Comp Pol Eco Midterm

Colonialism and Imperialism

• Strategies, Reasons, Effects, Antagonists, Solutions, limitations to the solutions? Industrialization strategies pros and cons

• Challenges of Post Imperalism 

  • How to create a modern state, society, and economy?

  • They did not industrialize during the industrial revolution due to their imperial empires not allowing them to 

• Challenge: Building State Institutions 

  • Challenge of creating effective political institutions 

  • Weak capacity

    • Weak bureacratic structures after imperialism 

    • State politicized by new leaders 

    • Rent-seeking - parts of state “rented out” to supporters

    • Lack of pol. Infrastructure 

• Solution 1. Forging States 

  • Borrow cash to build institutions – IRS, military, rule of law (police and courts) 

  • Strengthen legal system, redirect state to provide public goods, not just regulate 

  • “Shared sovereignty” a possible middle road – IOs overseeing taxation and revenue expense 

• Challenge: Forging Social Indentities 

  • Making a single nation where none existed before 

  • Group divisions with economic implications (one ethnic gorup controls eocnomy)

  • Group div. With pol. Implications (battles for pol. Power fall along ethnic, regilious lines ex: Iraq (Sunnis 35%)

  • Ethnic divisions in NIgeria (350 groups)

  • Ethnic ineuqlaity can hiner development 

• Solution: 2. Building Society 

  • Borrow cash to develop an educational system and empower citizen 

  • Diff matters less when 1. Common destiny 

• Challenge: Generating Economic Growth

  • Trapped in a system of “neocolonialism” 

• Solution 3: Industrialization 

  • Borrow cash to develop industrial capacity – infrastructure (roads and factories)

  • Two paths to attempted to break pattern of dependency: 

    • Import substitution 

    • Export-oriented industrialization (comparative advantage)

  • To build industrial capacity and wealth 

• Industrialization strategies pros and cons

  • Import Substitution 

    • Definition: develop local industries – a developmental strat in which industrialization occurs by encouraging the domestic production of industrial goods fro cosmetic consumption instead of depending on imports (insulation)

    • How: need investment for growth: increase investment → increase GDP, we cna only grow if we save, but savings are limited by consumption (starve consumption), we can borrow froom the rest of the world 

    • Problems: 1. lack of competitiveness, little innovation, 2. Corruption – misallocation of resources – greater state subsidies and a cut for the politicians giving them, 3. ISI does not lead to exports, but does increase reliance on imports – leads to need to borrow foreign currency  

  • Export-oriented Industrialization

    • Definition: state led, pushes resources to industries where comparative advantage already exists and export, then upgrade, goal is to export – not limited to domestic needs, shifts to emphasis on tech 

    • Asia – fastest growing region

    • Summary: 

      • State capacity … 

Regime Type and Growth

• Relationships and Nuances between political regime types and economic growth

• EX: China and Singapore – growth sustained for years

• Most rich countries in the world are democracies

• Argument for non-democracy promoting growth: 

  • Dem. prone to influ. By interest groups wgo promote private interests — thus, less money available for public interest projects that can promote growth such as argi. Subsidies, military-industrial complex ect. 

  • More tax money spent on private needs crowds out investment in both the private sector (as the govt borrow from banks) and public sector (as it distributes to key constituencies)

  • Insulation from organized interest can prevent these pressures 

• Criticisms of non-democracies

  • 1. But non dem rulers are not public-minded benevolent dictators

    • Insulation from the public gives them more leeway to engage in corruption

  • 2. They are also not afraid of the political consequences of getting casught since there are no elections 

  • 3. Insecure property rights in non dem = people have no incentive to invest and try to improve their businesses. They can be taken from them at any point 

    • = democratic institutions: separation of powers, judiciual review, and fear of not being reelected 

• No evidence that neither dem or non dem causes growth 

• However, the opposite relationship – that growth causes democracy seems to exist? How so? 

Modernization Theory

• Endogenous and Exogenous Explanation

  • Endogenous: empirics and logic

  • Exogenous: empirics and logic

• The Inverted U Curve: Relationship between income distribution and democracy

• Modernization theory: as societies become more rich they inevitably become more democratic??

  • Modernization associated with: 

    • More education

    • Weakening of older, traditional inst, upward mobility

    • Greater gender equality 

    • Rise of middle class 

  • Close correlation between levels of economic development levels of economic development and the incidence of democratic regimes

  • Explanations: 

    • Endogenous: democracies may be more likely to emerge as countries develop economically

      • Boix and Stokes 

        • Testing the endogenous explanation: 

          • Transitions are indeed increasingly likely as per capita income increases, but only until it reaches a level of about $6,000. Support endo!

          • Above that level dictatorships consolidate their power and become more stable 

          • Probability that a regime is democratic predicted by its level of development breaches 50% at 4,155. But few countries in their sample (5/19) actually democratized – REJECT ENDO

    • Exogenous: democracies may be established independently off economic development but may be more likely to survive in economically advanced countries 

      • Adam Prezeworski & Fernando Limongi 

        • Testing the exogenous explanation: 

          • Level of development, GPA per cpaita, does not have a strong impact on the survival of democracies 

          • If high GPA, probability that a democracy will stay alive is high 

          • Once a level of $6,055 in income is reached the dem is expected to last forever PROOF OF EXO

• The Inverted U Curve 

  • Acemoglu and Robinson: income matters but distribution matters more 

  • Democratization depends on the extent to which autocratic elites fear the cost of redistribution under any future democratic system 

  • Inverted U Curve 

    • What does the Inverted U Curve really mean???

    • In equal autrocracies, there is little demand for economic redistribution, so elites have no incentive to liberalize 

    • In highly unequal autocracies, on theother hand, lites fear redictrubution more, so they tend to repress rather than democratize

    • The probability of democratization is highest at middle levels of inequality

Olsen's Institutions

• Causal Mechanisms and Conceptual Thinking

• Evidence: Empirical studies on institutional impact

• Policies: Policies that work and those that don't, and why?

• READ THE OLSEN ARTICLES

• Slides 55 to 63 I think 

• How can states promote or hinder development? Olsen’s analysis 

• Olsen: growing inequality in the world. Why? 

  • 1. National border mark differences in the scarcity of production resources 

  • 2. Mark differences in public policies and institutions 

  • Thesis: econ performance is not a consequence of endowments

Criticisms and Elaborations

• Alternative theories

• Examples of institutional success or failure

African Politics of Permanent Crisis

• Nuts and Bolts, definition, Effects, possible Solutions:

• Nuts and Bolts: refers to the systems of governance, political institutions, leadrship styles, policy-making, and power dynamics that defiine poltical life across Africa 

• Effects 

  • Political Effects 

    • Weak dem institutions 

    • Corruption 

    • Election rigging 

    • Military coups 

  • Economic effects 

    • Resource curse 

    • Inequality and poverty 

    • Infrastructure deficits 

  • Solutions 

    • Strengthen judicial independence 

    • Transparent elections 

    • Empower local governments 

    • More anti-corruption measures 

    • Reduce reliance on natural resources 

Corruption and Its Effects

• Causal Mechanisms: How corruption leads to specific negative outcomes in social, economic, and political spheres

• Corruption Discourages investment 

  • 1. Corr = tax evasion decreases govt revenue and capacity to invest in infrastructure and education 

  • 2. Corr = unpredictable tax on profits

  • 3. Corr = unstable environment (feeble property rights and enforcement)

• Corruption increases inequality 

  • 1. Benefits from corr accrue to the better-connected in society, mostly to high-income groups – tax systems, credit, siphon off poverty-reducation programs

  • 2. Corruption increases poverty by reducing the level of social services available to the poor and slowing growth 

• Corruption impedes development 

  • 1. Corr diverts funds unfairly or inefficiently

    • Ex: Uganda: no 50% salary boost for 30k school teachers and 46k policemen; no 18 million doses of anti-malaria medicine 

  • 2. Hijacked aid to – massive losses for the needy 

• Corruption leads to less competition 

• Corruption increases distrust of the state, decreases state capacity, endangers stability and peace 

  • Less revenue to protect the populace 

  • Lack of social cohesion, increase of feelings of estrangement between groups – possibility of ethnic ocnflict 

  • When citizens do not trust the police, they do not report crimes – emboldens criminals and leads to higher crime rate 

  • Human trafficking (Nigeria)

  • Armsa trafficking – terrorism 

  • Drug trafficking (Mexico and Colombia)

The Mauritian Miracle (slide 58)

• Reasons for Mauritius's economic success, institutions, policies?

• Strong Institutions 

  • Stable democracy with free elections

  • Peaceful power transitions 

  • Low corruption – Idependent Comission Against Corruption 

• Economic Policies 

  • Dependent on sugar exports, but expanded into textiles, tourism and finance – prevented the “resource curse” 

  • Uses export-oriented industrialization – encouraged manufacturing industries 

Resource Curse 

• Why are resources good and bad?

• When are they good and bad?

• Political and Economic Causality

• Natural resources: why are they good?

  • 1. You can sell them, 2. You can use them to produce value added goods. Coal in Britain (industrial Rev)

  • BUT: Poverty, inequality, lack of growth and stability in resource rich countries? 

    • 23 countries at least 60% of whose exports are oil = non-democracies 

      • Other resources such as gold, diamonds, and gems – similar 

    • Have had a lot of Civil Wars 

• Many non-oil countries are also dictatorships 

• Resource curse = lack of democratization and development? 

  • Stability: 

    • 1. Domestic political instability and war 

    • Vast wealth, higher incentives to not resdistribute that wealth. Higher determination to stay in power even if the price is repression

    • Creates incentives to rebel or secede – greed hypothesis 

    • Wealth can finance rebel groups, terrorists too – facilitation hypothesis 

    • Can result in corruption that can motivate factions to rebel – justice hypothesis 

  • Geopolitics 

    • 2. Powerful actors want guaranteed supply to oil and prefer (freindly) non-democracies as they are more predictable. (Shah in Iran, US installed dictators in Lat Am, Chile/Pinochet-copper 

      • Altervativesly, they may invade (MENA) – Russia, UK, US, Italy, Nazi Germany 

  • No or lower taxation 

    • 3. Depriving people from the possibility to have a claim or voice 

    • Leads to low accountability and representativeness

    • Subpar outcomes in law and order as well as rights 

  • Economic inefficiency / Economic Causality 

    • 4. As taxation is low, civil services are low which impedes development/growth – no good roads, education 

    • 5. Nigerian disease – vast revenue – no investment in infrastructure and welfare, incentive to enhance corrupt politics – patronage, entrench and enrich elites

    • 6. Dutch disease – natural resources - higher exports leads to (demand for local cash) more expensive currency, making other exports more expensive and thus less competitive 

      • A resource boom increases foreign exchange earnings, raising the value of a country’s currency.

      • This makes non-resource exports (manufacturing, agriculture) less competitive in global markets.

The Story of Asian Success

• Internal Factors, External Factors, Sustainability: Can Asian success stories maintain their growth?

• Wade reading 

  • Is Asia a success? 

  • S. Korea – exaggerated – GDP per capita in 1988 was only 20% of that of the Northwest. Life expectancy of 69 

  • Why extraordinary? 

  • His numbers are wrong … today it is 70% 

• Structural explanations for success 

  • 1. High interest rates 

  • Cheap credit. State in charge (mercantilism). Allocate it to the best performers 

  • 2. Subsidies. Manufacture a comparative advantage 

  • More subsidies for wthose ho do well, cut those who underperform 

  • 3. Uncompetitive domestic environment – no problem, wean off subsidies. Companies export, subject to international companies like Sony, Panasonic, LG, Samsung – fight with Phillips, Siemens, Braun 

  • 4. A lot of education and schooling 

• Were they lucky?

  • At the time of their reforms, 

  • 1. Unskilled labor in the West was becoming scarce and more expensive 

  • 2. Falling transport costs

  • Blessed by geopolitics after the Cold War – US gave them aid 

  • More schooling – test scores have a correlation with the economy overall