate pressures on weaker Emu brethren.
The German government, which has rejected forming more demand to help out less competitive euro members, would certainly say no to changing the no-bail-out clause. If bond spreads rise towards pre-1999 levels, speculation may rise that one or more weaker states could suspend their membership. Mr Trichet dismisses such thoughts as “fantasies”. Yet leading European monetary officials stated months ago that precisely such an option – although unlikely – could not be ruled out. If 2008 has been tough for Emu, 2009 could bring still greater tests.
The writer is chairman of London & Oxford Capital Markets. His book, The Euro: The Politics of the New Global Currency, is published by Yale University Press in January/February
jueves, 15 de enero de 2009
Social Cohesion, Institutions, and Growth
Abstract from a William Easterly paper:
In seeking to unpack the notion of social cohesion, we concede from the outset that some infamous historical figures with a narrow—even sectarian—agenda have invoked social cohesion-type arguments as the basis for their actions.
The desire to cultivate a sense of national unity and “purity” brought us the Holocaust and ethnic cleansing, so we are most surely not arguing that social cohesion equals cultural homogeneity or intolerance of diversity; quite the opposite. On the other hand, nor are we invoking some naïve suggestion that socially cohesive societies are always harmonious, devoid of political conflict or dissent.
Rather, we use the concept of social cohesion to make the general point that the extent to which people work together when crisis strikes or opportunity knocks is a key factor shaping economic performance.
Graphic scenes on CNN during the 1997 financial crisis in South Korea neatly illustrates social cohesion in action: everyday citizens were shown tearfully selling their modest family treasures in the belief that their humble contribution was somehow making a difference to the financial health of their country.
Where this sense of cohesion is lacking—as it was in, say, Indonesia— the response to the crisis was far more sluggish and uneven, heightening a number of other latent and manifest political tensions. Managing these tensions during crises, and ensuring that they do not descend into outright or violent conflict, is a key political task.
One of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘social cohesion’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented.
A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains.
The inclusiveness of a country’s communities and institutions (e.g., laws and norms against discrimination) can greatly help to build cohesion.
On the other hand, countries strongly divided along class and ethnic lines will place severe constraints on the attempts of even the boldest, civic-minded, and well-informed politician (or interest group) seeking to bring about policy reform.
We argue that the strength of institutions itself may be, in part, determined by social cohesion.
If this is so, we propose that key development outcomes (the most widely available being “economic growth”) should be more likely to be associated with countries governed by effective public institutions, and that those institutions, in turn, should be more likely to be found in socially cohesive societies.
If social cohesion is so important, how can it be nurtured? While social cohesion is partly shaped by national leaders, social cohesion also depends on some exogenous historical accidents.
A nation-state that has developed a common language among its citizens is more cohesive than one that is linguistically fragmented. This is not to say that linguistic homogeneity is bad or good; most nations started out as very diverse linguistically. Linguistic homogeneity may simply be an indicator of how much a group of nationals have developed a common identity over the decades or centuries that national identity forms.
Where such a common identity is lacking, opportunistic politicians can and do exploit ethnic differences to build up a power base.
It only takes one such opportunistic politician to exacerbate division, because once one ethnic group is politically mobilized along ethnic lines, other groups will.
This should not be interpreted in a pessimistic light – that nations where there are large cleavages of class and language are condemned to poor institutions and low growth.
Of course, nations should not embark on forcible redistribution and mandatory linguistic assimilation. These results only say that on average lack of “exogenous” social cohesion has been exploited by politicians to undermine institutions, which in turn has resulted in low growth. But politicians can choose to build good institutions, unify fractionalized peoples, and defeat the average tendency to divide and rule.
In fact where institutions are sufficiently well developed, there is no adverse effect of ethnolinguistic diversity on growth. The corollary is that good institutions are most necessary and beneficial where there are ethnolinguistic divisions. Formal institutions substitute for the “social glue” that is in shorter supply when there are ethnolinguistic divisions.
The other determinant of social cohesion is whether the historical legacy is one of relative equality or of a vast chasm between elites and masses. Engerman and Sokoloff describe how inequality in Latin America arose out of factor endowments and historical accidents.
The tropical land in Latin America was well-suited for large scale enterprises like silver mines and sugar plantations, worked by slaves or peons. The benefits of these operations largely accrued to the small criollo class. The elite was kept small by restrictions on immigration
from Iberia or elsewhere to the Iberian colonies. The labor force had to be forcibly recruited through the import of African-American slaves and the encomienda system that tied the indigenous people to the elite’s land.
In Canada and in the North of the US, by contrast, the factor endowments were conducive to small-scale production of food grains. A middle class of family farmers developed.
Practically unrestricted immigration and abundant available land (once the tragic process of despoiling the native inhabitants was completed) swelled the size of the middle class. Immigrants voluntarily assimilated into (and actively contributed to) the dominant middle class culture. The American South was a kind of intermediate case between North and South America, with a mixture of free family farmers, elite slaveowners, and African-American slaves.
One potentially important policy lever for enhancing social cohesion is education.
Heyneman identifies three ways in which education contributes to social cohesion.
First, it helps provide public knowledge about the very idea of social contracts among individuals and between individuals and the state.
Second, schools help provide the context within which students learn the appropriate behavior for upholding social contracts, by providing students with a range of experiences in which they learn how to negotiate with people, problems, and opportunities they might not otherwise encounter. As Heyneman puts it, “the principle rationale, and the reasons nations invest
in public education, have traditionally been the social purpose of schooling... The principle task of public schooling, properly organized and delivered, has traditionally been to create harmony within a nation of divergent peoples.”
Third, education helps provide an understanding of the expected consequences of breaking social contracts; indeed, it helps citizens understand and appreciate the very idea of a social contract.
Given the vital role the state has in shaping the context and climate within which civil society is organized, it can, in some cases, also actively help to create social cohesion by ensuring that public services are provided fairly and efficiently (i.e. treating all citizens equally), and by actively redressing overt forms of discrimination and other social barriers.
These happy outcomes are most likely to come about through the empowerment of domestic constituencies rather than via “conditionalities” imposed by external donors and development agencies. This is one of the conclusions of two recent World Development Reports.
We have pointed to the importance of a research agenda that looks into the cohesiveness of societies and the quality of public institutions, and their relationship to sustained growth.
We need to know a lot more about how equitable and fairly to manage the costs and benefits associated with the transformation of society (Bates 2000), especially how to foster a greater sense of cooperation and inclusion in environments where there is (actual and potential) division, exclusion, and disaffection.
In seeking to unpack the notion of social cohesion, we concede from the outset that some infamous historical figures with a narrow—even sectarian—agenda have invoked social cohesion-type arguments as the basis for their actions.
The desire to cultivate a sense of national unity and “purity” brought us the Holocaust and ethnic cleansing, so we are most surely not arguing that social cohesion equals cultural homogeneity or intolerance of diversity; quite the opposite. On the other hand, nor are we invoking some naïve suggestion that socially cohesive societies are always harmonious, devoid of political conflict or dissent.
Rather, we use the concept of social cohesion to make the general point that the extent to which people work together when crisis strikes or opportunity knocks is a key factor shaping economic performance.
Graphic scenes on CNN during the 1997 financial crisis in South Korea neatly illustrates social cohesion in action: everyday citizens were shown tearfully selling their modest family treasures in the belief that their humble contribution was somehow making a difference to the financial health of their country.
Where this sense of cohesion is lacking—as it was in, say, Indonesia— the response to the crisis was far more sluggish and uneven, heightening a number of other latent and manifest political tensions. Managing these tensions during crises, and ensuring that they do not descend into outright or violent conflict, is a key political task.
One of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘social cohesion’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented.
A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains.
The inclusiveness of a country’s communities and institutions (e.g., laws and norms against discrimination) can greatly help to build cohesion.
On the other hand, countries strongly divided along class and ethnic lines will place severe constraints on the attempts of even the boldest, civic-minded, and well-informed politician (or interest group) seeking to bring about policy reform.
We argue that the strength of institutions itself may be, in part, determined by social cohesion.
If this is so, we propose that key development outcomes (the most widely available being “economic growth”) should be more likely to be associated with countries governed by effective public institutions, and that those institutions, in turn, should be more likely to be found in socially cohesive societies.
If social cohesion is so important, how can it be nurtured? While social cohesion is partly shaped by national leaders, social cohesion also depends on some exogenous historical accidents.
A nation-state that has developed a common language among its citizens is more cohesive than one that is linguistically fragmented. This is not to say that linguistic homogeneity is bad or good; most nations started out as very diverse linguistically. Linguistic homogeneity may simply be an indicator of how much a group of nationals have developed a common identity over the decades or centuries that national identity forms.
Where such a common identity is lacking, opportunistic politicians can and do exploit ethnic differences to build up a power base.
It only takes one such opportunistic politician to exacerbate division, because once one ethnic group is politically mobilized along ethnic lines, other groups will.
This should not be interpreted in a pessimistic light – that nations where there are large cleavages of class and language are condemned to poor institutions and low growth.
Of course, nations should not embark on forcible redistribution and mandatory linguistic assimilation. These results only say that on average lack of “exogenous” social cohesion has been exploited by politicians to undermine institutions, which in turn has resulted in low growth. But politicians can choose to build good institutions, unify fractionalized peoples, and defeat the average tendency to divide and rule.
In fact where institutions are sufficiently well developed, there is no adverse effect of ethnolinguistic diversity on growth. The corollary is that good institutions are most necessary and beneficial where there are ethnolinguistic divisions. Formal institutions substitute for the “social glue” that is in shorter supply when there are ethnolinguistic divisions.
The other determinant of social cohesion is whether the historical legacy is one of relative equality or of a vast chasm between elites and masses. Engerman and Sokoloff describe how inequality in Latin America arose out of factor endowments and historical accidents.
The tropical land in Latin America was well-suited for large scale enterprises like silver mines and sugar plantations, worked by slaves or peons. The benefits of these operations largely accrued to the small criollo class. The elite was kept small by restrictions on immigration
from Iberia or elsewhere to the Iberian colonies. The labor force had to be forcibly recruited through the import of African-American slaves and the encomienda system that tied the indigenous people to the elite’s land.
In Canada and in the North of the US, by contrast, the factor endowments were conducive to small-scale production of food grains. A middle class of family farmers developed.
Practically unrestricted immigration and abundant available land (once the tragic process of despoiling the native inhabitants was completed) swelled the size of the middle class. Immigrants voluntarily assimilated into (and actively contributed to) the dominant middle class culture. The American South was a kind of intermediate case between North and South America, with a mixture of free family farmers, elite slaveowners, and African-American slaves.
One potentially important policy lever for enhancing social cohesion is education.
Heyneman identifies three ways in which education contributes to social cohesion.
First, it helps provide public knowledge about the very idea of social contracts among individuals and between individuals and the state.
Second, schools help provide the context within which students learn the appropriate behavior for upholding social contracts, by providing students with a range of experiences in which they learn how to negotiate with people, problems, and opportunities they might not otherwise encounter. As Heyneman puts it, “the principle rationale, and the reasons nations invest
in public education, have traditionally been the social purpose of schooling... The principle task of public schooling, properly organized and delivered, has traditionally been to create harmony within a nation of divergent peoples.”
Third, education helps provide an understanding of the expected consequences of breaking social contracts; indeed, it helps citizens understand and appreciate the very idea of a social contract.
Given the vital role the state has in shaping the context and climate within which civil society is organized, it can, in some cases, also actively help to create social cohesion by ensuring that public services are provided fairly and efficiently (i.e. treating all citizens equally), and by actively redressing overt forms of discrimination and other social barriers.
These happy outcomes are most likely to come about through the empowerment of domestic constituencies rather than via “conditionalities” imposed by external donors and development agencies. This is one of the conclusions of two recent World Development Reports.
We have pointed to the importance of a research agenda that looks into the cohesiveness of societies and the quality of public institutions, and their relationship to sustained growth.
We need to know a lot more about how equitable and fairly to manage the costs and benefits associated with the transformation of society (Bates 2000), especially how to foster a greater sense of cooperation and inclusion in environments where there is (actual and potential) division, exclusion, and disaffection.
Abstract from Artificial States
William Easterly and Alberto Alesina paper (2006)
Introduction
Artificial states are those for which political borders do not coincide with a division of nationalities desired by the people on the ground. Former colonizers or post-war agreements amongst victors regarding borders have often created monstrosities in which ethnic or religious or linguistic groups were thrown together or separated without any respect for peoples. aspirations. Eighty percent of African borders follow latitudinal and longitudinal lines and many scholars believe that such artificial (unnatural) borders, which create ethnically fragmented countries or, conversely, separate into bordering countries the same people, are at the roots of Africa's economic tragedy.
Not only in Africa but everywhere around the globe from Iraq to the Middle East failed states, conflict and economic misery often are very visible around borders left over by former colonizers, borders that had little resemblance to natural division of peoples.
There are three ways in which those who drew borders created problems.
First they gave territories to one group ignoring the fact that another group had already claimed the same territory.
Second, they drew boundaries lines splitting ethnic (or religious or linguistic) groups into different countries, frustrating national ambitions of various groups and creating unrest in the countries formed.
Third they combined into a single country groups that wanted independence.
The results can be disastrous. Arti.cial borders increase the motivation to safeguard or advance nationalist agendas at the expense of economic and political development.
As George Bernard Shaw eloquently put it "A healthy nation is as unconscious of its nationality as a healthy man is unconscious of his health. But if you break a nation's nationality it will think of nothing else but getting is set again."
While the nature of borders has been mentioned in the poltical science (especially) and economic literature, we are not aware of systematic work relating the nature of country borders to the economic success of countries. Our goal is to provide measures that proxy for the "naturalness" or "arti.ciality" of borders and relate them to economic and political development. We provide two measures never before used in econometric analysis of comparative development.
One measure is relatively simple and captures whether or not an ethnic group is "cut" by a political border. That is, we measure situations in which the same ethnic group is present in two bordering countries. This measure accounts fairly precisely for one of the ways in which borders may be "wrong", namely when borders cut through groups' land leave them in separate countries. But it does not capture other ways in which borders may be "artificial"; for instance situations in which two ethnic groups are forced into the same country. We then provide a second measure, based upon the assumption that if a land border is close to a straight line it is more likely to be drawn arti.cially; if it is relatively squiggly it is more likely to represent either geographic features (rivers, mountains etc.) and/or divisions carved out in time to separate different people.
Needless to say, the measure is not perfect, but much of our paper is about precisely discussing this measure and alternatives. It turns out that our two new measures are in fact not highly correlated, implying that they capture different aspects of the arti.cial nature of states.
After we have constructed our measures we explore how they are correlated with various standard measures of economic development such as per capita GDP, measures of institutional success such as freedom or corruption, and measures of quality of life and public services, such as infant mortality and education.
Both measures of artificiality are correlated with several variables that measure politico-economic development. Artifcial states measured by the two proxies described above, function much less well than non-artificial states. The correlation of our measures with measures of politico-economic success of various countries are fairly robust to controlling for climate, colonial past and the other traditional measures of ethnolinguistic fractionalization.
We also checked our measures.relationship to the occurrence of wars, domestic or international. Our results are just a .rst step towards further research. A measure of political instability and violence is indeed correlated with our measure of arti.cial states; however we do not .nd evidence of correlations between the number and intensity for wars fought by one country with our measures of artificial borders.
Future research needs to address these questions using data on bilateral conflicts around various types of borders. Because borders can be changed, as Alesina and Spolaore (1997) emphasized,
citizens can rearrange the borders of artificial states. Indeed this happens; once can consider the breakdown of the Soviet Union. In fact it is quite possible that as time goes by many currently straight borders will become squiggly as they are rearranged. Relatively newly independent countries have had "less time" than countries which have been never colonized to carve their borders as a result of an equilibrium reflecting how different people want to organize
themselves. With specific reference to Africa, Englebert, Trango and Carter (2002) document several instances of border instability in Africa due to the artificial original borders. Even amongst never-colonized countries, tensions remain, for example the Basque independentist movement in Spain.
We are not aware of other papers that have attempted to consider formally (as opposed to narratively) the relationship of the shape of countries to economic development, however our paper is related to three strands of the literature.
One strand is the recent work on the size of countries and its relationship with economic growth, as in Alesina and Spolaore (2003), Alesina Spolaore and Wacziarg (2000), and Alcala and Ciccone (2004), amongst others.
Second,our work builds on the literature concerning the relationship between ethno-linguistic fractionalization and economic growth, as in Easterly and Levine(1997) , Alesina et. al. (2003), and several others. Our paper discusses one historical phenomenon that may have led to excess ethnic fractionalization.
Third, the role of former colonizers has also been widely studied (see Acemoglu,Johnson and Robinson (2001) Glaeser et al(2004)) but not speci.cally with regards to the importance of borders. Our paper speci.es a new mechanism by which colonizers a¤ected subsequent development. In many ways we bridge these three strands because we focus on how colonizers have created fragmented societies by drawing artificial borders.
Conclusions
The idea of "failed states" is a recurrent theme both in newspapers and within academia. The borders of many countries have been the result of processes that have little to do with the desire of people to be together or not. In some cases groups who wanted to be separate have been thrown into the same political unit; others have been divided by artificial borders. Former colonizers have been mainly responsible for such mistakes, but the botched agreements after
the two major wars of the last century have also played a role.
The main contribution of this paper is to provide two new measures meant to capture how "artificial" political borders are. One measure considers how straight land borders are, under the assumption that straight borders are more like to be artificial and less likely to follow geographic features or the evolution of hundreds of years of border design.
The second measure focuses on ethnic or linguistic groups separated by borders. We have then investigated whether these variables are correlated with the politico-economic success of various countries, and we found that indeed they are.
The general patterns of correlations that we presented in a battery of tables suggest that these two new measures do quite well in cross-country regressions in which other exogenous measures of geography, ethnic fragmentation and colonial status are controlled for.
We have also explored the correlation of our measures of artificial borders with the occurrence of civil and international wars and our results are inconclusive. While we find correlations of our variables with measure of political instability and lack of democracy, we do not find a clear pattern of correlations with wars. Further research is needed on this point looking at bilateral data on wars, namely which country engaged in war with whom.
Probably the single most important issue that we have not addressed is that of migrations. One consequences of artificial borders is that people may want to move, if they can. Often movement of peoples is not permitted by various government but migration certainly occur. In some cases migrations that respond to artificial borders may be partly responsible for economic costs, wars,
dislocation of people, refugee crises and a hots of undesirable circumstances.
Thus, the need to migrate, created by the wrong borders may be one reason why artificial borders are inefficient. But sometimes the movement of people may correct for the artificial nature of borders. This dynamic aspects of movement of people and migrations, and changes of borders for that matter is not considered in this paper in which we consider a static picture of the world.
The bottom line in this paper is that the artificial borders bequeathed by
colonizers were a significant hindrance to the political and economic development of the independent states that followed the colonies.
Introduction
Artificial states are those for which political borders do not coincide with a division of nationalities desired by the people on the ground. Former colonizers or post-war agreements amongst victors regarding borders have often created monstrosities in which ethnic or religious or linguistic groups were thrown together or separated without any respect for peoples. aspirations. Eighty percent of African borders follow latitudinal and longitudinal lines and many scholars believe that such artificial (unnatural) borders, which create ethnically fragmented countries or, conversely, separate into bordering countries the same people, are at the roots of Africa's economic tragedy.
Not only in Africa but everywhere around the globe from Iraq to the Middle East failed states, conflict and economic misery often are very visible around borders left over by former colonizers, borders that had little resemblance to natural division of peoples.
There are three ways in which those who drew borders created problems.
First they gave territories to one group ignoring the fact that another group had already claimed the same territory.
Second, they drew boundaries lines splitting ethnic (or religious or linguistic) groups into different countries, frustrating national ambitions of various groups and creating unrest in the countries formed.
Third they combined into a single country groups that wanted independence.
The results can be disastrous. Arti.cial borders increase the motivation to safeguard or advance nationalist agendas at the expense of economic and political development.
As George Bernard Shaw eloquently put it "A healthy nation is as unconscious of its nationality as a healthy man is unconscious of his health. But if you break a nation's nationality it will think of nothing else but getting is set again."
While the nature of borders has been mentioned in the poltical science (especially) and economic literature, we are not aware of systematic work relating the nature of country borders to the economic success of countries. Our goal is to provide measures that proxy for the "naturalness" or "arti.ciality" of borders and relate them to economic and political development. We provide two measures never before used in econometric analysis of comparative development.
One measure is relatively simple and captures whether or not an ethnic group is "cut" by a political border. That is, we measure situations in which the same ethnic group is present in two bordering countries. This measure accounts fairly precisely for one of the ways in which borders may be "wrong", namely when borders cut through groups' land leave them in separate countries. But it does not capture other ways in which borders may be "artificial"; for instance situations in which two ethnic groups are forced into the same country. We then provide a second measure, based upon the assumption that if a land border is close to a straight line it is more likely to be drawn arti.cially; if it is relatively squiggly it is more likely to represent either geographic features (rivers, mountains etc.) and/or divisions carved out in time to separate different people.
Needless to say, the measure is not perfect, but much of our paper is about precisely discussing this measure and alternatives. It turns out that our two new measures are in fact not highly correlated, implying that they capture different aspects of the arti.cial nature of states.
After we have constructed our measures we explore how they are correlated with various standard measures of economic development such as per capita GDP, measures of institutional success such as freedom or corruption, and measures of quality of life and public services, such as infant mortality and education.
Both measures of artificiality are correlated with several variables that measure politico-economic development. Artifcial states measured by the two proxies described above, function much less well than non-artificial states. The correlation of our measures with measures of politico-economic success of various countries are fairly robust to controlling for climate, colonial past and the other traditional measures of ethnolinguistic fractionalization.
We also checked our measures.relationship to the occurrence of wars, domestic or international. Our results are just a .rst step towards further research. A measure of political instability and violence is indeed correlated with our measure of arti.cial states; however we do not .nd evidence of correlations between the number and intensity for wars fought by one country with our measures of artificial borders.
Future research needs to address these questions using data on bilateral conflicts around various types of borders. Because borders can be changed, as Alesina and Spolaore (1997) emphasized,
citizens can rearrange the borders of artificial states. Indeed this happens; once can consider the breakdown of the Soviet Union. In fact it is quite possible that as time goes by many currently straight borders will become squiggly as they are rearranged. Relatively newly independent countries have had "less time" than countries which have been never colonized to carve their borders as a result of an equilibrium reflecting how different people want to organize
themselves. With specific reference to Africa, Englebert, Trango and Carter (2002) document several instances of border instability in Africa due to the artificial original borders. Even amongst never-colonized countries, tensions remain, for example the Basque independentist movement in Spain.
We are not aware of other papers that have attempted to consider formally (as opposed to narratively) the relationship of the shape of countries to economic development, however our paper is related to three strands of the literature.
One strand is the recent work on the size of countries and its relationship with economic growth, as in Alesina and Spolaore (2003), Alesina Spolaore and Wacziarg (2000), and Alcala and Ciccone (2004), amongst others.
Second,our work builds on the literature concerning the relationship between ethno-linguistic fractionalization and economic growth, as in Easterly and Levine(1997) , Alesina et. al. (2003), and several others. Our paper discusses one historical phenomenon that may have led to excess ethnic fractionalization.
Third, the role of former colonizers has also been widely studied (see Acemoglu,Johnson and Robinson (2001) Glaeser et al(2004)) but not speci.cally with regards to the importance of borders. Our paper speci.es a new mechanism by which colonizers a¤ected subsequent development. In many ways we bridge these three strands because we focus on how colonizers have created fragmented societies by drawing artificial borders.
Conclusions
The idea of "failed states" is a recurrent theme both in newspapers and within academia. The borders of many countries have been the result of processes that have little to do with the desire of people to be together or not. In some cases groups who wanted to be separate have been thrown into the same political unit; others have been divided by artificial borders. Former colonizers have been mainly responsible for such mistakes, but the botched agreements after
the two major wars of the last century have also played a role.
The main contribution of this paper is to provide two new measures meant to capture how "artificial" political borders are. One measure considers how straight land borders are, under the assumption that straight borders are more like to be artificial and less likely to follow geographic features or the evolution of hundreds of years of border design.
The second measure focuses on ethnic or linguistic groups separated by borders. We have then investigated whether these variables are correlated with the politico-economic success of various countries, and we found that indeed they are.
The general patterns of correlations that we presented in a battery of tables suggest that these two new measures do quite well in cross-country regressions in which other exogenous measures of geography, ethnic fragmentation and colonial status are controlled for.
We have also explored the correlation of our measures of artificial borders with the occurrence of civil and international wars and our results are inconclusive. While we find correlations of our variables with measure of political instability and lack of democracy, we do not find a clear pattern of correlations with wars. Further research is needed on this point looking at bilateral data on wars, namely which country engaged in war with whom.
Probably the single most important issue that we have not addressed is that of migrations. One consequences of artificial borders is that people may want to move, if they can. Often movement of peoples is not permitted by various government but migration certainly occur. In some cases migrations that respond to artificial borders may be partly responsible for economic costs, wars,
dislocation of people, refugee crises and a hots of undesirable circumstances.
Thus, the need to migrate, created by the wrong borders may be one reason why artificial borders are inefficient. But sometimes the movement of people may correct for the artificial nature of borders. This dynamic aspects of movement of people and migrations, and changes of borders for that matter is not considered in this paper in which we consider a static picture of the world.
The bottom line in this paper is that the artificial borders bequeathed by
colonizers were a significant hindrance to the political and economic development of the independent states that followed the colonies.
Tropics, Germs, and Crops - How Endowments Influence Economic Development
Abstract from William Easterly and Ross Levine paper:
Introduction:
Burundi today(in 2002) has a per capita income of $200, which is one-third lower than 4 decades ago. Burundi is poor despite a lush agricultural endowment that has three growing seasons, abundant rainfall, fertile volcanic soils, and suitability for cash crops such as coffee, tea, cotton, bananas, palm oil, and rice.
Burundi has other geographic endowments that place it at a disadvantage, however, according to some stories of economic development summarized below.
It is virtually on the equator, is landlocked, is far from rich trading partners, and has a disease environment that has left life expectancy today at only 47 years.
During the colonial period, mortality among the European settlers was a frightful 280 per 1000 per year.
The Belgian colonialists thus did not settle but exploited the colony through forced labor on coffee and other cash crop plantations and compulsory food crop quotas. The Belgians ruled indirectly through Tutsi chiefs, to whom they spuriously attributed “racial superiority” over the Hutu. Even the cash crops that could generate high export revenue are thought to be adverse for political economy and institutional development according to some studies.
Three Tutsi military dictators from the same commune in Bururi province have ruled Burundi for 32 out of the 38 years since independence, which has been marred by massacres of civilians, recurrent civil war, and as noted, economic decline.
Institutions have disastrously failed to protect the citizens’ lives or to establish any resemblance of the rule of law. Ndikumana (1998) describes how the elite “privatized” the state and enforced their control through violence. Nkurunziza and Ngaruko (2002) show how the rulers have systematically looted the economy, using mechanisms such as state subsidies to public enterprises controlled by the rulers, severe taxation of cash crops, lucrative civil service positions for the ruling clan (the mean government wage puts the civil servant in the richest 6% of the economy), acquiring consumer goods at controlled prices and reselling them on the black market, and acquiring foreign exchange at the official rate and reselling it at the much higher black market rate.
Canada today has a per capita income 107 times higher than Burundi’s. Canada is rich today despite being marginal for much of the colonial period. In the peace negotiations between Britain and France following the Seven Years War in the 18th century (which Voltaire described as “fighting over a few acres of snow”), the British seriously debated taking the island of Guadeloupe instead of Canada as reparations for the war.
Yet Canada has geographic endowments that some stories of economic development argue give it advantages. It is far from the tropics, has a long border with a rich trading partner, has access to the sea, and has a disease environment that gives it a life expectancy of 79 years. During the colonial period, mortality among European settlers was only one-seventeenth of Burundi’s. While Canada lacks lucrative cash crops like coffee, cotton, and tea, it is one of the world’s premier grain producers – and some studies suggest grain endowments are better for political economy and institutional development than tropical cash crops.
Canada has long been a democracy with the rule of law, has never had a civil war, and has one of the world’s best ratings on freedom from corruption.6 Canada’s boring rulers have perpetrated few of the egregious interventions in the economy seen in Burundi.
How much of Canadians’ 107-fold income advantage over Burundians is due to more favorable geographic endowments? How much is due to better institutions? How much is due to better policies? Do the alleged geographic advantages of Canada over Burundi directly affect income, or do they work through institutions or policies?
The purpose of this research is to assess empirically different theories of how geography, institutions, and policy influence economic development.
A. Geography/Endowment hypothesis
Argue for direct effects of tropics, germs, and crops on development and suggest that tropical location, landlocked location, and commodity dependence directly inhibit development or growth.
B. Institutions hypothesis
Suggest institutional quality as one component of their “social infrastructure and a fundamental determinant of economic development.
C. Policy hypothesis
The policy hypothesis is an amalgam of views that stress the importance of major national policies and de-emphasize the importance of endowments in determining economic development. The policy view holds that sound macroeconomic policies, openness to international trade, and the absence of capital account controls will tend to foster long-run economic success. This perspective is clearly imbedded in the policy recommendations adopted by major multilateral institutions. Indeed, a motivating factor for creating international financial institutions is to facilitate the adoption of sound national policies that foster economic development. According to the policy hypothesis, while tropics, germs, and crops may influence production technologies and institutions, the adoption of policies that foster low inflation, openness to international trade, and unchecked international financial flows will promote economic development.
Conclusions:
No strong support for the idea that tropical location and lack of access to the sea inhibit development through channels other than through their effect on human disease and on natural resource endowments.
Endowments exert an economically big impact on economic development.
For instance, Tanzania had very high rates of settler mortality and has a very low level of per capita GDP .... if Tanzania had a disease environment that produced settler mortality rates closer to that experienced in India, then Tanzania would enjoy income levels of more than double its current level and even greater than that enjoyed in India now...
Settler mortality and natural resources (germs and crops) are again more significant than tropical latitude or lack of coastal access (although only crops remain independently significant when other exogenous variables are included). Note that when settler mortality and latitude are included together, they jointly explain 45 percent of the cross-country variation in the institutions index (when not controlling for legal origin, religious composition, and ethnic diversity)....
The impact is economically substantial. For instance, Chile’s settler mortality rate is 4.23 while Singapore’s is 2.87.
If Chile had the disease endowments of Singapore, the results suggest that this would substantially close the gap between Chile’s level of institutional development (0.87) and Singapore’s (1.44).
Consistent with Acemoglu, Johnson, and Robinson(2001) and Engerman and Sokoloff (1997), endowments importantly shape institutional development....
Endowments explain institutions, which in turn explain economic development.
The data fail to reject the hypothesis that endowments only explain cross-country differences in the level of economic development through the ability of endowments to explain institutional development.
In sum, measures of tropics, germs, and crops explain cross-country differences in economic development through their impact on institutions. To answer some of the questions in the introduction, if Burundi’s endowments had been like those of Canada, it would have increased Burundi’s income per capita through institutions by a factor of 38.
Recalling the 107-fold difference between Canada and Burundi’s income, we can say that a variation of 38 times is explained by our story, while variation by a factor of 2.8 (107/38) is unexplained. (In log terms, 78 percent of the log income difference between Canada and Burundi is explained.)
Consistent with AJR (2001) and ES (1997), tropics, germs, and crops do not explain economic development beyond their impact on institutions. These findings are consistent with the institutions hypothesis and inconsistent with the geography hypothesis. Furthermore,
policies do not explain cross-country differences in GDP per capita once one controls for the impact of endowments on institutions and on to economic development. Thus, the results are inconsistent with the policy hypothesis but consistent with a view that stresses the role of endowments in shaping long-lasting and defining institutions.
There is a large literature that relates cross-country differences in per capita growth rates to economic policies. How do we relate our present findings on income levels to this literature?
It could be that episodes of bad policies are associated with a temporary decrease in income, which shows up in the growth rate over a limited period, but leave no long run impact on the income level (Bruno and Easterly, 1998, made this argument for inflation and output).
It could also be that bad policies are proxying for poor institutions, in those cases where they are not included in the growth regression. The policy implication of this latter explanation is that bad policies are only symptoms of longer-run institutional factors, and correcting the policies without correcting the institutions will bring little long-run benefit. Bad policies would be kind of like a high fever from a bacterial infection. Packing the patient in ice would bring down the fever but does not cure the infection. This kind of story could help explain the disappointing results in developing countries to the wave of macroeconomic policy reforms in the 1990s (Hausmann and Rodrik, 2002; Easterly, 2001).
We acknowledge the caveats that one should not put all one’s weight on a failure to reject a zero coefficient or an exclusion restriction. Nor does the kind of general indicator of institutional quality we use, while representing a valuable contribution by Kaufmann et al (1999), provide much actual guidance to officials making real laws and regulations.
This kind of result should be tested and illumined further with detailed historical case studies of institutional development like those conducted by Engerman and Sokoloff (1997) and coauthors, studies of the links between colonial experiences and later developments (Mamdani, 1996), and contemporary case studies like those in Rodrik (2002).
These kind of cross-country results are only a beginning to telling the story of colonial experiences, political conflict and consensus, institution-building, and economic development for each unique case. Still, we are struck by the way that endowments and policies have no independent effect once we control for institutions, contrary to a number of stories, and that institutional quality seems to be a sufficient statistic for accounting for economic development.
Introduction:
Burundi today(in 2002) has a per capita income of $200, which is one-third lower than 4 decades ago. Burundi is poor despite a lush agricultural endowment that has three growing seasons, abundant rainfall, fertile volcanic soils, and suitability for cash crops such as coffee, tea, cotton, bananas, palm oil, and rice.
Burundi has other geographic endowments that place it at a disadvantage, however, according to some stories of economic development summarized below.
It is virtually on the equator, is landlocked, is far from rich trading partners, and has a disease environment that has left life expectancy today at only 47 years.
During the colonial period, mortality among the European settlers was a frightful 280 per 1000 per year.
The Belgian colonialists thus did not settle but exploited the colony through forced labor on coffee and other cash crop plantations and compulsory food crop quotas. The Belgians ruled indirectly through Tutsi chiefs, to whom they spuriously attributed “racial superiority” over the Hutu. Even the cash crops that could generate high export revenue are thought to be adverse for political economy and institutional development according to some studies.
Three Tutsi military dictators from the same commune in Bururi province have ruled Burundi for 32 out of the 38 years since independence, which has been marred by massacres of civilians, recurrent civil war, and as noted, economic decline.
Institutions have disastrously failed to protect the citizens’ lives or to establish any resemblance of the rule of law. Ndikumana (1998) describes how the elite “privatized” the state and enforced their control through violence. Nkurunziza and Ngaruko (2002) show how the rulers have systematically looted the economy, using mechanisms such as state subsidies to public enterprises controlled by the rulers, severe taxation of cash crops, lucrative civil service positions for the ruling clan (the mean government wage puts the civil servant in the richest 6% of the economy), acquiring consumer goods at controlled prices and reselling them on the black market, and acquiring foreign exchange at the official rate and reselling it at the much higher black market rate.
Canada today has a per capita income 107 times higher than Burundi’s. Canada is rich today despite being marginal for much of the colonial period. In the peace negotiations between Britain and France following the Seven Years War in the 18th century (which Voltaire described as “fighting over a few acres of snow”), the British seriously debated taking the island of Guadeloupe instead of Canada as reparations for the war.
Yet Canada has geographic endowments that some stories of economic development argue give it advantages. It is far from the tropics, has a long border with a rich trading partner, has access to the sea, and has a disease environment that gives it a life expectancy of 79 years. During the colonial period, mortality among European settlers was only one-seventeenth of Burundi’s. While Canada lacks lucrative cash crops like coffee, cotton, and tea, it is one of the world’s premier grain producers – and some studies suggest grain endowments are better for political economy and institutional development than tropical cash crops.
Canada has long been a democracy with the rule of law, has never had a civil war, and has one of the world’s best ratings on freedom from corruption.6 Canada’s boring rulers have perpetrated few of the egregious interventions in the economy seen in Burundi.
How much of Canadians’ 107-fold income advantage over Burundians is due to more favorable geographic endowments? How much is due to better institutions? How much is due to better policies? Do the alleged geographic advantages of Canada over Burundi directly affect income, or do they work through institutions or policies?
The purpose of this research is to assess empirically different theories of how geography, institutions, and policy influence economic development.
A. Geography/Endowment hypothesis
Argue for direct effects of tropics, germs, and crops on development and suggest that tropical location, landlocked location, and commodity dependence directly inhibit development or growth.
B. Institutions hypothesis
Suggest institutional quality as one component of their “social infrastructure and a fundamental determinant of economic development.
C. Policy hypothesis
The policy hypothesis is an amalgam of views that stress the importance of major national policies and de-emphasize the importance of endowments in determining economic development. The policy view holds that sound macroeconomic policies, openness to international trade, and the absence of capital account controls will tend to foster long-run economic success. This perspective is clearly imbedded in the policy recommendations adopted by major multilateral institutions. Indeed, a motivating factor for creating international financial institutions is to facilitate the adoption of sound national policies that foster economic development. According to the policy hypothesis, while tropics, germs, and crops may influence production technologies and institutions, the adoption of policies that foster low inflation, openness to international trade, and unchecked international financial flows will promote economic development.
Conclusions:
No strong support for the idea that tropical location and lack of access to the sea inhibit development through channels other than through their effect on human disease and on natural resource endowments.
Endowments exert an economically big impact on economic development.
For instance, Tanzania had very high rates of settler mortality and has a very low level of per capita GDP .... if Tanzania had a disease environment that produced settler mortality rates closer to that experienced in India, then Tanzania would enjoy income levels of more than double its current level and even greater than that enjoyed in India now...
Settler mortality and natural resources (germs and crops) are again more significant than tropical latitude or lack of coastal access (although only crops remain independently significant when other exogenous variables are included). Note that when settler mortality and latitude are included together, they jointly explain 45 percent of the cross-country variation in the institutions index (when not controlling for legal origin, religious composition, and ethnic diversity)....
The impact is economically substantial. For instance, Chile’s settler mortality rate is 4.23 while Singapore’s is 2.87.
If Chile had the disease endowments of Singapore, the results suggest that this would substantially close the gap between Chile’s level of institutional development (0.87) and Singapore’s (1.44).
Consistent with Acemoglu, Johnson, and Robinson(2001) and Engerman and Sokoloff (1997), endowments importantly shape institutional development....
Endowments explain institutions, which in turn explain economic development.
The data fail to reject the hypothesis that endowments only explain cross-country differences in the level of economic development through the ability of endowments to explain institutional development.
In sum, measures of tropics, germs, and crops explain cross-country differences in economic development through their impact on institutions. To answer some of the questions in the introduction, if Burundi’s endowments had been like those of Canada, it would have increased Burundi’s income per capita through institutions by a factor of 38.
Recalling the 107-fold difference between Canada and Burundi’s income, we can say that a variation of 38 times is explained by our story, while variation by a factor of 2.8 (107/38) is unexplained. (In log terms, 78 percent of the log income difference between Canada and Burundi is explained.)
Consistent with AJR (2001) and ES (1997), tropics, germs, and crops do not explain economic development beyond their impact on institutions. These findings are consistent with the institutions hypothesis and inconsistent with the geography hypothesis. Furthermore,
policies do not explain cross-country differences in GDP per capita once one controls for the impact of endowments on institutions and on to economic development. Thus, the results are inconsistent with the policy hypothesis but consistent with a view that stresses the role of endowments in shaping long-lasting and defining institutions.
There is a large literature that relates cross-country differences in per capita growth rates to economic policies. How do we relate our present findings on income levels to this literature?
It could be that episodes of bad policies are associated with a temporary decrease in income, which shows up in the growth rate over a limited period, but leave no long run impact on the income level (Bruno and Easterly, 1998, made this argument for inflation and output).
It could also be that bad policies are proxying for poor institutions, in those cases where they are not included in the growth regression. The policy implication of this latter explanation is that bad policies are only symptoms of longer-run institutional factors, and correcting the policies without correcting the institutions will bring little long-run benefit. Bad policies would be kind of like a high fever from a bacterial infection. Packing the patient in ice would bring down the fever but does not cure the infection. This kind of story could help explain the disappointing results in developing countries to the wave of macroeconomic policy reforms in the 1990s (Hausmann and Rodrik, 2002; Easterly, 2001).
We acknowledge the caveats that one should not put all one’s weight on a failure to reject a zero coefficient or an exclusion restriction. Nor does the kind of general indicator of institutional quality we use, while representing a valuable contribution by Kaufmann et al (1999), provide much actual guidance to officials making real laws and regulations.
This kind of result should be tested and illumined further with detailed historical case studies of institutional development like those conducted by Engerman and Sokoloff (1997) and coauthors, studies of the links between colonial experiences and later developments (Mamdani, 1996), and contemporary case studies like those in Rodrik (2002).
These kind of cross-country results are only a beginning to telling the story of colonial experiences, political conflict and consensus, institution-building, and economic development for each unique case. Still, we are struck by the way that endowments and policies have no independent effect once we control for institutions, contrary to a number of stories, and that institutional quality seems to be a sufficient statistic for accounting for economic development.
miércoles, 14 de enero de 2009
Chavez Unveils Gold Mining Venture
From MoscowTimes:
"Venrus, a joint venture of Rusoro Mining and the Venezuelan government, was formed to mine Las Cristinas, a deposit containing an estimated 35.2 million ounces of gold, Venezuelan President Hugo Chavez said.
Venezuela wants to develop the mine this year "under the control of socialism," Chavez said Tuesday. The mine covers five concessions, he said, naming four where Crystallex International of Toronto has been awaiting permits to begin mining and one concession belonging to Gold Reserve, which is also awaiting a mining permit.
"The Venezuelan state is getting ready this year for the exploitation and control of the gold deposit Las Cristinas," Chavez said. Venrus was formed last year, he said.
Las Cristinas has been the subject of decades of changing corporate control. After Placer Dome was permitted to begin mining some of the concessions in 2001, it sold out to Vannessa Ventures. Chavez expropriated the site and awarded it to Crystallex. Gold Reserve has held its concession throughout the saga.
A fly-by of the site this week sponsored by Rusoro showed miners living in shacks and using high-pressure hoses to separate gold from the surface of the deposit, creating several square kilometers of swampy, deforested land amid a vast forest.
Rusoro is a Russian-funded company that is buying gold deposits in Venezuela and is in the midst of a hostile takeover bid for Gold Reserve.
Venrus is a joint venture between Rusoro and Venezolana de Guayana, a state holding company. Venrus currently operates the Isidora mine, which Rusoro bought from Hecla Mining last year.
Chavez wants gold mining and other commodity exports to compensate for falling oil prices, he said on Dec. 27. Oil made up 93 percent of Venezuela's export earnings in 2008.
Gold Reserve president Doug Belanger declined to make an immediate comment. Richard Marshall, a spokesman for Crystallex, did not immediately return a call for comment after business hours. Rusoro chief executive Andre Agapov did not immediately return a call to his mobile phone.
The concessions Chavez mentioned were Cristinas 4, 5, 6 and 7 and Brisas del Cuyuni.
Venezuela also plans to boost diamond mining, Chavez said. The country will rejoin the Kimberley Process, an international treaty meant to exclude from international trade those gems mined without permits in conflict areas.
"We are coordinated with international organizations to establish the technical assistance mechanisms so that Venezuela can reincorporate itself into the international certification process," Chavez said.
Venezuela left the Kimberley Process last year as nongovernmental organizations that lobby on diamond issues pressed other members to expel the South American nation.
"Venrus, a joint venture of Rusoro Mining and the Venezuelan government, was formed to mine Las Cristinas, a deposit containing an estimated 35.2 million ounces of gold, Venezuelan President Hugo Chavez said.
Venezuela wants to develop the mine this year "under the control of socialism," Chavez said Tuesday. The mine covers five concessions, he said, naming four where Crystallex International of Toronto has been awaiting permits to begin mining and one concession belonging to Gold Reserve, which is also awaiting a mining permit.
"The Venezuelan state is getting ready this year for the exploitation and control of the gold deposit Las Cristinas," Chavez said. Venrus was formed last year, he said.
Las Cristinas has been the subject of decades of changing corporate control. After Placer Dome was permitted to begin mining some of the concessions in 2001, it sold out to Vannessa Ventures. Chavez expropriated the site and awarded it to Crystallex. Gold Reserve has held its concession throughout the saga.
A fly-by of the site this week sponsored by Rusoro showed miners living in shacks and using high-pressure hoses to separate gold from the surface of the deposit, creating several square kilometers of swampy, deforested land amid a vast forest.
Rusoro is a Russian-funded company that is buying gold deposits in Venezuela and is in the midst of a hostile takeover bid for Gold Reserve.
Venrus is a joint venture between Rusoro and Venezolana de Guayana, a state holding company. Venrus currently operates the Isidora mine, which Rusoro bought from Hecla Mining last year.
Chavez wants gold mining and other commodity exports to compensate for falling oil prices, he said on Dec. 27. Oil made up 93 percent of Venezuela's export earnings in 2008.
Gold Reserve president Doug Belanger declined to make an immediate comment. Richard Marshall, a spokesman for Crystallex, did not immediately return a call for comment after business hours. Rusoro chief executive Andre Agapov did not immediately return a call to his mobile phone.
The concessions Chavez mentioned were Cristinas 4, 5, 6 and 7 and Brisas del Cuyuni.
Venezuela also plans to boost diamond mining, Chavez said. The country will rejoin the Kimberley Process, an international treaty meant to exclude from international trade those gems mined without permits in conflict areas.
"We are coordinated with international organizations to establish the technical assistance mechanisms so that Venezuela can reincorporate itself into the international certification process," Chavez said.
Venezuela left the Kimberley Process last year as nongovernmental organizations that lobby on diamond issues pressed other members to expel the South American nation.
martes, 13 de enero de 2009
Quote of the day: Karl Kraus
"The secret of the demagogue is to make himself as stupid as his audience so that they believe they are as clever as he".
Suscribirse a:
Entradas (Atom)
