Wednesday, 11 March 2015

iPhones prove that the meek shall inherit the earth

I'm filing this under 'things I'd like to be true, but which probably aren't':
The alternative to extractive institutions is to organize society around inclusive institutions. Such an approach encourages technological innovation, since technology allows individuals to better their own circumstances. It is these changes that lead to the economic growth we have seen in much of the Western world across the past few centuries.

So the basic story is simple:
  1. Extractive institutions do not encourage technological change and do not lead to economic growth.
  2. Inclusive institutions encourage technological change and therefore lead to the economic growth we have seen only recently in human history.
This helps us understand why nations have failed or succeeded in the past.
David Berri, professor of economics at Southern Utah University.

If this was true, we'd expect extractive societies to naturally fail and make way for something more benevolent. But I seem to remember from my history books that the opening up of the New World, from the conquistadores' initial looting to the slave-based plantation system and the triangular trade was more than a teensy bit extractive, but it didn't stop things like the Spanish Golden Age. OK, the latter didn't last, but the Spaniards weren't swept from the seas by inclusive institutions, but by subsequent empires, also built on rapacious extraction.

Nor does the thesis explain the British Empire in the 1800s - industrialisation, innovation and unparalelled economic growth hand in hand with exploitation and a massive world-wide, world-dominating, extractive Empire.

Unfortunately, I can't see much evidence that extractive institutions spontaneously perish because inclusive ones necessarily work better, then or now (which is a pity, because inclusive societies are probably far better places for almost everybody to live in).

'A world dominated by extractive institutions is not likely to give you a new iPhone' writes Berri. The last time I checked, this world was still managing to provide plenty of iPhones without having noticeably checked the power of some rather big extractive institutions:
We are not exactly sure which is scarier: that total financial assets amount to about 500% of world GDP or that about $75 trillion in financial leverage is just sitting there, completely unregulated and designed with one purpose in mind: to make billionaires into trillionaires (with taxpayers footing the bill of their failure).