Why economic prosperity is still something of a mystery

Why economic prosperity is still something of a mystery:

Your humble blogger is currently knee-deep in a pedagogical project on the foundations of economic prosperity.  You can imagine my delight, then, that Daron Acemoglu and James Robinson have a new book coming out on that very topic:  Why Nations Fail: The Origins of Power, Prosperity, and Poverty.  There's an excerpt in the Montreal Review -- let's see how it opens, shall we?

To understand what these institutions are and what they do, take another society divided by a border. South and North Korea. The people of South Korea have living standards similar to those of Portugal and Spain. To the north, in the so-called Democratic People's Republic of Korea, or North Korea, living standards are akin to those of a sub-Saharan African country, about one tenth of average living standards in South Korea. The health of North Koreans is in an even worse state; the average North Korean can expect to live ten years less than their cousins to the south of the 38th parallel.

These striking differences are not ancient. In fact they did not exist prior to the end of the Second World War. But after 1945 the different governments in the north and the south adopted very different ways of organizing their economies....

It should be no surprise that the economic fortunes of South and North Korea diverged sharply. Kim Il-Sung's command economy soon proved to be a disaster. Detailed statistics are not available from North Korea, which is a secretive state to say the least. Nonetheless, available evidence confirms what we know from the all too often recurring famines: not only did industrial production fail to take off but North Korea in fact experienced a collapse in agricultural productivity. Lack of private property meant that few had incentives to invest or exert effort to increase or even maintain productivity. The stifling repressive regime was inimical to innovation and adoption of new technologies. But Kim Il-Sung, his son and successor, the "dear leader" Kim Jong-Il, and their cronies had no intention to reform the system, or to introduce private property, markets, private contracts, and economic and political freedoms. North Korea continues to stagnate economically, and there is no sign that anything will be different under the new "dear leader" Kim Jong-un.

Meanwhile in the south economic institutions encouraged investment and trade. South Korean politicians invested in education, achieving high rates of literacy and schooling. South Korean companies were quick to take advantage of the relatively educated population, the policies encouraging investment and industrialization, the export markets, and the transfer of technology. South Korea became one of East Asia's `Miracle Economies,' one of the most rapidly growing nations in the world. By the late 1990s, in just about half a century, South Korean growth and North Korean stagnation led to a tenfold gap between the two halves of this once-united country---imagine what a difference a couple centuries could make. The economic disaster of North Korea, which not only prevented growth but led to the starvation of millions, when placed against the South Korean economic success, is striking: neither culture nor geography nor ignorance can explain the divergent paths of North and South Korea....

The contrast of South and North Korea illustrates a general principle: inclusive economic institutions foster economic activity, productivity growth and economic prosperity, while extractive economic institutions generally fail to do so. Property rights are central, since only those who have secure property rights will be willing to invest and increase productivity. A farmer, for example, who expects his output to be stolen, expropriated or entirely taxed away would have little incentive to work, let alone any incentive to undertake investments and innovations. But extractive economic institutions do exactly that and fail to uphold property rights of workers, farmers, traders and businessmen.

It will not shock you, my dear readers, to learn that I agree with Acemoglu and Robinson.  Indeed, as Ezra Klein showed with the following chart, the divergent paths of North and South Korea represents ironclad evidence about the power of instituions to determine prosperity: 

Well, that's pretty damn persuasive, isn't it?  It seems pretty friggin' obvious which institutions work and which ones don't! 

Actually, to be more accurate, it seems pretty friggin' obvious now.  Here's another chart that extends that graph back another two decades: 

Things look sightly different in this chart.  That massive divergence is still there, but what's stunning is that for the 25 years before that, the DPRK and ROK looked exactly the same in terms of per capital income.  Indeed, as Nicholas Eberstadt notes: 

Around the time of Mao Zedong's death (1976), North Korea was more educated, more productive and (by the measure of international trade per capita) much more open than China. Around that same time, in fact, per capita output in North Korea and South Korea may have been quite similar. Today, North Korea has the awful distinction of being the only literate and urbanized society in human history to suffer mass famine in peacetime. 

My point here is not to defend Kim Il Sung or suggest that the DPRK's economic institutions are underrated.  Rather, my point is that as data analysts, we're all prisoners of time.  Had Acemoglu and Robinson written Why Nations Fail in the mid-1970s, it would have either made a different argument or it would have had a much tougher case to make about the merits of inclusive vs. extractive institutions (during the 1970s, commodity extracting states were looking pretty good). 

Keep these charts in mind whenever anyone confidently asserts the obvious superiority of a particular model of political economy.  Because, I assure you, there was a point in time when such superiority was far from obvious.  And there might be another such point in the future. 

I Agree With This Whole-Heartedly

It is Now Officially OK to Make World War II References:
Earlier today, David Axelrod described Mitt Romney's wall-to-wall advertising campaign in Illinois as a Mittzkrieg. The Romney campaign immediately cranked up the high dudgeon meter to 11:

At a time when there is so much talk about the need for civility in political discourse, it is disturbing to see President Obama's top campaign advisor casually throw Nazi imagery around in reference to a Republican candidate for President. Holocaust and Nazi imagery are always inappropriate in the political arena. Axelrod should apologize for his offensive language.
We call on Debbie Wasserman Schultz, the chairman of the Democratic National Committee, to publicly rebuke Axelrod for his language. We hope that the National Jewish Democratic Council will join us in denouncing Axelrod's comment, as they have frequently denounced Holocaust imagery in politics in the past.

That's it. I've had enough. I officially declare that it's now OK to use World War II imagery anytime you want. It's OK to make Nazi references. It's OK to compare people to Hitler. Go ahead! You have my blessing.
This whole thing is ridiculous, and I'm sick of it from all sides. WWII references are handy shorthand because everyone immediately understands them. There's nothing wrong with this. If you go overboard, people will mock you. If your analogies are wrong, people will correct you. If you literally say that someone is as bad as Hitler, you will be called an idiot. (Unless, of course, you're really talking about someone as bad as Hitler. But that's a pretty short list.) But the mere fact that you used a WWII/Hitler reference? Not an issue any longer.
It's probably still wise to take it easy on Holocaust imagery. But merely making a comparison of some modern-day event to something that happened in WWII, or something that Hitler did, or some well-known practice of Nazi Germany? If it's the obvious analogy to use, then use it. And let's all quit the pearl clutching, OK?

    

States keeping contraception arguments alive. That Arizona bill looks horrendous.

Morning link

Josh: I noticed this when I interned at the capitol and in occasional reading of Georgia politics.  Georgia Republicans really aren't that ideological - movie subsidies and tax breaks for car plans are all considered fine, fine things to do.  Similarly, the South is socially conservative to the extreme, though as our now-defunct blue laws show, things are a-changin'.  Maybe it's because I grew up in the South, but this is the type of Republican I associate when I think of Republicans - governed by abstract collections of thoughts and ill-conceived moralities, pragmatic when it benefits them and high-and-mighty when it doesn't, and always hypocritical to the extreme when applying their hodge-podge of principles. It also didn't help that whenever they talked about people they hated, at least three of the adjectives applied to me.

(From Bleeding Heart Libertarians) Morning link:
Alec MacGillis, Is the South too Republican for Republicans?

Well, here’s one thing to think about. What if the South has become so monolithically Republican that actual conservative proposals and argument of the sort that Santorum and Romney have been offering don’t actually resonate all that much?
Consider: Republicans in Alabama and Mississippi reside in a universe where virtually all white voters vote Republican. And no, this isn’t just an Obama thing—Obama only got 11 percent of the white vote in Mississsippi in 2008, but that was barely worse than the 14 percent John Kerry got four years earlier. Increasingly, being a Democrat in the Deep South—a Democrat when it comes to national politics—means being African-American. This means that political polarization in the Deep South is of a different sort than it is elsewhere. It is very much aligned with the region’s deep racial divides, but it is also arguably less ideological than it is elsewhere….
Or take Romney’s railing against what he calls Obama’s “crony capitalism”—loans for Solyndra and other favored green-tech companies. As TNR contributor Ed Kilgore pointed out during the Rick Perry boomlet, the South has long been enamored of doling out tax breaks and cash to companies who set up shop there, a form of industrial policy that is considered a-ok because it’s done by local Republicans. In this context, ideology matters less than culture and group identity, which is perhaps why both men have been reduced to making such excruciating cultural panders.

What this is supposed to be.

Welcome, everyone. This blog is basically a second way to replace our old wonderful Google Reader nexus. Here's how I imagine this will work. We still use Google Reader to read posts, right? It's still useful that way. Blogger uses an "email-to-blog" feature (see here) that posts what things to this blog easily. So we use the "Email" feature in google reader to send posts we like to this blog. Alternatively (and preferably), I can give you Admin access and you can use the "Send to" feature in Google Reader. That makes it a lot easier to post things quickly from Google Reader. Lastly? We just subscribe to the blog in Google Reader. Boom! An inconvenient work-around, at least until Google kills Blogger just so they can keep pushing Google+*. *(which has its uses - hangouts - but I really wish they'd let us organically get there rather than force us to use it while it's still essentially a less-developed Facebook) - Josh P.S. Let's work out a way to separate our Shared posts with Discussion posts. Those could be fun, too.

Republicans Getting Ready to Approve of Violence Against Women (Test post)

Republicans Getting Ready to Approve of Violence Against Women:
There's a new front brewing in the War Against Women™:

With emotions still raw from the fight over President Obama’s contraception mandate, Senate Democrats are beginning a push to renew the Violence Against Women Act, the once broadly bipartisan 1994 legislation that now faces fierce opposition from conservatives.
....“I favor the Violence Against Women Act and have supported it at various points over the years, but there are matters put on that bill that almost seem to invite opposition,” said Senator Jeff Sessions, Republican of Alabama, who opposed the latest version last month in the Judiciary Committee....Republicans say the measure, under the cloak of battered women, unnecessarily expands immigration avenues by creating new definitions for immigrant victims to claim battery. More important, they say, it fails to put in safeguards to ensure that domestic violence grants are being well spent. It also dilutes the focus on domestic violence by expanding protections to new groups, like same-sex couples, they say.

Is it possible that Democrats filled the reauthorization bill with new measures that Republicans object to? Sure. Is it possible that this is all part of some clever plan to take advantage of the recent contraception fight? Not likely. That fight wasn't deliberate in the first place, and in any case the modifications to VAWA were all done last year since the act was up for reauthorization in 2012.
Democrats may be taking advantage of the moment, but Republicans are making it easy for them. Their public objections are mostly focused on culture war issues (gays! immigrants!), but their base hates the whole idea of VAWA. No compromise is going to be enough to mollify them once the talking heads get hold of this, and that's going to turn the reauthorization fight into yet another anti-feminism battle royal, not a normal legislative give and take. Fasten your seat belts.