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Africa

Africa: Another Nobel for Anglocentric Neoliberal Institutional Economics

todayOctober 23, 2024 1

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Kuala Lumpur, Malaysia — New institutional economics (NIE) has received another so-called Nobel prize, ostensibly for again claiming that good institutions and democratic governance ensure growth, development, equity and democracy.

Daron Acemoglu, Simon Johnson, and James Robinson (AJR) are well known for their influential cliometric work. AJR have elaborated earlier laureate Douglass North‘s claim that property rights have been crucial to growth and development.

But the trio ignore North’s more nuanced later arguments. For AJR, ‘good institutions’ were transplanted by Anglophone European (‘Anglo’) settler colonialism. While perhaps methodologically novel, their approach to economic history is reductionist, skewed and misleading.

NIE caricatures

AJR fetishises property rights as crucial for economic inclusion, growth and democracy. They ignore and even negate the very different economic analyses of John Stuart Mill, Dadabhai Naoroji, John Hobson and John Maynard Keynes, among other liberals.

Historians and anthropologists are very aware of various claims and rights to economic assets, such as cultivable land, e.g., usufruct. Even property rights are far more varied and complex.

The legal creation of ‘intellectual property rights’ confers monopoly rights by denying other claims. However, NIE’s Anglo-American notion of property rights ignores the history of ideas, sociology of knowledge, and economic history.

More subtle understandings of property, imperialism and globalisation in history are conflated. AJR barely differentiates among various types of capital accumulation via trade, credit, resource extraction and various modes of production, including slavery, serfdom, peonage, indenture and wage labour.

John Locke, Wikipedia’s ‘father of liberalism‘, also drafted the constitutions of the two Carolinas, both American slave states. AJR’s treatment of culture, creed and ethnicity is reminiscent of Samuel Huntington’s contrived clashing civilisations. Most sociologists and anthropologists would cringe.

Colonial and postcolonial subjects remain passive, incapable of making their own histories. Postcolonial states are treated similarly and regarded as incapable of successfully deploying investment, technology, industrial and developmental policies.

Thorstein Veblen and Karl Polanyi, among others, have long debated institutions in political economy. But instead of advancing institutional economics, NIE’s methodological opportunism and simplifications set it back.

Another NIE Nobel

For AJR, property rights generated and distributed wealth in Anglo-settler colonies, including the US and Britain’s dominions. Their advantage was allegedly due to ‘inclusive’ economic and political institutions due to Anglo property rights.

Variations in economic performance are attributed to successful transplantation and settler political domination of colonies. More land was available in the thinly populated temperate zone, especially after indigenous populations shrank due to genocide, ethnic cleansing and displacement.

These were far less densely populated for millennia due to poorer ‘carrying capacity’. Land abundance enabled widespread ownership, deemed necessary for economic and political inclusion. Thus, Anglo-settler colonies ‘succeeded’ in instituting such property rights in land-abundant temperate environments.

Such colonial settlement was far less feasible in the tropics, which had long supported much denser indigenous populations. Tropical disease also deterred new settlers from temperate areas. Thus, settler life expectancy became both cause and effect of institutional transplantation.

The difference between the ‘good institutions‘ of the ‘West’ – including Anglo-settler colonies – and the ‘bad institutions’ of the ‘Rest’ is central to AJR’s analysis. White settlers’ lower life expectancy and higher morbidity in the tropics are then blamed on the inability to establish good institutions.

Anglo-settler privilege

However, correct interpretation of statistical findings is crucial. Sanjay Reddy offers a very different understanding of AJR’s econometric analysis.

The greater success of Anglo settlers could also be due to colonial ethnic bias in their favour rather than better institutions. Unsurprisingly, imperial racist Winston Churchill’s History of the English-Speaking Peoples celebrates such Anglophone Europeans.

AJR’s evidence, criticised as misleading on other counts, does not necessarily support the idea that institutional quality (equated with property rights enforcement) really matters for growth, development and equality.

Reddy notes that international economic circumstances favouring Anglos have shaped growth and development. British Imperial Preference favoured such settlers over tropical colonies subjected to extractivist exploitation. Settler colonies also received most British investments abroad.

For Reddy, enforcing Anglo-American private property rights has been neither necessary nor sufficient to sustain economic growth. For instance, East Asian economies have pragmatically used alternative institutional arrangements to incentivise catching up.

He notes that “the authors’ inverted approach to concepts” has confused “the property rights-entrenching economies that they favor as ‘inclusive’, by way of contrast to resource-centered ‘extractive’ economies.”

Property vs popular rights

AJR’s claim that property rights ensure an ‘inclusive’ economy is also far from self-evident. Reddy notes that a Rawlsian property-owning democracy with widespread ownership contrasts sharply with a plutocratic oligarchy.