development factors

Catherine Abel, Still life with blues, 2003
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By FERNANDO NOGUEIRA DA COSTA*

Commentary on the book by Mark Koyama and Jared Rubin, where they show that institutions also interact with culture

Mark Koyama and Jared Rubin, in the book How the World Became Rich: The Historical Origins of Economic Growth, show: institutions also interact with culture. By “culture” they mean the conceptual lenses or heuristics (“rules of thumb”) used by individuals in a society to interpret the world.

They argue: “sustained economic growth could have been possible in the ancient world. Certainly, the Roman Empire, at its height, had an integrated and sophisticated market economy.” What?! A preamble to state-centered capitalism?

The argument, based on the methodological individualism so prevalent in neoliberals, is puerile. “One of the reasons [the Roman Empire] never achieved anything approaching an 'industrial revolution' appears to have been cultural. Successful individuals in the Roman Empire aspired to a life of leisure.” Only. Nothing about technology matters…

In an Anglocentric view, the English authors state: “Great Britain had many of the institutional prerequisites necessary for its start-up in the mid-eighteenth century: (i) a relatively limited government, (ii) a learning system capable of perfecting skills of artisans and (iii) institutions favorable to investment in public goods”. But, they emphasize, “it also had cultural attributes complementary to these institutions. Hard work did not put anyone at the bottom of the social ladder. Among the intellectual elite, the idea of ​​continuous progress seemed a realistic goal.”

Oh, how lazy!… and Macunaíma said nothing more. He stayed in the corner of the longhouse, spying on other people's work. “Little health and a lot of health, the evils of Brazil are! The Brazilian people are in Macunaíma, the hero without any character”. Does this fictional character explain the country's economic and educational backwardness?!

For English economic historians, no society, at least before the mid-1850th century, had the combination of the aforementioned cultural attributes and institutional characteristics. After the key elements of sustained growth emerged, first during the British Industrial Revolution, and after XNUMX in the United States and Germany, the design elements provided by the early promoters could be used elsewhere, even if they looked a little different. , depending on location.

Different parts of the world have taken pieces of this model and adapted them to their own institutional and cultural characteristics. This would make the problem of economic development in the poorest parts of the world apparently easy: just copy the technological frontier, the institutional environment and the advanced culture!

But simply transplanting what has worked elsewhere into poverty-stricken societies is not the solution. Context is important. Culture and the past impose path dependence. The same goes for demographics and geography.

Knowing what worked and why it worked is important precisely because it allows you to build a cumulative process of knowledge. It provides a framework for understanding which economic policies are likely to succeed. However, substantial local knowledge is also needed to know how to apply this framework to a given society.

Without a doubt, geography explains many patterns of the pre-industrial world. Geographic characteristics were fundamental to the emergence of agricultural or urban life. For example, access to rivers and coasts and high-quality agricultural land helps explain many development patterns that predate industrialization.

Before 1800, the best endowed lands were not much richer, in terms of per capita income, compared to the less endowed lands. They tended to be more densely populated and, without a substantial increase in productivity, produced less per capita.

Economies of scale and network effects, associated with proximity (“agglomeration effects”), rather than geographic fundamentals, explain why certain City-States outperform large Nations in terms of per capita income. If geography could explain everything, the destiny of Humanity would have been written thousands of years ago, with little space for human action. However, human actions have played a significant role in determining the economic trajectories of societies.

Mark Koyama and Jared Rubin evaluate the role of institutions in economic development. Institutions, in many forms (political, economic, legal, social and religious), constitute the “rules of the game” for people in their daily lives. They form the incentives to shape the way people act, in accordance with methodological individualism.

Institutions differ between societies and throughout history. Therefore, they help to explain why not all different societies were economically successful.

Among the most important institutions in facilitating the growth of a society are the rule of law and the protection of property rights. Why do institutions function differently in different parts of the world?

Democracy is the example not adopted by all countries. Democratic institutions have failed in contexts under military rule, from Brazil to Russia, among others.

Mark Koyama and Jared Rubin analyze the role culture plays in economic growth. Recent cultural explanations are less Eurocentric or racist.

Modern theories tend to think of culture as aspects of society capable of shaping people's worldview. It shapes how people respond to incentives, how they interact with other people. Again, individualism stands out – and not methodological holism with a systemic approach.

Things like the role of trust, gender diversity and marriage norms as well as religion would affect economic development through their effect on policy or law. One of the main reasons why culture can affect long-term economic development is that it persists in conservative values ​​– and thus shapes the outlook of descendants of outdated generations.

Historians have seen the ups and downs of pre-industrial history as dictated, at least in part, by demographics. For example, in ancient Rome, women married as soon as they reached sexual maturity. The resulting high birth rate was partially responsible for the low average incomes earned by unskilled workers in the Roman Empire.

With industrialization and urbanization, the resulting demographic transition slowed population growth and per capita income began to increase in a sustained manner. Encouraged investment in human capital. As technological progress accelerates, returns to human capital increase and induce parents to move from large families with low levels of education to smaller families with children with high levels of education. Then they would get rich…

Colonization brought vast riches to some countries in Europe and still has an effect today in previously colonized parts of the world. There is little controversy regarding the harmful role played on the colonized as the bad legacy in terms of institutional development, norms of trust, accumulation of human capital and provision of public goods as democratic institutions.

In the 17th century, northwestern Europe had many of the preconditions necessary for sustained economic growth. Per capita incomes and real wages were high by pre-industrial standards. Markets were relatively well developed and extensive. The institutional framework had been conducive to the expansion of foreign trade. State institutions were strong enough to provide a measure of law and internal peace.

However, the Dutch pattern of transsea commercial growth more closely resembled earlier episodes of temporary growth rather than the sustained growth characteristic of Western Europe and North America after 1800. In the XNUMXth century, the Dutch Republic remained wealthy but its economy stagnated. The factors responsible were the increase in inequality vis-à-vis the mercantile elites based in Amsterdam. These managed to consolidate their political power.

Institutions such as the Dutch East and West India Companies benefited a relatively small number of shareholders. The Dutch Republic thus followed a pattern similar to that of Italian city-states such as Florence and Venice: they grew rich thanks to trade (and banks) before stagnating.

Another factor was the high taxes and high levels of government debt incurred in numerous wars for survival against the French. Furthermore, the mercantilist policies of the British and the relative failure of the Dutch to invest more in fiscal capacity also contributed to their relative decline. The Dutch did not experience the combination of industrial growth and structural change characteristic of the British Industrial Revolution. This was the “original industrialization”.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/3r9xVNh]

To access the first article in the series click here.

Reference


Mark Koyama and Jared Rubin. How the world became rich: the historical origins of economic growth. Cambrige, Polity Press, 2022, 240 pages. [https://amzn.to/4a8OTwk]


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