Week 9 - Institutions II Flashcards
(47 cards)
True or false: Institutions are humanely devised?
True - we, as a society, choose the institutions our society ends up with.
What determines who has the political de jure and de facto power, as outlined by Acemoglu and Johsnon (2008).
The type of political institutions you have, and how resources are distributed across various groups in a country
The people who have this power, what do they determine?
The type of economic and political institutions we end up with, which effect economic performance and distribution or resources, and it continues as a cycle.
When modelling institutional differences, what 3 institutional characteristics do we need to consider?
1.Economic institutions
2. Who has the Political power
3. Political institutions
Why do economic institutions matter?
Matter for economic growth because they shape the incentives of key economic factors. Also important for the distribution of resources across various groups in society.
Where do the economic institutions come from ?
They’re affected by history and chance, but ultimately comes down to the collective choice of societies.
Since economic institutions affect the distribution or resources, how is there a conflict on interest?
Because different groups will want a different distribution of resources which only benefit them . The deciding factor then is political power
What is de jure and de facto political power?
de jure - derived from political institutions (e.g. democracy vs dictatorship)
de facto - political power which isn’t given by political institutions e.g. gained by starting a revolution, or leverage over government or lobbying.
Where does de facto power come from?
Originates from both the ability of groups within society to overcome their collective action problem and from the economic resources available to them. E.g. trying to overthrow a dictatorship, need money for weapons. High cost high reward.
So why would institutions hardly change?
If you have de jure/de facto power, you have an incentive to keep the status quo to keep your political power. There is a lot of persistence emphasised in AR.
How could you get change?
A big external shock in society which could shift the de facto political power to a new group, which can then push political and economic institutions in a new direction.
What is an example of this shock in the UK?
Monarchs used to have de jure political power and they decide on economic institutions which only benefit themselves and their friends. This leads them to also holding all the wealth, strengthening their de facto power. But then there are changes in the land market and the expansion of atlantic trade (new opportunities to become rich). This new class of wealthy land owners, building up de facto power. They overcome the Stuart monarchs in the civil war, changing the political institutions, paving the way for the industrial revolution.
Why didn’t these traders just keep all the power for themselves?
They were a very big group of people, so each of them wouldn’t benefit very much simply from extracting wealth from society. More beneficial to set up better economic institutions.
Why might structural adjustments of the institutions may not work for reform?
If political institutions and political power remain unchanged, those in power will simply try and achieve their goal via a difference set of instruments e.g. privatisation of gov’t assets organised to distribute assets to political supporters.
Why is there still no guarantee that we’ll end up with better institutions if de jure power changes as well?
Since sources of de facto political power might not have changed
What is an example of this?
Abolishion of slavery. the same people still held on to power and found other ways to repress black people e.g. literacy tests to vote, threat of violence, underinvestment into education, controlling local politics.
Why is there still guarantee to end up with good institutions by changing de jure and de facto power?
Those who now hold power may wield it in the same way as those before. Another reason is that the new elite might have to be as bad as the traditional elite to take power in the first place.
What is the iron law of oligarchy by Acemoglu and johnson?
de jure and de facto power shift to new elite, but this new elite now simply uses extractive institutions to hold onto power.
What are some radical ideas to improve institutions?
Ibrahim prize
Romer’s charter cities
What is the Ibrahim prize
Monetary prize for ‘African leaders who have developed their countries, lifted people out of poverty and paved the way for sustainable and equitable prosperity’. The aim is to increase the pay-off to setting up good institutions over extractive ones.
What is Romer’s charter cities?
Find uninhabited plot of land and create a new set of rules from scratch, and allow willing participants to opt in and form a large city.
What was Romers rationale?
If its too hard to change rules for a nation as a whole, so instead start from a clean state and give people a choice about whether they want to participate under these rules or not.
What is an example of a charter city?
Hong Kong, geographically in china but until 1997 administered by the British and operating under a different, more market oriented, set of rules than China. This resulted in fast growth and a place where people wanted to migrate to. It also offered a model to be copied when rest of china moved towards markets.
Why might this not work?
problematic logistics - infrastructure mainly. In honduras, there were protests against loss of sovereignty. People won’t trust the state to set up a city with fair rules and good institutions. Rules guaranteed by a rich country has some colonial overtones.
