The *Poor Economics* in *Why Nations Fail*

A review: The first impression is that the authors of Poor Economics (PE) and Why Nations Fail (WNF) are productively at loggerheads over the causes of poverty and wealth. Acemoglu and Robinson (WNF) find fault in the optimistic “engineering” approach of Banerjee and Duflo (PE) and question their preference for the decentralized “power of small changes” which dispel ignorance at-the-margin in health or education and improve local decision making. The authors of PE criticize the “melancholy political economy” of WNF with its hard-to-change political institutions relentlessly locking-in developmental success and failure. Here is the caricature: 

  • WNF is the realistic-pessimistic historical vision of the primacy-cum-stasis of central institutional governance and social masses.
  • PE is the idealistic-optimistic people-centered vision of meaningful change in local institutions and technologies “from below”, facilitated by outside experts.

The locking of horns -- possibly more theatrical than real -- is only the latest in a string of public bullfights between economist-authors of popular books on development. PE versus WNF supersedes aspects of older debates; in other respects it leaves the bullring a muddier more churned-up battle ground than it already was after previous encounters.

What’s my beef? If you get the macro-institutional argument wrong, potentially it can have very dangerous consequences for many millions of people. In contrast, micro-institutional errors are by definition going to be comparatively benign, limited, more easily reversed. In fact the positive method in PE is to welcome errors along the journey to a correct policy.

I do have reservations about PE [previous post here]. Yet I would feel safer living in a PE world than in a WNF world. I accept, of course, the WNF arguments about the primacy of institutions, the finitude of the China model, and the shortcomings of culturalism. I’m a political economist. The final part of PE is titled ‘Against Political Economy’. Know thine enemy! However, strangely, unexpectedly, I’m siding with PE. The reason?