Institutions Under Threat: How Growing Inequality Can Change the World

  |   Margarita Lutova Econs
James Robinson, co-author of the famous book “Why Nations Fail”, on how the erosion of political institutions is affecting global economy and why COVID-19 will not be a watershed in institutional development.

British political scientist and economist James Robinson, professor at the Harris School of Public Policy at the University of Chicago and director of the Pearson Institute for the Study and Resolution of Global Conflicts, specializes in researching the political and economic institutions that lead some countries to prosperity and others to decline. Together with MIT professor Daron Acemoglu, he wrote several books based on many years of research on these topics: The Narrow Corridor: States, Societies and the Fate of Freedom, The Economic Origins of Dictatorship and Democracy, as well as the world-famous bestseller, translated into more than 30 languages Why Nations Fail. Analysing the political and economic history of countries around the world, Acemoglu and Robinson use institutional theory to explain how differences in policy frameworks can cause differences in the economic trajectory of countries. These differences can be formed under the influence of many factors or due to a combination of circumstances, often at “critical junctures” when large-scale events destroy the usual order.

In an interview with Econs, recorded after a series of honorary lectures in memory of Zvi Griliches, "Comparative Constitutional Arrangements", which Robinson gave to NES, he discusses whether the coronavirus pandemic will become a "critical juncture" and what other factors could lead to the transformation of institutions.

Good morning, Professor Robinson. Very glad to see you. Thank you very much for giving us some time, for making this conversation with us. My first question about this would be like that: do you think that we are, using the language of Why Nations Fail, at some critical juncture?

– No.


– I don’t think so. You know, I think these longer-run factors such as the impact of inequality, rising inequality or globalization, the rise of China - you know, that seems to be much more significant. So there’s a kind of big, long-run factors that are sort of reforming many political forces in the world potentially. But I don’t see COVID on that sort of scale at all.

– So I see your point is that if there is going to be any institutional change that is not due to COVID-19 but this is due to some long term factors. The question is: is there some institutional divergence? I mean, the countries which embrace inclusive institutions are they going further away from the countries which ended up with extractive institutions?

– You know, everybody is aware that inclusive institutions are rather under threat at the moment in large parts of the world. You know, in the US you could say you know president Trump doesn’t basically.. he doesn’t believe in democracy, he doesn’t believe in institutions and he spent the last four years trying to deinstitutionalize the US state and kind of personalize it so that one’s obviously a massive challenge to institutions there. That’s happening in parts of Europe like Hungary and Poland which we thought had very consolidated inclusive institutions. So yeah, there certainly are challenges.

You know, I think in the US you see it’s creating the idea amongst many people that institutions don’t work for the average American anymore, and that’s one of the things that President Trump has been able to play on.

– I guess the idea of institutions-not-working is unfortunately quite widespread not only in the US, we can see it in many countries, Russia included. And one issue which is connected to that: on the one hand in times of trouble people tend to call out for the Leviathan to be back, people want to see the state which is strong and which is able to protect them and to solve some of their problems, but on the other hand, there is this declining trend in trust towards the government institutions. So what to do? What can be done about that?

– Yeah, I think it's very interesting – the sort of heterogeneity of response to the COVID, you know. On the one hand, you're absolutely right, you know: these very despotic states like China and Vietnam that can kind of shut everything down and control everybody – that's the sort of capacity which is really effective in this context. But it's interesting that New Zealand, which is not like that at all, which is very democratic, where people really trust the state and cooperate, they've done just as well. Yes, there're huge differences between societies which are inclusive – like there's an enormous difference between Sweden and the United States in terms of inequality and social mobility, and so on. And I think those differences have had important consequences when dealing with this problem. So not everything is uniform: one of the problems with doing social science theory is you try to have simple concepts that help people think about the world, but obviously, those concepts mask a lot of differences between societies.

Who's done badly? You know, the countries that have done badly actually are, you know, this sort of Anglo-Saxon model of capitalism where there's this sort of distrust with respect to the state and that's a distrust which has been inculcated by the political class for 40 years, you know. What was it Ronald Reagan said, the nine most frightening words in the English language are, you know, “I'm from the government and I'm here to help you”. It's that sort of more individualistic society has fared very badly, you know, because they're not willing to kind of obey the government and just do simple things that we know can help stop the disease.

I think what I’ve seen in the United States is there's a lot of civil disobedience. In Chicago when they started, you know, the mayor and the governor of Illinois started kind of stopping people going to the lake and closing national parks and people just ignored them, you know. People would just park illegally and they just go in the national parks anyway. In England when they started to first impose lockdowns what did the English people do? They went on holiday! You know, it was like it was the busiest day in Snowdon national park in history!

Yes, so it happened here in Moscow, exactly.

– Same thing, okay.

There was a lot of disobedience, yes.

– Yes, so I think it's a lack of trust in the state. And the United States is a sort of extreme example, you know. And there's this sort of ideology, anti-government ideology, you know. I mean one of the most extraordinary things for me as a political economist in the last few months has been republican senators blocking this emergency policy to aid people. So the government sent all these cheques to people. And there's an election coming up! You know, in any other country in the world politicians would like to send cheques to people...


– know, just before an election. But the republicans blocked it! Why did the republicans block it? Because they think it's bad. You know, they want to have a small government and it's a very ideological view.

So it's all about political institutions, right? So they are basic here or no?

– Yes, I mean, there's also the erosion of economic institutions. In our theory, once political institutions become less inclusive then economic institutions tend to follow them. Of course, you see that here. You see that here with increasing monopoly market power, there's a lot of evidence of that happening too. Of course, it spills over. If you have all these billionaires who have all these completely nutty ideas about the economy and how things should be organized having an enormous influence on the government – yes, it's going to affect economic institutions, too.

So without inclusive political institutions, you're not going to have inclusive economic institutions?

– I think that's right, yes.

And what about what we call the demand for institutions on behalf of society? Does it matter? So does it matter that society understands and articulates this demand for more inclusive institutions? And can you see that happening?

– Yes, absolutely it does. What is it that Trump voters in the Midwest are complaining about? They're complaining about unemployment, about falling social mobility, about stagnation of median wages for the last 30 years in this country – they are complaining that the institutions in the United States are less inclusive than they used to be. So I think that is a demand for inclusive institutions.

You know, the thing about building institutions, the typical problem is it's in everyone's collective interest but it's not necessarily in some people's, short, at least short-run private interest. You know, elites rarely have interest in [building inclusive institutions]. You think Jeff Bezos or Mark Zuckerberg have interest in inclusive institutions? No, quite the opposite! They're endlessly trying to defend their market power buying up competitors, kind of blocking competition, just like Bill Gates did. And everybody plays that game. You're not going to get inclusive institutions from those people.

And so are there any precedents of elites demanding more inclusive institutions? Because it’s their long-term interest – of course, it can be against short-term interests, but generally, they benefit from it in the long run, no? Just as well as the wider society.

– Of course, that’s true. If Colombia had much more inclusive institutions, income per capita wouldn't be 6000 dollars, you know. It could be ten times that! And everyone would be a lot wealthier including the elites. But I think, what history suggests is that elites are rarely willing to gamble on coming out on top of such a transition. So in England, there's an expression which is “a bird in the hand is worth two in the bush”. So something that you hold is worth double you know, but maybe you won't hold it. So my understanding of history is that elites only change systems when the current system becomes completely impossible to continue.

Well, that's rather pessimistic. Anyway, changing gears a little bit, I wanted to talk about social norms. We can see now that COVID-19 is changing social norms. So a lot of people not only are voluntarily social distancing, they're becoming more cautious, they prefer more stability. So what do you think, are these changes in social norms going to be resilient? Are they going to last after the pandemic? And if they do, how does it change society in general?

– I think you're right. You do see long-run changes in work practices. I mean, an interesting example is several big internet companies have already canceled plans to build big offices in Silicon Valley because they basically realized everybody can work at home and it's just as efficient, you know. But this is for highly educated people. This is the problem, this is actually a source of inequality. I'm worried, as I say, that this differentially benefits highly educated people. I think many people at the moment are worried about this sort of obsession with meritocracy. And, you know, there's a sort of new elite is emerging, highly educated people with much better access to universities, and opportunities, and social networks. And talking earlier about polarization in politics, it also seems there's a polarization within society which is a big impediment to social mobility and many other things. So I see good things but it also makes me nervous in many ways because these things have a lot of unintended consequences for the way things work, it seems to me.

To conclude with one last question, it's not going to be about COVID-19. So what do you think, should economists be engaged in such activities more - like public lectures, like writing popular books? And does it do any good? I mean does it change something in society? Or is it just some form of self-realization for economists and, say, edutainment for some people?

– Well, I don't know. That's a deep question. I mean I've met people like my father-in-law, for example, my wife's father, who's an engineer, he's not an economist, he's an educated man, he's interested in these questions about economic development and so on… But he can't read technical economics papers, but he devours accessible books. You know, the world is full of intelligent people who like asking questions and thinking about these ideas but academic research is just sort of impenetrable to them, it's full of jargon and mathematics or whatever. So, on the one hand, I think I've always had this idea that this is actually a really good thing if you could sort of stretch out to these people and communicate your ideas. And also a lot of the motivation for writing those books is that professor Acemoglu and I get inspiration for research from reading all sorts of things. It's not just internal to economics – quite the opposite, it's from the newspaper or reading history books or anthropology. But when you end up writing a scientific paper all of these things disappear because you have to adopt this very austere style. And so we realized that many of the things that inspired us never appear actually in any of our academic papers, so we thought, wouldn't it be a good thing: if they inspired us maybe they'll inspire other people too. So wouldn't it be a good thing to take all those things and put them together? So “Why Nations Fail” was really sort of putting together many things that we'd learned over the previous 20 years but we've never been able to use in academic articles.

So to share it?

– Yeah, to share it. So does that have an impact on the world? I think that's an interesting question. I get asked a lot by politicians, and presidents, and people to come and talk to them about their problems and I'm very happy to share what knowledge I have. You know, I'm an academic and I think that's what I'm good at, and I think actually advising and giving policy advice is a completely different skill set, if you want my honest opinion. And that's something you have to learn how to do, you have to be good at it, you have to practice, you have to communicate in a different way. And I'm not sure I am good at that. I'm always happy to share my advice with people but in my experience, I'm always overwhelmed by the fact that you may have a problem, like you may be the prime minister of the Democratic Republic of Congo, for example, and you have a problem, there are problems with institutions and you may be able to identify something that's not working or something that could work better, but there are a hundred problems and you have something to say about three of them but you really don't know which of those hundred problems is the really important one or which one can the prime minister do anything about or not because you don't understand the politics and you don't understand the context. And so whenever I've been in that context I've always felt that it's a drop in the ocean of the challenges that these people face. But I think that's just because being an academic is a different skill set, as I said.

Yes, at the same time a broader audience starts to get more knowledge of what's happening or no?

– Yes, that has to be a good thing, you know. I think there's a lot of evidence that people who are more informed about the issues and the consequences of different policies are better able to make good decisions in the election.

Is this something that you see happening actually?

– I mean there's real evidence on that in political science. I don't know that it happens as a consequence of my books but I think more broadly that that's true. There's evidence that that's true in political science, yes.

Yes, this is inspiring. So thank you very much, Professor Robinson. Have a nice day! And thank you for agreeing to make this conversation with us.

– My pleasure.