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Ch. 1: So Close and Yet So Different 
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 Ch. 1: So Close and Yet So Different
Ch. 1: So Close and Yet So Different



Thu Dec 26, 2013 10:57 pm
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Post Re: Ch. 1: So Close and Yet So Different
I've liked this book from the start. The authors begin with the divided city of Nogales. The north is in prosperous US, and the south in Mexico. The difference in living standards cannot be attributed to geography, climate, or differing culture and background, but by their differing political institutions. I'm amazed its taken till now for this book to be written. It would make no difference to advise politicians to read this book as their primary purpose is to retain enough popularity to be reelected. When Gorden Brown, our ex chancellor vowed to increase the money given to Àfrica, I thought hè was crazy. Why would he think that the money would ever benefit poor Africans


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Fri Dec 27, 2013 12:30 pm
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Post Re: Ch. 1: So Close and Yet So Different
In the preface, they mention different explanations for why countries such as Egypt are poor and say "the one dominant among economists and policy pundits, is based on the notion that the rulers of Egypt simply don't know what is needed to make their country prosperous..."

This does not seem like the dominant view to me, and this view would be almost ridiculously naive. I think they're making out their thesis to be more original than it really is. Nearly everyone knows that political elites rule in their self-interest, and are not just mistaken about policies. I think the dominant view is essentially theirs, that "institutions matter." It is certainly mentioned in basic economics textbooks. The only question is how much other factors also come in to play, I think others such as Jared Diamond would want to make geography a bigger factor, for example.



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Sat Dec 28, 2013 9:49 pm
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Post Re: Ch. 1: So Close and Yet So Different
Dexter wrote:
The only question is how much other factors also come in to play, I think others such as Jared Diamond would want to make geography a bigger factor, for example.


Since many of us are familiar with Diamond's book, I'm sure we'll be referring to it frequently. The quote below might be useful to keep in mind.
I believe the Site listed will take you to a more expanded description of Diamond's views.

Here is Diamond’s bottom line:
My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.
- See more at: http://marginalrevolution.com/marginalr ... UA0r0.dpuf
.



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Post Re: Ch. 1: So Close and Yet So Different
I'm a little skeptical so far about the accuracy of the historical analysis, considering that the authors characterize the Spanish Armada as "an attempt by King Philip II of Spain to invade England." Not sure whether it's just indicative of poor writing or whether it could indicate a lack of depth that can transfer to the analysis by through things like conflating correlations with cause and effect or trying to impose a pattern where there is none.

I was also surprised by the lack of explanation behind the fact that the Spaniards conquered the natives and were able to put them to work, whereas the English were unsuccessful at doing so. In the podcast, Acemoglu is actually pressed on this issue and adds, in concert with his interviewer, that the South American natives were organized in hierarchical structures and wouldn't leave, whereas the North American ones were able to escape towards the frontier. There is also the fact that the population density in South America was much higher than in North America, leaving little room to escape. This would point to more important roles played by culture and geography (in the first case), or by geography alone (in the second case.) The same issue comes up when they contrast the inability of de Solis to conquer the Charruas people, who lived in "small groups without strong centralized political authorities" and Mendoza's success in accomplishing this with the Guarani, who had an aristocracy and a system of forced labor already in place. Where does the boundary between culture and the political institutions it bolsters start and end?

Could there also be a chicken and egg problem in their explanation? If South American colonial society was based on extracting first precious metals and then labor from a subjugated population, wouldn't that suggest that it is the prevailing economic interests that led to the political structure (the typical Marxist view) rather than (or at least as much as) the other way around?

Anyway, I look forward to the rest of the book and the discussion. Also, is it just me or does it seem kind of lacking in numbers, for an economics book?



Sun Dec 29, 2013 11:59 pm
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Post Re: Ch. 1: So Close and Yet So Different
Chapter One correctly explains that institutions of governance are the primary driver of economic growth.

I disagree with their critique of Jared Diamond's geographic determinism in Guns, Germs and Steel. It is interesting to ask why democratic accountability and transparency arose in Anglo Saxon countries and Northern Europe but not elsewhere. Europe conquered the world using the advantages conferred by geographic circumstances, including the arms races impelled by the existence of roughly equal sized nation states, combined with cold weather forcing innovation in planning, management and technology.

Why Nations Fail? explains that even the British tried to impose corrupt rentier states, for example in Maryland, but failed because the colonial environment of British settlers could not stop democratic involvement. On geographical determinism, it looks like a main difference between north and south of the Rio Grande is that the institutions of the USA were created in a competitive cold climate, whereas the institutions of Mexico were created in a corrupt hot climate.

This doesn't mean we have to be fatalistic about poverty as inevitable though. The authors refer to the "manana" culture, meaning a lazy attitude of putting everything off until tomorrow. Such ideas are rather wildly unacceptable these days, but this song sets out how it was viewed a few decades ago.



On the question of aid policy, the need for institutional reform as a primary means of ending poverty is far from generally accepted. The "Make Poverty History" campaign by NGOs appears to accept the "wealth transfer" premise that if only the rich were more generous, poverty could end. My view is that aid needs a much more rigorous division between humanitarian and developmental funding, and much stronger analytic foundations of the sort discussed in Why Nations Fail?. Helping poor people, especially in emergencies, is a humanitarian need. But this does not help end poverty, since transferring wealth entrenches existing power relations.

Ending poverty requires transformed institutions, stopping corruption, enforcing property rights, formalising the labour market, encouraging contestability and innovation in ideas, and applying sound and predictable regulation for business. This sort of cultural change is difficult but not impossible, and rests primarily on cultivating developmental leadership.

One thing I really liked in this chapter of Why Nations Fail was their description of the origins of the extractive state. Making conquered kings fill rooms with gold and silver and then killing them anyway is a recipe for extreme polarisation, hatred and distrust. This heritage of European plunder and cruelty helps to show why extractive industries are viewed with such hostility by many poor people around the world.


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Mon Dec 30, 2013 1:46 am
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Post Re: Ch. 1: So Close and Yet So Different
Sorry I have so little net here, and cant access my notes. I agree with you about transforming institutions, Robert, but its not so easy. For example, this year we had vat imposed, and everyone has to pay a tax on their small businsses. This is from World Bank advice. So we had two thriving markets at our village, where local ladies could get together and other ladies could find everything they wanted in one place. Then it was announced that they had to pay 500 dalasis a year for this (about £10) most of the ladies only make very few dalsis, enough for their 'fish money' and the net result has been that the markets have been abandoned, creating more hardship for the locals. Also many other shops in the main market of Serrekunda have closed.


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Post Re: Ch. 1: So Close and Yet So Different
I should say, my interest in this topic arises from working for the last 25 years for the Australian Government overseas aid program, mainly in Papua New Guinea, but more recently on a range of sectoral topics including mining, forestry, agriculture, roads, banking, private sector development and university research.

Heledd, I think your example illustrates well how external theorists can fail to understand the reality of a local economic situation. Small businesses in poor countries are extremely fragile, and need help if they are to grow. I personally think that support for business development services, helping small businesses grow into medium businesses so they can provide more jobs, goods, services, customers and models, should be a bigger part of international development. Imposing formalisation through tax can be a blunt instrument that can actually reduce government income and economic activity if badly handled.

People may have read Confessions of an Economic Hitman by John Perkins. It explains how a lot of World Bank advice has not been good. These problems of institutional reform are hard.


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Mon Dec 30, 2013 3:55 pm
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Post Re: Ch. 1: So Close and Yet So Different
I have downloaded it, Robert and will read it wih interest, if I can manage to charge my tablet. At the moment we have a diesel and petrol shortage here


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Wed Jan 01, 2014 11:36 am
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Post Re: Ch. 1: So Close and Yet So Different
Robert, I just finished reading that download, and thought it awesome and depressing. I thought at one stage it MUST be fiction, but everything made sense. Made me rethink my view of the world


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Post Re: Ch. 1: So Close and Yet So Different
The Perkins book, which I read a few years ago, is something of a polemic against the World Bank. The underlying question is the extent to which political corruption has influenced the Bank to make it act as an instrument of US imperial power rather than in the interests of the poor. Opinions on that question vary dramatically from the Perkins conspiracy theory view across to the Bank view of technocratic disinterested advice. It all illustrates how opinions on economic development have a large component of ideology.

Why Nations Fail also strikes me as having a strongly ideological agenda, although its positions are largely ones that I share as providing a useful and correct basis for development. The concern that I have in reading this book is understanding what we call in the trade its program logic, its theory of change.

A theory of change seeks to provide an empirically based explanation of how a current situation can be transformed into something different. A theory of change seeks to take into account all the evidence, motivations, reasons, risks, prejudices, constraints, resources, politics, culture, geography, incentives, stakeholders and relationships that need to be factored in if an intervention is to achieve the expected results.

Obviously, much aid has applied defective theories of change, because aid has not been the driver of poverty reduction that its advocates have expected. So Why Nations Fail is trying to address this failure, through its theory of the centrality of institutions.

My main concern regarding the ideological content is that the influence of geography and culture is dismissed too glibly. The risk in this dismissal is that the theory of change arising from this book will not properly take all factors into account, and that therefore policy decisions resulting from it will fail to address real barriers to development.

Perhaps the issue is that institutions are tractable, whereas geography and culture are not. But in that case, it is essential that a theory of institutional reform should be situated within a deep cultural analysis.


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Post Re: Ch. 1: So Close and Yet So Different
Well, let me begin by saying that this is my first book discussion experience. Second, let me emphasize that my background is primarily limited to science and education. I chose the book "Why Nations Fail" because I mostly enjoy non-fiction and I wanted to learn about a subject outside of my areas of expertise.

I am certainly aware of the inequalities that exist in locations along the Mexico - U.S. border, and I found the author's use of the two Nogales quite compelling. As I read through this chapter I began to understand why indigenous people would have such distrust for foreign ambassadors. I was appalled as I read about the greed and cruelty imposed on nativ people and leaders in South America.

heledd wrote:" It would make no difference to advise politicians to read this book as their primary purpose is to retain enough popularity to be reelected.". This comment resonated with me as I was thinking about the greed and cruelty that still exist in governments today, albeit to different degrees.

I look forward to chapter 2.



Sun Jan 19, 2014 8:46 pm
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Post Re: Ch. 1: So Close and Yet So Different
Hi, I'm Patricia Konarski, a retired librarian, who is a lifelong book enthusiast. Under that capacity, I'd love to address the preface, "the one dominant among economists and policy pundits, is based on the notion that the rulers of Egypt simply don't know what is needed to make their country prosperous." I must say this about it: Let's be blunt, it's not just a leader's failure to grasp what is the best avenue of utilizing a country's riches for its people. The actual culprit of a nation's failure to be prosperous is a country leader's hands in the cookie jar, figuratively speaking. More often than not, a leader in an unsophisticated society will allow his vices to get the best of him and, for that matter, the country. As a result, policies that are beneficial for the greater good take a back seat while policies that have the biggest potential to fill the pockets of the leader take center stage. That's my 'two cents' on the topic and its relation to the book. If anyone wants to discuss this further, please e-mail: Patricia.Konarski@outlook.com.

Patricia Konarski
--Freelance editor and owner of Patricia Konarski Literary Services of Tucson
(University background: I got my degree from UC Berkeley; I intend on going to the University of Arizona in Tucson to obtain my masters degree in English, with an emphasis in literature. The University of Arizona offers an excellent masters program. Of course, the UA also has a great basketball team--go UA!)
The Myspace Page of Patricia Konarski: http://myspace.com/patricia.konarski.tucson
The Facebook Page of the Tucson Book Social club, as founded by Patricia Konarski: https://www.facebook.com/pages/Tucson-B ... 3000946719 (monthly gatherings take place in the immediate area of the University of Arizona campus)



Last edited by Patricia Konarski on Sat Jun 28, 2014 12:40 am, edited 1 time in total.



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