Comments on McCloskey and Weingast

Economic growth is an aspect of social change which cannot be explained by economic theory alone. McCloskey invokes ‘ideas’ but ideas only matter as embodied in institutions. Weingast makes this points but his institutions are too economistic. Only institutionalised self-emergence can explain massive, relentless and automatic change.     

(In)equality and the South African Constitution

ABSTRACT

Does the South African Constitution constrain or empower government, courts and citizens in addressing systemic social and economic inequalities? This article argues that the Constitution is explicitly ‘transformative’, but is an enabling document, providing ‘scaffolding’ for political and legal activities. It is government, strong institutions and civil society that are ultimately responsible for securing its equality aspirations. Here the Constitution admits of different understandings of equality and different economic and social policy choices. This article identifies these contested meanings of equality and suggests that a liberal egalitarian/social democratic version is dominant in policy choices and the jurisprudence of the Constitutional Court. It illustrates this with reference to the Court’s jurisprudence on equality, and suggests that more radical and transformative interpretations remain possible. However, it concludes that we cannot escape politics, the need for good policy choices and effective implementation and enforcement.     

The great enrichment: a humanistic and social scientific account

The scientific problem in explaining modern economic growth is its astonishing magnitude – anywhere from a 3000% to a 10,000% increase in real income, a ‘Great Enrichment.’ Investment, reallocation, property rights and exploitation cannot explain it. Only the bettering of betterment can, the stunning increase in new ideas, such as the screw propeller on ships or the ball bearing in machines, the modern university for the masses and careers open to talent. Why, then, the new and trade-tested ideas? Because liberty to have a go, as the English say, and a dignity to the wigmakers and telegraph operators having the go made the mass of people bold. Equal liberty and dignity for ordinary people is called ‘liberalism,’ and it was new to Europe in the eighteenth century, against old hierarchies. Why the liberalism? It was not deep European superiorities, but the accidents of the Four R's of (German) Reformation, (Dutch) Revolt, (American and French) Revolution and (Scottish and Scandinavian) Reading. It could have gone the other way, leaving, say, China to have the Great Enrichment, much later. Europe, and then the world, was lucky after 1800. Now China and India have adopted liberalism (in the Chinese case only in the economy) and are catching up.     

The historiography of French economic growth in the nineteenth century

There has been a long-standing debate about French nineteenth-century economic growth. After 1945 the ‘retardation—stagnation’ thesis dominated. From the 1960s ‘revisionists’ painted a more optimistic view. Recently, ‘anti-revisionism’ has revived gloomy ideas. New research has been primarily responsible for changes of view. National income estimates, and later cliometric studies, bolstered the revisionist argument. Work on the ‘great depression’ stimulated anti-revisionism. Scholars have also been influenced by the economic and political state of France at the time they were writing and the debate has been somewhat politicized. The article ends by surveying the ‘moderate revisionism’ which now prevails.     

Democracy and Durability: Empirical Analysis and a Causality Test

The current literature has failed to differentiate between the collapse of democratic and authoritarian rules or whether democratic regimes collapse for the same reasons as do authoritarian regimes. Therefore, the current literature is silent on whether democracies are more fragile or less susceptible to economic and political breakdowns. Using a multitude of political instability variables, this paper explores empirically, whether political freedom and civil liberty (a proxy for democracy) has any effect on the stability of the political order. The empirical results of the paper confirm the hypothesis that democracy is conducive to political stability; the higher the level of political freedom and civil liberty, the more stable countries are. The paper also presented a Granger-causality test of political instability and the level of political freedom and civil liberty. The test results indicate that the level of political freedom and civil liberty Granger-cause the level of political instability, while the level of political instability does not Granger-cause the level of political freedom and civil liberty. The test results indicate that Granger-causality runs one-way from political freedom and civil liberty to political instability and not the other way. A further comprehensive research is needed on the multi-layered and the complex relationship among democracy and the resilience of the political order.I would like to thank an anonymous referee for helpful comments that improved the quality of the paper. I would also like to thank the Research Council of Niagara University for their financial support.     

Vent for Surplus: A Case of Mistaken Identity

Adam Smith's theory of the gains from trade has caused a great deal of controversy among economic theorists. Throughout much of his work Smith argues that markets efficiently allocate resources. Smith's treatment of the gains from trade, however, is considered inconsistent with his system of natural liberty. This paper offers a new interpretation of the vent-for-surplus model. It is argued that Smith's theory of trade should be considered as an extension of his domestic theory of markets and his theory of productive and unproductive labor. Once interpreted in this light, no inconsistency is found between Smith's theory of trade and his system of natural liberty.     

Disciplining the ‘black sheep of the Balkans’: financial supervision and sovereignty in Bulgaria, 1902–38

Using the example of Bulgaria, we argue that familiar models of international political economy fail to capture the tension between national sovereignty and access to capital markets experienced by peripheral debtors in the late nineteenth and early twentieth centuries. Existing accounts exaggerate the significance of the gold standard as a good housekeeping seal of approval and underestimate the role of direct financial controls. Furthermore, they underestimate the linkage in zones of inter‐imperial rivalry, such as the Balkans, between foreign borrowing and strategic alignment. We show how Bulgaria found its politics destabilized prior to 1914 by the demands of its creditors. After defeat in the First World War, Bulgaria was forced to submit to an even tighter system of creditor control. Though it obtained substantial debt relief during the 1930s, these concessions were gained not through an assertion of national sovereignty and default, but at the price of even closer supervision. This in turn casts new light on the conventional view of Bulgaria as a victim of Nazi ‘informal imperialism’. In light of Bulgaria's previous experience, the more striking feature of its trade relations with Hitler's Germany is that they were conducted on a basis of sovereign equality.     

Nationalism,socialism and planning: Influential ideas in the South

The paper discusses the origin of three influential ideas in the South, the reasons why they are found persuasive by Southern elites, and finally whether they are helpful in promoting modernization. It argues that all three ideas are Janus-faced, combining the ‘modern’ aspects of the rationalist Enlightenment with the partly ‘pre-modern’ rural nostalgia of the Romantic movement. But the ideas are dysfunctional in terms of the desired aims of ‘nation-building’ and attaining material progress. Nationalism, far from being an adhesive can become a disintegrative force in pluralistic societies. Planning becomes a means of suppressing the agents of the economic modernization that is desired. The waving of the Enlightenment and socialist banner of equality in suppressing the merchant, financier and entrepreneur is a smokescreen. The suppression reflects more atavistic impulses, which amount to a denial of the irreducible uncertainty that unavoidably attends commercialization, monetization and industrialization.     

Financial Revolution in Republican China During 1900–37: A Survey and a New Interpretation

This paper surveys the phenomenal transformation of banking and finance, public debt, and monetary regimes during 1900–37, a period of great political instability in Chinese history. To understand why growth in these strategic sectors occurred, I highlight the role of the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. My new interpretation on the importance of this mechanism sheds new light on the role of Chinese political institutions, the impact of the West and the ongoing Great Divergence debate.     

Culture,institutions and long-term development: the Swedish case and implications for China

Most social scientists agree that institutional analyses seem to be a promising tool to analyse long-term development. International comparisons are also necessary to understand what constitutes ‘good’ institutions and to which extent they can be created by conscious decisions. The most important aspect of studies of other countries and their institutional development is not what we learn about them but that we by comparison can develop a better understanding of the history of our own country. This article describes the peculiarities of the Swedish institutional framework in a historical perspective. Special attention has been given to aspects that are often discussed in analyses of the Chinese development. In many aspects, China and Sweden can be seen as representatives of two opposite paths of development for instance in the sequence of institutional building, in the development of checks and balances and in whether the orientation of the culture is family or society oriented. In spite of these differences, it is not difficult to find islands of cultural concordance which can facilitate mutual learning and understanding.     

Banking in the early stages of industrialization a preliminary survey

Abstract

The functions performed by financial institutions, and the specific manner in which they perform them, vary according to the circumstances of time and place. Many factors—political, economic, perhaps even geographic—affect their character. It is easy, for example, to recognize what we might call ‘national styles’ in the financial structures of different nations, due largely to political and other historical circumstances more or less unique to each nation. On the other hand, the character of the economic demand for their services will go far toward determining the character of the institutions. Specifically, the demands placed on the financial sector by an economy undergoing rapid industrialization will differ from those in both highly industrialized economies and agrarian, pre-industrial economies, with consequent implications for differences in financial structure and function. It should also be recognized, of course, that the manner in which financial institutions perform their functions constitutes an important determinant of the rate and direction of economic growth.     

A tale of two Italies: ‘access-orders’ and the Italian regional divide

ABSTRACT

This paper uses the ‘access orders’ paradigm developed by North, Wallis, and Weingast [(2009). Violence and social order: A conceptual framework for interpreting recorded human history. Cambridge: Cambridge University Press] to analyse the case of the Italian North–South economic divide. In line with their framework, we collect and discuss several social and political indicators over the long-run, at the regional level. Firstly we looked at data on the pre-conditions for the establishment of an open-access order, such as murders per capita (a proxy for control over violence), voting turnout and referendums participation (proxies for political legitimacy), and the impersonality of exchange. We then showed evidence of different access orders in the North and in the South, using the information on human capital formation, women participation in the labour market, and referendum results. On the basis of this evidence, we argue that, despite being part of the same State and subject to the same formal institutions, the North of the country progressively developed into an open-access order, while the South remained a form of limited access order.

Institutional differences are linked to specific aspects of the economic performance of the two areas, thus the ‘access order’ paradigm appears to be an effective conceptual scheme to explain the North–South economic divide.     

Finnish prohibition as an economic policy issue

Abstract

The experience of the Finnish Prohibition Act, which was in force from 1919 to 1932, shows that Finnish prohibition was not simply a question of ethics or morals, but was influenced in great measure by questions of economic policy. It can also be said that prohibition and the expedience of ‘going dry’ were examined from the economic viewpoint not only at the time in 1931 when the political decision-makers were deciding whether or not the experiment should be continued, but had been seen and discussed in this light right from the time of the passing of the Act.     

Forecast accuracy of the Japanese government: Its year-ahead GDP forecast is too optimistic

This paper evaluates accuracy and efficiency of the real GDP forecasts made by the Japanese government over the past 22 years. The government's 16-months-ahead forecast has upward bias of 0.7 percentage points, and is significantly inferior to the mean forecast of private institutions or a vector autoregression forecast that uses real-time data only. Moreover, the government forecast is inferior to these benchmark forecasts not only in the ‘recessionary’ 1990s but also in the ‘prosperous’ 1980s. This result casts serious doubt on the assertion that the government intentionally produced inaccurate forecasts in time of recession.     

Indonesia's economic performance in comparative perspective and a new policy framework for 2049

This is the first paper of a planned ‘Indonesia 2049’ project, which asks how far Indonesia's economy will have developed 100 years after actual political independence in 1949. We compare dimensions of Indonesia's economy with those of two oil exporters (Mexico and Nigeria), three large populous developing economies (China, India and Brazil) and three Southeast Asian neighbours (Malaysia, Thailand and the Philippines). Under Soeharto, Indonesia's economic performance was better than it had been under Soekarno, and above the average of the eight comparator countries, but below that of the East Asian economies. Our view is that Susilo Bambang Yudhoyono's second administration must adopt a new economic policy framework to ensure successful transition to knowledge-based growth. This proposed new framework goes beyond the Washington Consensus of ‘getting prices right’ and ‘getting institutions right’ to include ‘getting the role of science right’ and ‘getting the conception of the reform process right’.     

Lessons from historical monetary unions - is the European monetary union making the same mistakes?

This article examines three historical monetary unions: the Latin Monetary Union (LMU), the Scandinavian Monetary Union (SMU), and the Austro-Hungarian Monetary Union (AHMU) in an attempt to derive possible lessons for the European Monetary Union (EMU). The term ‘monetary union’ can be defined either narrowly or broadly depending on how closely it conforms to Mundell’s notion of ‘Optimal Currency Area’. After examining each of the historical monetary unions from this perspective, the article concludes that none of them ever truly conformed to Mundell’s concept, nor does the EMU. Nevertheless, the article argues that some lessons may be learned from these historical experiences. First, it is necessary that there exist robust institutions such as a common central bank and a unified fiscal policy in order to withstand external shocks. The three early unions could not withstand the shock of WWI. Another important lesson is that continuing national rivalries can undermine any monetary union.     

The death of land reform: A polemic

The ideology of land reform is separated by the author into two types of discourse: (1) historicists who seek to understand the dynamism of a development process, who see political action as confronting not only a structure of power, institutions and inequality, but also the forces which create, preserve and transform that structure; (2) technocrats who address themselves to governments and call for interventions in terms of administrative action, i.e. they seek to formulate a plan of action upon a static structure.The author discusses the implications of the two approaches for the issue of land reform and leads up to his own interpretation of the state, social classes and agrarian structure based on the belief that the removal of ‘feudal’ remnants does not necessarily lead to greater social equality. The transformation of the class structure is discussed in light of the above-mentioned ideologies. The author concludes that the issues at stake transcend land reform and argues that instead, they should encompass the quality and morality of political and economic relationships in society as a whole.     

Lessons of Post-War Development Experience

Abstract: This paper traces the development process from the optimism of the post-war era to the present scenario of adjustment, retrenchment and stabilisation. What were the mistakes and the success stories, and the lessons that can be drawn from them these last 40 years ? The paper takes a hard look at the ‘Golden Years’ of the 1950s and 1960s; it analyses the ‘debt-led’ growth of the 1970s and the resulting lost decade of the 1980s in Africa and Latin America. It goes on to examine the successes and failures that emerge from the history of the development process, and argues in favour of learning these lessons by resuming a policy of ‘redistributionwith growth’ and re-establishing strong international institutions to ensure future growth in developing countries. Résumé: Le présent document retrace le processus de développement depuisl'optimisme de l'apres-guerre au scenario actuel de l'ajustement, de redressement et de stabilisation. Quels ont ete les erreurs et les SUCCCS et les enseignements que l'on pourrait en tirer au cours de ces 40 dernieres annees? Le document examine a fond la « belle epoque » des annees 1950 et 1960; il analyse la croissance guidee par la dette des annees 1970 et en consequence, la decennie perdue des annees 1980 en Afrique et en Amerique Latine. I1 continue en examinant les SUCCCS et les echecs provenant de l'histoire du processus de developpement et donne les raisons pour lesquelles ces enseignements doiventttre retenus en reprenant une politique de « nouvelle repartition et de croissance » et en creant de nouvelles institutions internationales assez solides capables d'assurer a l'avenir la croissance dans les pays en developpement.     

Leaders and Tenures in Sub-Saharan Africa

While there has been extensive evidence provided on the varying effects of leaders’ extended tenures on economic growth, political institutions and conflict, little attention in the empirical literature has been given to the determinants that may contribute to long tenures. Without being cognisant of these underlying factors, any efforts aimed at limiting tenures to progress economic development and democratic institutions will have little effect, as evidenced by several leaders’ attempts to subvert constitutional laws in this regard. Using panel data analysis for sub-Saharan African countries between 1960 and 2015, this study looks at the likely determinants (both at individual and country level) that can increase or decrease political survival. The preliminary results suggest that at an individual level, the leader’s age, political career and rebel experience increase the likelihood of extended tenure, while the leader’s education reduces the probability of extended tenure. At a country level, the country’s wealth is likely to increase tenures, while increased conflict and strong institutions decrease a leader’s tenure.     

Of markets,might and mullahs: a case for equity,pluralism and tolerance in development

This paper tries to confront the ‘puzzlement’ of the development profession regarding the ‘best’ alternative strategies aimed at increasing employment, reducing poverty and promoting equity at the same time as fostering economic growth — and the ‘advocacy’ role that should or should not be played by that profession. The author argues that the issue lies in achieving a workable ‘meaning’ of development and then moving on to the moral ‘questions’ of value judgments and to the specific ‘problems’ that can be dealt with by science and social science. He suggests that a possible meaning of development is ‘to create more options for more people’ — ‘to achieve that the greatest number of people have the greatest number of options.’ He discusses the need for improving ‘life chances’ and considers the development policies which may or may not assist in this process. He tries to tie together conceptually the ideas of power and social change, consensus and conflict. Also in this context, the roles of participation, organization and mobilization are explored, especially their impact on different political systems. The analysis concludes with a plea for social, cultural and political pluralism — and thus, a commitment to tolerance. The author argues that these goals should be addressed by the development community without the hesitation sometimes attached to ‘protection of expertise’.