Why are there prosperous countries and poor countries?

Why are there prosperous countries and poor countries?

https://thinktanklatam.org/la-destruccion-de-usa/

Peter Kopa, Prague, 17.11.2024

Review of a German article that appeared in Zurich these days, in the NZZ Zurich:

Overview of the topic

We summarize and comment for you on the scientific contributions on the topic of Prof. Daron Acemoglu, Simon Johnson and James A. Robinson, honored this year with the Nobel Prize in Economics. The problem: “Why does the poorest half of the world’s population earn only 10% of the world’s income and own only 2% of the wealth?” The question is to investigate why there are these huge differences, where do they come from? And why don’t poorer countries just copy the richer ones to succeed as well?

Efficient institutions are the key

The new Nobel Laureates provide an answer to the first question, on which Douglass North, Nobel Laureate in 1993, wrote a pioneering paper. In addition to manpower, capital and resources, it is above all good institutions that promote prosperity, making a big difference. Concretely this refers to security of property, legal certainty, a reliable judicial system, but also the possibility of social advancement and active political participation. All these are important prerequisites for strong economic growth and high prosperity.

Acemoglu and his co-authors use data and analysis of economic history from colonial times to the present day to show that institutional differences persist and can explain why there have been such long-lasting differences in prosperity. The decisive factor in assessing institutions is whether the political ruling class seeks the welfare of the population as a whole or whether, on the contrary, it is primarily focused on taking unfair advantage of the population’s income to entrench itself in power through repression, betraying its people.

The answer to the second question, why poorer countries do not simply copy the most efficient and growth-friendly institutions, is closely related to this one. Institutions are not simply given from outside, so to speak, but are the result of a country’s prevailing system and its social and cultural development. In other words, there is an evolution based on the interaction between the ruling political class and the population.

Broadly speaking, this leads us to the following conclusions:

If a democratic government really is, it is in every way superior to authoritarian systems, thanks to the freedom that allows a fluid dialogue with citizens. And this is because political events are kept under control through various conditions and balances that allow for the periodic transfer of governmental power on the basis of elections.

Thus, the changes required by new circumstances can be carried out in a flexible manner, without violent stridencies, which, among other things, allows for continuity in the administration of the common good and, above all, in economic production in a free and open market.

Trust in those who govern

If citizens trust their government, they will be more open to accept or promote reforms that foster growth. Conversely, if this trust is lost, democracies become unstable and autocratic tendencies are more likely to prevail. However, as positive as the systemic competition between autocracy (China, Cuba etc.) and democracy has been, and the fact that in recent years democracies have been on the defensive and autocrats have been increasingly popular, remains to be studied.

Last year, the Organisation for Economic Co-operation and Development (OECD) collected very revealing data on trust in national governments and their institutions. First, it confirms the theses mentioned above. Where a higher proportion of the population trusts its government, prosperity is greater. Although this does not show whether this is its cause or its consequence, the correlation is quite clear from the considerations made. Trust in politics and its institutions is not a sufficient, but only a necessary requirement for economic prosperity and inclusive societies.
Second, the graph also shows something much more uncomfortable, which is the high level of distrust in governments in many Western countries that should be models of democracy.

Among the OECD countries that participated in the survey, the level of distrust is most extreme in the Eastern European states, due to the aftermath left by the communist regime until 1989: the Czech Republic, Slovenia and Latvia. In the Czech Republic, 71%, in Slovenia 58% and in Latvia 54% have little or no confidence in their government. But in the United Kingdom (57%), France (51%), Germany (49%) and Italy (47%), lack of trust in those in power has also reached worrying levels. This is not an isolated phenomenon. On average in OECD countries, the proportion of citizens who have little or no confidence in their government (44%) is significantly higher than the proportion who have moderate to strong confidence in it (39%). Switzerland is an exception, with 24% distrust and 62% trust.

Russia illustrates the danger

Lack of trust in politics has uncomfortable consequences for the stability of democracies. It increases the likelihood that autocratic-minded politicians will succeed in usurping power and transforming an inclusive society (as the new Nobel Laureates in Economics call it) into an extractive society, where rulers strive above all to enrich themselves at the expense of the people. Lack of trust means that the population believes less in the implementation and realization of reforms in the medium term and is less willing to make sacrifices in the short term. Finally, it indicates the political ruling class is less able to trust orderly shifts of power and protection of property and is more likely to fear disruptive political developments.
This is not just theory. This approach explains why it was so easy for Vladimir Putin to turn democratic Russia back into an autocracy at the beginning of this century: the population did not trust the rulers and was not committed to their fledgling democracy, while the rulers increasingly feared a popular uprising and loss of power as their prosperity increased and took refuge in autocracy and repression. It is not only Ukrainians (and many Russians) who are now suffering the consequences.
But what could be done to strengthen democracies in Europe and the West and protect them from something similar?

Faithfulness to principles strengthens trust

Those who believe they have a say in what the government does trust it more:  https://www.oecd.org/content/dam/oecd/en/publications/reports/2024/07/oecd-survey-on-drivers-of-trust-in-public-institutions-2024-results_eeb36452/9a20554b-en.pdf
The same applies to the question of transparency and evidence of policy decisions. The more this is the case, the greater the trust of the government in the population. Conversely, the fear of finding oneself in economic or financial difficulties in the near future greatly reduces the willingness to trust the government.
Financial and economic concerns about the future reduce trust: Source: https://www.oecd.org/en/publications/oecd-survey-on-drivers-of-trust-in-public-institutions-2024-results_9a20554b-en.html

The starting points for restoring trust in governments would therefore be:

– Strengthen the elements of direct democracy: citizens should be given more rights to express themselves freely on substantive issues through referendums and citizens’ initiatives. The high level of trust in government in Switzerland and the stable high level of prosperity associated with it are not a coincidence, but are a consequence of the openness to initiatives by the people as a co-determining factor in politics and in the culture of consensus in this country, where referendums are an inalienable right.
– Increasing the transparency of decisions: Processes and decisions are to be made transparent in terms that are easily understandable, controllable and linked to evidence that reinforces trust in government and avoids conspiracy theories. Broad transparency is also important as a means of countering polarization towards social networks.
– Take seriously the social impact of economic crises and inflation: Existential fears reduce trust in politics and open the door to autocratic seducers. Inflation spikes, such as those experienced in the West in the wake of the pandemic, hit low-income groups particularly hard. The feeling of suddenly finding themselves in a difficult situation because life has become too expensive fuels political resentment, which will continue for some time even after inflation rates have come back down.

Our conclusions

In the reflections of Nobel laureates Prof. Daron Acemoglu, Simon Johnson and James A. Robinson, there is an implicit conception that runs through their reflections: that the ruler must have a character firmly rooted in ethical principles, or else give in to the temptations of easy and quick enrichment. This is the great problem that has always punished political society, and which is comparable to the lust for power, seeking excellence itself. This inclination to evil has managed to sink prosperous nations that were in a position to set an example of functional democracy in the last century, such as Germany (Hitler) and Italy (Mussolini). Today we see countries like Great Britain and Spain struggling to save the functionality of their democracy in the face of the impact of the immigration problem, among others.

We have written several articles about this: / https://thinktanklatam.org/hanna-arendt-ii-sobre-el-mal/   and  https://thinktanklatam.org/la-conspiracion-de-la-logia-p2-en-italia/
Every man has to keep in check his inclination to evil, which is a mystery so much treated by Jordan Peterson and so many other thinkers. The only explanation is offered by the Judeo-Christian revelation in the teachings on original sin.
Therefore, it is necessary to select men of integrity of high human, professional and even economic profile, as recommended by Churchill, arguing that such a person will not want to put his honor at stake for a criminal act of theft from the people or corruption. / https://thinktanklatam.org/es-la-democracia-un-engano/