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PROFESSOR: Might as well get started.
So this is all carrying on the conversation
that we had last time.
We talked about, possibly for very long-term historical
reasons, some countries might have very different kinds of
institutions from others.
In particular, some might be much worse than others, at
least using the standard measures.
And then what do you do about it?
So the first reaction is, sometimes, well, tough.
If the story is that you had to have some lucky break 400
years ago to get the institutions right, then it's
not entirely clear that there's much you
can do about it.
That's the pessimistic view.
Now, for the people who really worry about these issues,
there's an interesting debate going on.
It's really between these five people listed above, are on
the two sides of the debate.
One side of it is a Stanford professor called Paul Romer,
who has come up with this idea of charter cities, like
charter schools.
So he wants, if you'd like, to import institutions.
So his basic idea is, the US has good institutions, so a US
firm, or a US NGO, would start--
if South Sudan wants to have a city, then they should just
hire a US firm to set up the city for them, have the same
guarantees that the US has.
So it'll be a part of the US institutional frame.
So it's not clear exactly how that works.
Because for example, suppose you set up a court in that
country, and it has the US laws, but the judge in the
court decides not to implement those laws.
Does the US invade?
Who's making the commitment?
So this is a set of real issues about how
you get that to work.
Yeah.
AUDIENCE: Isn't there even more fundamental issues of
what foreign country would be willing to
sponsor a charter city?
Because seemingly, all the advantages, even if you could
find a country to host it, like a country that would be
willing to give up the land, the outside sponsor, for lack
of a better term-- at least the way you guys talk about it
in the book-- they basically give it up as soon as the
city's kind of successful.
He alludes to Hong Kong being an example.
But Hong Kong had very different circumstances,
because Britain originally colonized it in the hopes of
having it as its own, having it as a commercial center.
And then they got the benefits for 100 years before they
handed it over.
PROFESSOR: And equally importantly, they handed it
over under circumstances when they really
didn't have any choice.
So Britain is certainly in no position to, let's say,
disagree with China about a city that's
next doors to China.
So there was no leverage is there whatsoever.
Yeah.
So there's several issues there.
You've just brought up one, which is, how do I make the,
to use your word, the sponsoring
country, give up the city.
Then there's the opposite problem.
How do I make sure the city actually runs, and who's
guaranteeing it?
Suppose the judge who's supposed to enforce US laws
in, I don't know, Benin, doesn't do it, who's liable to
make it happen?
AUDIENCE: But there's no one preventing those countries
[INAUDIBLE]
extracting institutions, they have no incentive to be
[INAUDIBLE] either.
PROFESSOR: Right.
AUDIENCE: So in the same was as colonies where Europeans
did not settle permanently [INAUDIBLE].
They set up [INAUDIBLE] institutions that would be
[INAUDIBLE].
PROFESSOR: So you're right.
There's the question of the demand side for it.
Maybe there's no country that wants it.
I think Paul's presumption is that there are countries that
would like to have better institutions.
They cannot domestically manufacture it.
But if they just somehow imported institutions, and
there was a [? guarantor ?]
behind it, then it would work.
So what you're saying is completely right.
There needs to be a demand for it.
If the country doesn't want it, it's
never going to happen.
But let's say the country even wants these institutions.
Even in that case, there are several problems.
One is, how do you actually run a charter city?
I mean, who's in charge?
Is the US prepared to back up its commitment
to the charter city?
If it says the US laws, does that mean the US is going to
send in an army whenever the laws are violated?
AUDIENCE: Likewise, does it mean that if the country gets
overrun by an outside invader and the charter city gets
overrun, will the US extend its nuclear arms--
like, let's say--
PROFESSOR: Right.
Exactly.
So [? what is ?] commitment to it.
AUDIENCE: Foreign policy.
PROFESSOR: Absolutely.
So all forms of commitment are an issue, obviously.
It's not enough to say that we have US-style laws.
In fact, if you look across the world, laws
don't vary a lot.
Legal systems vary relatively little.
What varies is the enforcement of the law.
So you have to make-- who's watching that the laws are
getting enforced?
Yeah.
Melissa.
AUDIENCE: I guess as an example of this on a much
smaller scale is you have these cruise lines set up
these enclaves in Caribbean islands.
And it'd be a town in Haiti, and it functions much better
than the rest of the country.
And part of that's because they have economic demand.
But the cruise line has basically bought the town and
runs things.
So like I said, it's all on a much smaller scale.
But it seems like that that's the only thing.
AUDIENCE: In those instances, generally speaking, the cruise
line owns all of the land.
And it's private property.
And they setup the town.
So it's really no--
PROFESSOR: It's like a hotel.
AUDIENCE: It's like a privatized government.
AUDIENCE: Yeah.
It's like a large hotel.
AUDIENCE: But it's larger than a hotel.
PROFESSOR: But a large hotel.
Some hotels have their internal currency.
I was once trapped into this completely horrible hotel
which had this internal currency with high inflation.
This was a hotel.
Because whenever I wanted to buy something--
so basically, there you go into the hotel.
It's like a resort.
And they give you a certain amount of currency, and you
spend it anywhere you want in the resort.
But it turns out that the prices are
extraordinarily high.
So that's sort of the same idea.
AUDIENCE: It's quite different.
But I guess it's just that we don't really have anything on
a smaller scale to this that we could even say, does it
work on a smaller scale?
PROFESSOR: So why is it different from a resort where
you can go from one shop to another?
The shops are competing.
Why is it different?
AUDIENCE: At least one thing that's different is there's a
major industry there that creates demand.
Whereas if you set some city up in the middle of Africa,
where there's not already an economic industry, and
everybody's--
PROFESSOR: So part of it is that there is an economic
engine that's already there.
Then there's a chicken-and-egg problem, which is that the
city will only generate value if it comes with an economic
model, and the economic model isn't there already.
If you just guarantee the institutions, how good does
the guarantee need to be before the
economic engine arrives?
That's a challenge.
As you might imagine, the problem might be that if I
tell you that I'm in Cote d'Ivoire in the middle of the
civil war, but we have this enclave that's protected, you
really need very good assurances of protection
before some industry's going to be willing to move to this
enclave in Cote d'Ivoire in the middle of the civil war.
So you're always this question, who guarantees?
But also, I think there is a third question, which is,
what's to stop the country from withdrawing its
concessions?
So let's say the country gave you some land.
You build a lot of buildings.
You've got a few factories running there.
What's to start a country with bad institutions with coming
back the next year and saying, well, now that we have all of
these factories, I want them.
And who's going to stop that?
Will the US send in an army to stop that?
It seems like there are myriad issues of implementation.
It would make this a rather wacky scheme.
AUDIENCE: [INAUDIBLE]
also the fact that [INAUDIBLE]
affect the rest of the country.
[? They're ?] going to build a whole new city [INAUDIBLE].
And all the existing cities and things surrounding that
will not necessarily be receptive to it.
[INAUDIBLE].
PROFESSOR: Yeah.
That too.
Just how do you deal with the inequality and all that within
the country?
Yeah.
AUDIENCE: So when Paul Romer proposed this, it sounds very
theoretical, and I don't think he actually proposed how to
implement it.
But did he mention the timeline for these cities?
Because although you might have the framework for good
institutions, you might have all the laws, you still need
the people to implement it, the people to respect it.
And that's somewhat a cultural issue, that if you grew up in
a corrupt society, you have it ingrained in you how to go
about things.
So it would take at least one generation, or several
generations, to get people to change their ways and actually
follow the law and help make these institutions work.
For example, Russia transiting from the Communist society to
democracy, they have all the laws and all the rules and all
the institutions.
But people still have this old mindset that's not working.
PROFESSOR: That goes back to the first point we were
saying, which is that the evidence on institutions says
that if you got the right accident which made your
institutions the right ones 200 or 400 years ago, then
that persists.
That doesn't say anything about transplanting
institutions.
But I think Romer is asking the right question, which is,
imagine that the US has good institutions.
Can a US company take advantage of the fact that it
is a US company, and the US has good institutions, to set
up a kind of a charter city in Cote d'Ivoire which will have
good institutions?
So he's thought about this issue.
He thinks that, well, the way you do it is, you import
institutions.
That's the idea.
And so in some sense, you're totally right.
It's not enough to just write down the rules of the
institutions.
And that's completely right.
But he's not saying that.
He's saying that plus implementation will come from
US company.
The question is whether a US company can implement
anything like that.
Yeah.
AUDIENCE: Couldn't to some degree--
I think it'll be interesting to see in 20 or 30 years, what
Afghanistan and Iraq look like?
I mean, obviously, they had a pretty distinct population.
But to some degree, the closest thing to what Romer
suggested we're seeing in action in Iraq.
I mean, the level of US monetary involvement has been
huge [INAUDIBLE]
military expenses.
And they're trying to create these new institutions.
So that could be an interesting example case to
build off of in the future, when changed institutions on a
wide scale he was talking about.
I mean, obviously, it's not very sustainable, I imagine.
And there will be a series of issues.
But just as an example.
PROFESSOR: This is an aside, but it's worth reading the
book, I think it's called Imperial Life in the Emerald
City, or something.
Wonderful book.
The Washington Post bureau chief in Iraq, after a year
and a half there, wrote this book about the implementation
of US institutions in Iraq.
And what was wonderful about the story in that book was--
and this is relevant for what we're going to
talk about in a bit.
So it's not entirely an aside.
So the book was wonderful in describing exactly how the US
went about implementing good institutions in Iraq.
So basically, rule one was that the people who got hired
to do that were either staffers of prominent
Republican congressmen or senators, or prominent
contributors to the Republican cause.
Those were the only people who were selected.
Second, most of the staffers who were given the
responsibility for, for example, designing the
stock-market laws, were 23-year-olds who had an
undergraduate degree in accounting were sent to the
set up these laws.
And there was usually one person.
A 23-year-old with an undergraduate degree was
assigned to be in charge of setting up the stock market or
figuring out how to reform the legal system.
So these where people with strong background in being
Republican operatives, and no background in actually running
an institution.
So the book is wonderful in that it goes through how the
whole process was doomed from the start.
Because the people who were sent to do these institutions
had no competence whatsoever in doing the job, because they
were all political appointees.
And the book is actually worth reading.
And it comes back to point I'll come back to later.
Which is that, imagine you wanted to make
institutions better.
You still need competence.
And it's not just a matter of having some
playbook from the US.
It's a matter of actually having the competence to turn
that playbook into reality.
And I think that was a very major problem in Iraq.
So then there is Paul Collier, who has a different view.
In some ways, this view I find less unrealistic--
maybe less defensible, but less unrealistic.
Which is, if the country has really horrible institutions,
just invade.
This is, I think, internally coherent.
Much more, I think, internally coherent than the Romer
suggestion, which I don't see how it would be implemented.
But this one, at least the policy prescription's simple.
Invade, and then just set up colonial rule for a while.
This has been tried.
It's been implemented in the past.
We know how it's to be done, so there's no
implementation problem.
You might have various objections to it.
But in many ways, this is a more difficult one to
challenge on purely a priori grounds.
One of the sad facts is that we know very little about the
effect of colonial rule from history.
That is to say, if you look at places that didn't get
colonized, so few of them didn't get colonized, and
they're so unique, like China is one country
that didn't get colonized.
But basically, poor countries, most countries outside Europe
and North America were colonized.
And as a result, there's just very little.
And when you compare the ones that got colonized with the
ones that didn't, the ones that didn't get colonized were
Japan and China.
And those are not random draws from any population.
So it's very hard to see what the effect of
being colonized is.
The one exception to that that I know, which is not quite
perfect, but it does a little bit of that, is, an MIT Ph.D.
student some years ago, Lakshmi Iyer, did this paper
where what she did is, she looked at, in India, there was
what was called the Doctrine of Lapse.
The Doctrine of Lapse was a beautiful idea.
So the way India was colonized was bit by bit.
Some bits got left out.
At any point, they would fight a battle, take over some land,
and then some would be left out.
And then they'd have a treaty with the local potentate at
that time to have a kind of a dependent ruler.
Basically, this process of colonizing India ends in 1857
with about 2/3 of India under direct British rule, and one
third of India under rule of a whole bunch of rulers--
500-odd rulers who had a little small territory, and
was the king of that territory, and had a treaty
with the British.
The British basically were overseeing this person.
So that's how the colonization happened.
Now, one of the ways in which the British would take over
one of these little kingdoms was under what was called the
Doctrine of Lapse.
The Doctrine of Lapse was, one might say, a cynical idea.
But it was the idea that if the king didn't have a natural
heir, then the kingdom would lapse to British rule.
So basically, what this paper does, is she compares places
which, during--
Doctrine of Lapse was enforced very heavily for eight years,
from 1848 to 1856.
During this period, about 20 places had the king die.
And I guess some of those places had a
male natural heir.
Natural heir means a son.
And the other places didn't.
So what she does is, she compares the places which had
a natural heir with the places which didn't
have a natural heir.
So if you look at these places, if you think that the
birth of a male child is kind of a random accident, then you
might say that these are comparable.
And on most things, they look comparable.
If you look at these places 150 years later, the places
that were under British rule do worse in almost every
attribute that can be measured.
Less good infrastructure, less good education, less good
other things.
So that's the only piece of evidence I've seen that has
some bearing on this question.
It's still a very special set of 20 places.
So I would say, we know very little about even the economic
effects of colonialism.
And then there are all the political effects, which are
that colonists often create hierarchies, and those
hierarchies create all kinds of resentment, and a whole
bunch of other stuff that potentially can go wrong.
But I don't think there's a great natural experiment that
tells you what would have happened had
Algeria not been colonized.
I don't think anybody knows the answer.
Yeah.
AUDIENCE: [INAUDIBLE] the fact that everywhere from the Congo
to the US and Canada have been colonized suggests that it
doesn't matter so much on the nature of it.
Why do we want to make a general statement?
PROFESSOR: I guess the question is whether or not
once you interact race with colony, you
get much worse outcomes.
You almost surely do.
The question is whether that's interpretable or not.
If I said, take colonies which are nonwhite colonies, they do
a lot worse than white colonies.
Now, what that means I don't know.
But I do think that you could make a firm hypothesis, which
I don't think is testable given the data, that if you
were nonwhite and you were colonized by white people, you
ended up badly.
You could make the hypothesis.
It wouldn't be rejected.
AUDIENCE: [? Half the ?] people in the US who were not
white who were colonized by white people, it still ended
up badly, economically, relative to white Americans.
PROFESSOR: Exactly.
So I'm not saying that people resolved this question.
I'm saying the hypothesis would not be prima facie
rejected by the data.
But my point is only that we don't know.
I wasn't saying more than that.
I would just say that it's not implausible hypothesis, but
one that I don't think we know enough to
answer Collier's question.
I actually don't think that this is a realistic idea,
because I don't think
anybody's prepared to actually--
I think if you look at the US, the real problem with getting
the US to be a colonist is that the US actually loves the
idea, maybe, of being influential in the world, but
it doesn't actually like the idea of having young US
soldiers fighting to protect some foreign land from its own
internal conflicts.
That is not a politically popular idea.
So I don't actually think any country is volunteering to be
a colonist.
And that might be a good thing, but it is certainly
true that, I think, after the Vietnam war, the US has had
enough of long-term colonialism.
I think that's the given.
So I don't think there is any country that's volunteering.
So again, I don't think Collier's solution, whether
it's right or wrong--
I'm inclined to believe it wouldn't work, even if you
tried, but that's a [INAUDIBLE].
I don't think there is any evidence that anybody's
willing to do it.
So it's maybe moot.
And then there is Bill Easterly, who's been very
critical of both Romer and Collier.
And his position is very internally consistent.
His view is that there's nothing you
can do to help countries.
Countries have to help themselves.
There is no sense in which there is really any outside
wisdom that's useful, with an important caveat I'll come
back to in a minute.
But therefore, colonialism won't help, because countries
help themselves.
They solve their own problems.
You can't really help any country.
He doesn't quite stop there, which would be really
internally consistent--
whether right or wrong is a different question.
He says, except you should have free trade, democracy,
and capitalism.
Those are the three things that he's in favor of.
And then he's not really in favor of anything else.
So he does believe that the country should not have choice
on those dimensions, but once you have implemented those,
you can leave them alone.
Now, again, the problem is that
there is not much evidence--
I mean, certainly some countries have figured it out.
It's not clear that there's any evidence that the process
of figuring out is a
particularly efficient process.
We've talked a lot through this semester about policies
that were tried and didn't work, and they didn't work for
very good reasons.
So in other words, there is a lot of knowledge out there
that's useful for countries to use.
So it's not clear that you want to take the position that
countries need to make every mistake and figure it out.
And it's not clear what a country means.
Is it really the case that, if I think of Tunisia under Ben
Ali, there was a collective experiment in dictatorship?
It doesn't seem like that's the right description.
So a country is just a set of people.
But it's not clear that there is any organizing body which
is implementing a national experiment.
I mean, maybe some countries are, but most countries, when
they fail, they seem to be not doing anything particularly
interesting.
Some guy is stealing a lot of money, and the rest of the
people are suffering.
It's not clear that's a symptom of the process of
figuring out where you're going, rather than just a
symptom of failure.
And then, I think the most internally consistent are
definitely our colleagues Acemoglu and Robinson, whose
view is very much that there's nothing you can do to help,
but also that mostly nothing good will happen.
So their view is, I think, most solidly internally
consistent.
Basically, countries are probably screwed.
Yeah.
AUDIENCE: I don't think that's a fair assessment.
Jim Robinson's doing all this stuff in Sierra Leone now with
the World Bank and [INAUDIBLE].
PROFESSOR: But I know Jim very well.
I know Jim very well.
I think he would say he's a pessimist.
He might be trying to do something, but I think he's--
I would say that that's the most internally consistent of
all of these positions that you see, is the one of saying
that, look, if I really believe that institutional
changes are very difficult, and they only happen because
of major historical events, then it's internally
consistent be pessimistic.
Because why would we have much hope?
And I think the example they give of changes are the French
Revolution and the Glorious Revolution.
That's the two examples that they mostly spend a lot of
time talking about.
So their view is that change is possible, but change
happens when internal forces within a country just happen
to be aligned in the perfect way.
And they give these two examples of the Glorious
Revolution in Britain in 1688 and the French Revolution in
1789 as the two examples of where you just had the right
alignment of forces.
And then the internal compulsions of the country
just drove the country towards good outcomes.
That in each case, these were just moments of liberation,
and they did wonderful things for the country.
There are many, many other such revolutions, and they
have been less successful.
The Russian Revolution, the Mexican Revolution, the
Chinese Revolution.
There are many others you could go through, and they
have been less successful, clearly.
So their view is that it's not enough to have revolutions.
You need to change societies massively.
You need to have revolutions.
But revolutions are not easy.
Mostly they go wrong.
It's only when you have the lucky matching of different
forces that you get the right outcome.
And therefore, mostly there's not much you can do.
You can get lucky.
If you get lucky, things will work.
If they do not, there's not much you can do about it.
And that's very consistent with the view that they have
from their evidence that all we really know is that, if
countries got it right several hundred years ago, then that
seems to persist.
So when good things happen, good things build on each
other, but we have no recipe for creating good things.
So that's a very, very pessimistic and tough-minded,
but, I think in some ways, admirably internally
consistent point of view.
AUDIENCE: I think [INAUDIBLE]
has even tried to see [INAUDIBLE]
institutions, changing institutions, is that US
conventions, which are in the treaties, even on things like
child labor or [INAUDIBLE].
So in your assessment, or your generally economic
[INAUDIBLE], is it part of the reason, in many case, not
effective enough, or [INAUDIBLE]
will not be effective?
PROFESSOR: So I'm going to actually argue that lots of
institutional changes are possible.
Just, they're possible at a different level from the ones
that we are talking about.
And so I would agree that many things
change within countries.
Indeed, I would say that if you look at status of women,
the standing fact about the world is how much has changed
over the last 150 years, not that there's
not a lot of change.
And I think the change has happened in China as much as
it's happened in the US.
And China was an extraordinarily, I would say,
anti-woman country.
And you see massive changes going on.
So I'm going to argue mostly that there is actually lots
and lots of possibilities for changing institutions, just
that you don't--
this is asking a different question.
So what we want to argue in the book is,
lots of things change.
They don't necessarily change wholesale, and you don't
necessarily get better institutions
in any macro sense.
But that doesn't mean that things are not changing all
the time, even within political
systems which are bad.
So it isn't the case that--
for example, countries which have had very large
improvements in education and health.
Indonesia under Suharto--
which was extraordinarily corrupt, was often rated the
most corrupt country in the world, and was under an
extraordinarily repressive dictator who at some point,
it's claimed, killed a million people by labeling them
Communists in the mid-'60s.
Nevertheless, if you look at what's happening in Indonesia,
between the period of 1972 and 1990, is one of the world's
biggest, most successful investors in human
capital in the world.
You see big changes in education levels, you see big
changes in health Suharto was very, very concerned about
Indonesian health, nutrition, and he created a nationwide
campaign of young people going back to villages and bringing
message of better nutrition.
And it's claimed to have improved nutrition massively
in Indonesia.
So in other words, that's not to say that Indonesia became a
better country immediately, or that corruption went away.
In fact, during the same period that education is
improving in Indonesia, corruption is also going up.
Suharto is becoming more and more corrupt.
As his children get older, they're becoming more and more
richer and richer, and buying up larger and larger shares of
the country.
So there was not that there was a one-way of movement in
institutions.
And indeed, that's my point.
There is no sense in which there's one institution in
place, one set of institutions in place.
There are many, many things going on in any country.
And many of those are getting better.
Others are getting worse.
I think we're always looking for leverage points.
What are the best places to make a small push and see
where we can make a change?
So once we start thinking about institutions in small
letters, rather than
institutions in capital letters--
so not capitalism, but how a specific market is run--
we do see lots of changes.
And that's the level at which we should think of
institutional change.
Yeah.
AUDIENCE: I get the sense that, looking at it from one
perspective, you should almost always prefer gradual reform.
Because all the things that you showed us on the last
slide are so out of sample that the chances that they'll
actually work, just because they're so far beyond what we
can observe or test and day-to-day things, that doing
gradual reform would be the path of lesser resistance.
But then Jim and [? Daron ?] and [? Pavel ?] have this
paper where they talk about this thing called the seesaw
effect, where you make one dimension of institutions
better, another gets worse to compensate.
Or Jeff Sachs would say that we need to change
everything at once.
Do we actually have--
I mean, I guess that Jim and [? Daron and ?]
[? Pavel ?] have a little bit of evidence in their paper.
But do we really have much in the way of systematic
evidence for that?
PROFESSOR: So I think the answer's no.
It could be that they're right, that you can never
improve anything without making something else worse.
I find that implausible, let's say.
But I'll leave that as a--
My main point I'm trying to make here is a simpler one,
which is that there is no grand theorem which says that
everything that you can change is determined by some
overarching institutional frame.
That even within bad institutions, there's lots of
things that do change-- some for the better,
some for the worse--
and that there is enough slack within the system that you can
often change things even when things look pretty dire.
So here's an example.
In Chinese democracy--
this is not well-known, because China's not supposed
to be a democracy.
But in fact, China introduced village elections quite early.
And the elections were phased in, so you could compare
places which had elections with places which had a
centrally-appointed village head.
So this was just a comparison of what happens to a place
when it becomes elected.
So you been basically seem to see that when these
institutional changes happen in a place like China, which
is, after all, not a democracy.
Huge control of the Communist party.
Certainly, whenever there is any real attempt to change
institutions at the high level, it's been stamped out
with a great deal of clarity.
There's never been any debate on how--
challenges is to the power of the Party have not been
entertained.
So you might imagine that when China introduces village
elections, this would do nothing.
Because power has not shifted.
The same people have power.
Turns out that when you introduce elections, you get
very large changes.
And this is not now.
This started, I think, in the '80s.
So when you start introducing elections, you
get very large changes.
Basically, two things happen.
One is that the central policies that are unpopular
are less enforced.
So the one-child policy, which is the policy of not allowing
people to have more than one child, is relaxed much faster
than places which have elections.
So somehow, despite the fact that the central government is
all-powerful, when the village has an election, it does
enforce different things.
Second, one other very important part of Chinese
policy is reallocation of farmland.
Basically, what they were doing was, they would, for
example, take farmland from farmers and build cities, or
roads, or industrial estates, or special economic zones, and
things like that.
And basically, when the village had elected
government, that stopped, or went down a lot.
So you couldn't take land away from the farmers that easily.
And this is where the all-powerful state which was
supposed to have impunity.
It was still true that you could make many changes within
that system.
And it's so striking, even in a system like China, how much
responsiveness there is to local demands
once you start democracy.
So you might have thought that, well, the big
institution is, there is no democracy in China.
China is classified as a non-democratic state.
Yet at some level, China is actually quite democratic at
the local level.
And that's a way to understand, also, why China
has managed its conflicts relatively effectively.
It's because there is actually pressure involved at the local
level, which allow it to let off pressure.
So there's a sense in which this is an example of why we
shouldn't look at institutions from a thousand miles up, but
we should look at how they function on the ground a
little bit.
And, I think, equally importantly--
so I just talked about why bad institutions in capitals, like
lack of democracy, doesn't really necessarily always mean
that is not democracy on the ground--
the opposite is also true.
That you could have good institutions, meaning good
electoral laws, nominally fair elections, but those elections
may actually not be at all fair.
And here's a nice example.
In Brazil, there was a complicated
paper ballot system.
Brazil has, for the last many years, had free and fair
elections, since about the mid-'80s.
And yet, in the Brazilian electoral system, for a long
time, people just didn't think about it.
So you would have to write in the name of the person who you
were electing, or the number.
Either name or number.
You have to say, Mr. seven, or something.
And since many people were not very literate, when they write
the names of somebody, it is illegible.
So as a result, 11% of the names were
rejected in any election.
That's a lot, right?
11% of the votes were rejected.
That's a huge amount.
So this was taking too much effort.
Counting votes was too complicated.
So they replaced it with electronic voting.
So you to press a button.
So that meant that the invalid votes went away.
And as a result, the fraction of the elected representatives
who were uneducated or poor went up.
The poor were voting for people like themselves.
As a result, health expenditures went up, and a
bunch of pro-poor policies were implemented.
So this is an example of where Brazil had good institutions
in capitals to start with, but somehow those institutions
weren't doing what they were supposed to do.
So if you looked at it from a thousand feet up, you will see
good institutions.
But that doesn't mean that the institutions were actually
doing what the were supposed to be doing.
And so about 10% of the population, and a huge
proportion of the poor, were disenfranchised.
11% percent of the votes were eliminated.
That means that, if you take the poor, probably 30, 40% of
the poor were disenfranchised.
They couldn't vote.
That changed the nature of voting and changed the nature
of outcomes.
So it's a beautiful example of how something--
nobody thought about this.
It's not that anybody had this as a conspiracy.
This was not somebody's plan.
It just was something that was just there.
People thought paper ballots were fine.
Nobody ever thought about it.
Once you change the rules, and you mostly changed the rules
not to fix it, but to just make it easier to count votes,
it turned out that that had massive consequences.
This is the picture.
I'll just skip this.
So here's another couple of nice experiments.
So one argument that Paul Collier makes a lot of is, he
says the reason why you have to invade this country is that
these countries, have too much internal conflict, that they
can't govern themselves because they're fighting each
other all the time.
Paul is very sympathetic to these people, you have to
understand.
He's a very, very soft-hearted colonist--
imperialist.
I've known him for many, many years.
And he's certainly not someone who's cynical about this.
He certainly does really believe that these people are
just caught in this eternal fight against each other.
They hate each other's guts.
And so, therefore, they can never govern.
Whenever one group takes over, it starts
beating up on the others.
And that's why you always have a permanent state of civil war
and conflict.
They're just not capable of governing each other because
there's so much fundamental hatred of each other.
So to look at this, Leonard Wantchekon, who is a political
scientist from Benin, did the following.
Leonard was in the student movement in Benin in the late
'70s, early '80s.
And that's when, I think, Benin had a dictatorship.
And so he went to jail with all the other people who were
leading the student movement.
And so he's very good friends with all the leading
politicians in Benin now.
So Benin is now a democracy.
And in the democracy, he's good friends
with all the leaders.
So he basically talked them into doing something quite
remarkable.
His idea was, every leader, he basically got
the following deal.
He said, let's go to the area where you are really dominant.
Go to the area where you are really powerful.
So you're never going to lose that area.
You're always going to win that area.
So it doesn't really matter if you get a little less votes.
So let's do an experiment where you send different
messages in different areas.
So within in that area, let's say there's this region like
that, where this is where you're totally dominant.
You're always going to win.
So now let's chop this up into little pieces and randomly
choose some of them.
This is all within the area where you're sure to win.
We're going to randomize the message you send.
So there were two messages they were sending.
So this is the message that primes people on their narrow
tribal interests, if you like.
This says, the Bariba people will get jobs.
I am the representative of the Bariba people.
This is what Paul Collier is particularly concerned with.
So this is the same guy going to different in villages and
giving different messages.
The villages are randomly chosen, so you can compare
what happens.
And they were willing to do it because they
were sure of winning.
So they didn't have to worry about winning there.
The question was many votes do they get.
This was the Clientelist message, the message that I'll
serve you guys, my people.
That's what people are worried about.
Here's the public policy message.
Same person, different village, goes and delivers
this message.
We will fight corruption and promote peace among all ethnic
groups in all regions of Benin.
This was completely rigged.
They were given these messages.
They agreed to deliver it because they
were friends of his.
So this is what makes Paul collier worried.
So this was the first experiment that Leonard did.
So if you look at what happens to vote shares, if you go to
the villages where you did the public policy message, you got
only 59% of the vote.
When you did Clientelist message, you
got 79% of the vote.
So this is what gets Paul Collier worried.
He says it's not possible to have democracy in these places
because people are so narrow-minded.
Now what happened--
let me just go back--
is--
OK.
Let me see.
Where did it go?
OK.
Let me mention one more, and I'll come back to--
no, actually--
so let me show you one other experiment
before I come to this.
Because this is sort of interesting.
I'll show you one more.
So here's an experiment that we did in India, which is kind
of the opposite of this Wantchekon experiment, and has
the opposite result.
And I'll try and interpret why.
This is probably the most corrupt place in India.
About 40% of the people who are elected from there have
criminal charges against them.
In this area, we did an experiment where we randomly
chose villages.
And in some of the villages, we basically showed up with a
puppet show.
Basically, we showed up with a puppet show.
The point of the public show was to say, you should not
vote based on your caste, which is the equivalent of
ethnicity in India.
You should vote based on who's going to do more
development for you.
So that was the message.
It was a completely neutral message.
And the neutral message was delivered by an NGO.
When you look at what happened, the people who voted
for their ethnic party went down by a quarter.
If you just went and told people, don't do it, they
don't do it.
So this is sort of the opposite story, which is, in
Benin, the experiment was that you went and told people,
please vote for me based on my ethnicity.
Then they seem to vote on ethnicity.
If you tell people, don't vote on
ethnicity, they do the opposite.
Now, is Benin different?
I'll come back to that later.
But what this made us think about was, maybe the reason
why you observe this ethnicity-based voting is not
because people are passionate about their ethnic roots.
Sometimes they are.
But maybe a lot of people are not.
But because they have no other information, maybe they don't
know anything about the candidate.
And therefore, if I have no idea who to vote for, there
are three people running, I just vote for the one who has
the same name as me.
Why?
Because I have no idea who they are.
I've never met them.
I have no idea what they believe in.
I don't trust them to have told me the truth in any case.
So do you actually get the right outcome?
So maybe the reason why people vote based on ethnicity,
whereas we think that somehow people to just have some
biological or sociological hatred of those other people
and they can't resist voting, in fact, maybe the reason why
they vote for their own ethnicity is only because they
have no better choices.
They don't know anything about any of the candidates, so they
might as well vote for their ethnicity.
So this is what we were investigating.
Keep going.
Yeah.
AUDIENCE: In the Benin experiment as well, it seemed
like it was a way to target things.
Like, I'm this ethnicity, and I'm going to get things for
people of this ethnicity, versus, I'm going to do good
things for everybody.
I don't know if that would be so different than if somebody
was running for Senate in the US and was like, I'm going to
do good things for the people of Massachusetts, versus, I'm
going to do good things for everyone in the US.
PROFESSOR: So you may well be right.
So that's another point.
I'll come back to the Benin in a minute.
I just wanted to show this experiment.
And I'll come back to the Benin one in a minute.
So based on this idea that maybe voters don't know who
they are voting for--
and therefore, they just vote at random, and maybe they just
vote for the guy who has the right name or something--
we did another experiment where we gave information
about the candidates to the voters.
We told them, this candidate works
harder than that candidate.
We showed newspapers printed people's performance.
And when you do that, you see that people do change their
voting patterns, suggesting that people don't really know
a lot about the candidates.
If you give them information, they react, which suggests
that information is valuable to them.
They don't really know what's going on.
OK.
Let me now go back to Benin, and I'll come back to this.
So here's what happened in Benin.
Wantchekon did a second experiment.
Second experiment was, instead of people just saying, I'm
going to do good for everybody, he actually had
them run a conference where, in the conference, they
discussed real policies.
So they had a long discussion of real, substantive policies.
Experts were invited.
And so parties took up the policies that came out of that
conference and put it on the platform.
These were well-worked-out policies, not claims about,
I'll do good for everybody.
So the only difference--
then he does the same experiment as before in a
different election, later election.
He does the same experiment, which is telling some people,
either send an ethnic message or a non-ethnic message.
And now, when you go and tell I'm going to do good for
everybody, that actually goes the other way.
So when you say, I'm going to do good for everybody, but
it's backed with a real policy proposal, you get much more
positive results.
So it looks like the voters were actually rightly cynical
about these politicians.
They were claiming they're going to do stuff for
everybody, but nobody believed them, because they had not put
any content into it.
When you actually put content into what you're claiming,
voters react very differently.
They feel like there's something that's going on
that's maybe worth supporting.
So you see, instead of this strong reaction for the ethnic
point of view, now you get the opposite, which is a strong
reaction for the non-ethnic point of view.
Another example.
So the point I'm trying to make here is that in some
sense, what looks like structural
resistance to any change--
countries are just hopeless, they have such ethnic conflict
that they can't do anything about it-- that might be true
under some situations.
But, for example, if you want to name countries which have
had some of the most serious ethnic violence in the last 20
years, they include many countries which are actually
very economically successful countries.
So it's not clear that that's something that the effects are
that strong.
But even if you believe it, it's not clear whether ethnic
conflicts are a result of other failures or the cause.
So in other words, is it the case that people are basically
cynical about the political system, and therefore they'll
vote for the person whose name is the same as theirs, or is
it really the case that they vote for people who have the
same name as theirs, and therefore the
political system fails?
That's the challenge in figuring out.
And at least there seems to be some data
which suggests that--
this evidence that I've been talking about--
suggests that it may well be that, to a certain extent, if
people are cynical about the political system, makes them
then vote more unreliably.
And if you could actually get the political system to be
more effective, then people would actually be less
inclined to vote on the ethnic basis.
So in other words, I'm trying to make the case that what
looks like--
in Collier's view, the fundamental
problem is ethnic hatred.
Whereas it may well be that the fundamental problem is
just economic failure, and ethnic hatred or ethnic
conflicts are just a result of that.
And it's not clear which way that goes.
And in particular, it could be very innocent.
People just are completely--
it's not that they hate anybody.
They just think, OK, well if I don't have any information,
I'm going to vote for the guy who has the same name as me.
That might be a significant part of what is
called ethnic voting.
Here's another instance that's interesting.
So going down this same path of making the point that it is
possible to--
So in other words, I made two points.
One is that having good institutions is no guarantee
that you get good outcomes.
And the good institution at the 1,000-feet level is not a
guarantee that you get good outcomes on the ground level.
And conversely, if you look at it from 1,000 feet, what looks
like bad outcomes may not be necessarily some things that
you should just take as, well, it's not possible to do
anything in this country.
There may be lots of slack in the country.
Because, for example, even ethnic preferences, which is
seen as a fundamental constraint, may not be that
much of a constraint.
They may just be an outcome rather than a constraint.
To pursue that point, that it's often possible to have
substantial changes even when the economic incentives have
not been changed very much-- so the structures of power
have not changed, the institutions are the same--
here's an example.
This is not someone saying whether the institutions are
good or bad to start with, but to say that it's possible to
change institutions at the margin, a
little, and get big effects.
So here's an example from Brazil.
Brazil is interesting.
The political system in Brazil is among the most interesting
in the world.
One thing they do is every month, 60 municipalities are
chosen at random, and their accounts are audited.
So you audit the accounts, and then the audits are
basically--
there's a lottery.
Literally.
That's on TV.
They're doing a lottery.
The winner of the lottery doesn't get a lot of money.
The winner of the lottery gets audited.
So you don't want to do be the winner.
It's on TV, so it's very, very transparent.
Everybody can see that it is really a lottery.
That's a big advantage of lottery.
The audit is also given to the government and
disclosed to the media.
So there's a nice paper studying the
effect of these audits.
And basically what they do is, they compare places that were
audited just before the election and places that were
audited just after the elections.
And in particular, it turns out that if you look at the
average effect of being audited before or after
elections, there's not a big difference.
Why isn't there a big difference?
Well, turns out most people don't find out the results.
But if you look at the places which have a which have a
radio station, and compare the effect of being audited on
places which have a radio station with the effect of not
being audited on places which have a radio station, you see
a massive effect.
If you're corrupt, and you were a mayor from a place that
had a radio station, and you were audited before the
election, you are 25 percentage points less likely
to get elected than if you were a non-corrupt mayor from
a place which has a radio station and which was audited
before the election.
So the difference in election probability--
So what we're doing here is comparing places that were
audited before the election and after the election.
And we're comparing good mayors with bad mayors.
So good mayors are much more likely to get elected in
places where the audit was before the elections.
Whereas there's little difference between good mayors
and bad mayors if the audit was to
happen after the elections.
So just this act of publishing the audits seems to have
substantially changed the incentive for
corruption in Brazil.
So this is an example of something where the system has
not changed.
The whole system is the same.
Brazilian democracy has not changed a lot.
But just the fact that they instituted these audits means
that being corrupt is much more costly.
This is a picture which makes that point.
The blue is those who the audit was after the election.
And being corrupt has no effect on
your reelection rate.
Whereas, if you had zero corrupt violations and you had
a pre-election audit, you were 35 percentage points--
I said 25--
35 percentage points less likely to be elected then if
you had three or more, if there was a
pre-election audit.
If you have a post-election audit, it doesn't matter,
because the election is done.
So getting information has huge effects here.
These effects are on a magnitude which--
clearly, you go from having 50% chance of being elected to
being a 20% chance of being elected, just when you publish
the results.
So again, making the point that small changes in the
institutional frame, the little institutions, changing
them a little might actually give you big effects.
So, so far, what I've been trying to say is a bit that,
even within bad institutional frames, or without changing
the institutional framework generally, you can make good
things happen.
That doesn't mean that good things are guaranteed to
happen-- whenever you try things, good things happen.
That's not at all what I'm saying.
So I'm saying that what's true about economy at the
1,000-feet level is entirely one thing.
And then there is possibly what's irrelevant at the
10-feet level, and those things are only weakly
correlated.
So in other words, things fail at the ground level whether or
not you have good institutional structures.
So let me give you an example of where the institutional
structures were all good, and the system completely failed.
So we did an experiment where there was a district
administration in India worked with an NGO to set up
monitoring system to make sure that nurses come to work.
Nurses often don't come to work.
You saw that, I think, at the beginning of the
semester with Esther.
And this is a big concern for the health system.
Because you show up, nobody's there, that's not so good.
So the way it was implemented was that there was a date and
time stamp given to every nurse.
This was just on Mondays when she was required
to be in the center.
She was required to stamp her presence on something that was
stuck to the wall.
So she would have stamped it there so that people could
check whether she was there or not.
So she had to stamp it on the wall.
So she had to be there.
And this NGO was in charge of collecting the stamps and
counting them up and giving them to the government.
So the district administration was very
taking this very seriously.
They announced that anybody who doesn't come to work at
least 50% of the time will get fired.
So there was a quite major top-down attempt to reform.
So the institutional frame was doing everything
it needed to do.
So when this was announced, immediately--
just compare the dashed lines to the dashed lines.
I didn't tell you the story of the solid lines.
So just compare the dashed line to the dashed line.
You see there's a very major effect.
At the beginning, the presence of the nurse goes from 15%--
15%.
They don't show up at all--
to about 55%.
It goes up massively.
When you announce this program, it goes up massively.
They start to come to work.
And that's not surprising.
You told them.
And then what happens, you see those curves getting closer
and closer, and they finally cross.
So after a while, it turns out that in the places where the
nurses were threatened with losing their jobs, they're
coming to work less than where they were not threatened.
So what happened?
Why did it get reversed?
So what happened was very interesting.
So two things happened.
The nurse has an immediate boss whose job is to decide
whether the nurse needs to come to work or not.
Why?
Because the nurses have things like training.
So some days, they're not required to come to work.
Those are called exempt days.
And then the date and time stamp had to work in order to
monitor the nurses.
So the date and time stamp got broken, you
couldn't monitor them.
Now there was a rule which said that, if it's broken,
they would have bring it in to the
center and get it replaced.
But still, once it gets broken, it's less easy to
monitor them.
So what happened was very simple.
Absence did not go up.
It's not that the absence went up.
The exemptions went up.
Meaning that their immediate boss basically declared, fine,
you don't have to come to work.
From now on, you're not absent.
You're exempt.
Meaning the boss said, I don't care if you
don't come to work.
So I'll give you an official excuse to not come to work.
That was part of what happened.
Part of what happened was that they started
breaking the machines.
The machines started breaking in increasing frequency.
And the bosses who should have complained
about that didn't complain.
So the machines kept breaking and nobody was objecting, so
the whole program collapsed.
Now, why did this happen?
So clearly, this was a result of the fact that the nurse and
her immediate boss were colluding.
That's not surprising.
But the reason why it actually happened was not because the
institutional frame was bad.
In some sense, there is democracy.
There was supervisor who wanted it to happen.
There was an NGO that was implementing it.
The reason why didn't work was mostly because there was no
demand for it to work.
It wasn't so much that the institutional
frame wasn't there.
It was just that, basically, people figured out that if it
didn't work, nobody would complain.
And why would nobody complain?
Well, you saw this before.
Nobody ever showed up in these health centers in any case.
So there was no one to complain.
So there's no political compulsion to fix it.
And that meant that at some level, there was no pressure
to make it work.
This is what sometimes we call triple-i.
In other words, the reason why this intervention didn't work
is not because the institutional frame was not
working, but because there was no one on the ground who
actually had any stake in making it work.
Nobody went to the health center, so nobody complained.
The system was designed with the idea that these nurses
have some internal desire to serve of the people.
So the system has no effective culture of making sure that
the nurses one want to come to work.
They never invested in it.
And finally, there was no one had thought about the fact
that there were these exempt days, and that these exempt
days were not regulated.
So that it was mostly just the fact that, when this
intervention was introduced, nobody had actually put enough
thought into how the system would react.
And so it was not so much that the institutional frame was
particularly bad here.
Other interventions do work.
It's just that this was a system where there was no one
who actually had thought about how to design an intervention
that would work, and therefore it didn't work.
Indeed, when we went back, we figured out why
you get this crossing.
Why do you think we get this crossing?
Why do you think the nurses came less when they were
incentivized to come?
AUDIENCE: I think it's a situation where there were new
measure put in place.
Once it became clear that those measure weren't going to
be enforced at all long-term, it was an even clearer
indication that no one would check up on them.
It's one thing to have a policy that in theory exists,
and no one tries to ever enforce it.
But if then they try to institute this new policy and
indeed, it was very [INAUDIBLE] that there was no
enforcement, that sends an even stronger message that you
can shirk out your responsibilities.
PROFESSOR: Right.
So they realized that their bosses were very willing to
collude with them to not let them work.
So because they had had a policy which required their
bosses to enforce, now they could learn that the bosses
had no interest in enforcing.
Before this, they didn't know that.
So in the control villages, they don't yet know that the
bosses don't care.
In the treatment villages, they really learned that the
bosses don't give a damn whether they
come to work or not.
So they stopped coming to work.
So whether these institutions at the 1,000-feet level work
or don't work--
I mean, there's a democracy here.
Lots of people vote.
There is political competition.
All of those things that are supposed to make these things
work are all present.
The reason why it doesn't work is simply, at the micro level,
the incentive to make it work isn't there.
Because people don't go to the health center, so nobody
actually demands that the health centers work.
AUDIENCE: So actually, more people started to go to the
health centers.
And yet there were few people [INAUDIBLE]?
PROFESSOR: No.
Basically, people have checked out of the system.
So more people use the health center, but only by accident,
when it's open.
So the probability, per day, more people are not present.
It's open more often, but it doesn't have any effect on who
gets treated per day.
Yeah.
Alyssa?
AUDIENCE: The fact that nobody is using these can't be that
there wouldn't be a demand for health care if they
functioned.
It's itself an outcome of the fact that--
PROFESSOR: Absolutely.
But this attempt to fix it came from a bureaucratic
impulse which said, have health center,
will make it work.
And they just did not think about what was required to
make it work, which is to get a demand for it.
Otherwise, it's never going to work.
The political system only provides incentives for things
people want.
If people don't want it, the political system doesn't
provide incentives.
It was a classic example of trying to fix institutions
without really having understood how the
institutions work.
So I'll continue with this next time.