Number of words: 9,619<\/p>\n\n\n\n
What determines the economic, social, and political trajectories of nations? Why were settlers in colonies like Jamestown and Australia able to escape the extractive systems desired by their British masters, while colonial subjects in Barbados and Jamaica were not? In his latest book<\/a>, Daron Acemoglu elevates the power of institutions over theories centering on human capital, culture, or geography. Institutions help strike the balance of power in the constant struggle between state and society, creating a \u2018narrow corridor\u2019 through which liberty and prosperity is achieved.<\/p>\n\n\n\n Daron joined Tyler for a conversation about drivers of economic growth, the economic causes and effects of democratization, how Germanic tribes introduced \u201cbottom-up politics\u201d to the Roman empire, the institutional reasons that China\u2019s state capacity and control has increased with its wealth, his predictions for the future of liberty in his birth country of Turkey, the biggest challenges currently facing the Middle East, what we can learn from the example of Lagos, why publishing in the \u201ctop five\u201d is overrated, tips on motivating graduate students, and more.<\/p>\n\n\n\n TYLER COWEN:<\/strong> Hello. Today I\u2019m here with Daron Acemoglu<\/a>, who, of course, is professor of economics at MIT. By some measures, Daron is the<\/em> number-one most widely cited economist in the whole world, and he has a new book out with James A. Robinson<\/a> called The Narrow Corridor: States, Societies, and the Fate of Liberty<\/em><\/a>. Welcome, Daron.<\/p>\n\n\n\n DARON ACEMOGLU:<\/strong> Thanks, Tyler. This is really a perfectly wonderful pleasure to be here.<\/p>\n\n\n\n COWEN:<\/strong> I have so many questions about economic growth. First, how much of the data on per capita income is explained just simply by one variable: distance from the equator<\/a>? And how good a theory of the wealth of nations is that?<\/p>\n\n\n\n ACEMOGLU:<\/strong> I think it\u2019s not a particularly good theory. If you look at the map of the world and color different countries according to their income per capita, you\u2019ll see that a lot of low-income-per-capita countries are around the equator, and some of the richest countries are pretty far from the equator, in the temperate areas. So many people have jumped to conclusion that there must be a causal link.<\/p>\n\n\n\n But actually, I think geographic factors are not a great explanatory framework for understanding prosperity and poverty.<\/p>\n\n\n\n COWEN:<\/strong> But why does it have such a high R-squared? By one measure, the most antipodal 21 percent of the population produces 69 percent of the GDP, which is striking, right? Is that just an accident?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Yeah, it\u2019s a bit of an accident. Essentially, if you think of which are the countries around the equator that have such low income per capita, they are all former European colonies that have been colonized in a particular way.<\/p>\n\n\n\n So, for a variety of reasons \u2014 and geography might\u2019ve played a role, though I\u2019m not completely sure \u2014 European powers pulled ahead of the rest, and then they went ahead and colonized much of the rest of the world. Today, for about 120 countries, their current institutions are heavily shaped by their colonial experience<\/a>, and the colonial episode has been very unequal for different countries.<\/p>\n\n\n\n If you take places such as the United States or Australia \u2014 they ended up with pretty good institutions, actually better institutions in many ways than their mother country back at home, because the settlers who got to live in these places pushed for better institutions, fought for better institutions. Australia was one of the more democratic places in the 19th century. The US, of course, introduced the smallholder society, much better than Britain.<\/p>\n\n\n\n But in most of the tropical areas, the conditions that Europeans encountered led them to adopt a very different colonization strategy, essentially for two separate but related reasons.<\/p>\n\n\n\n First, many of the more civilized and densely populated areas were in the tropics or near the topics: the Inca Empire, Aztec Empire, the Indian subcontinent with the Mughal Empire colonized by the British, the North African civilizations. And all of those created a much better opportunity for Europeans to set up what James and I called extractive institutions, to essentially control labor and use labor.<\/p>\n\n\n\n Moreover, the settlement pattern that was at the root of the better institutional development of places such as the US, Canada, Australia really was made impossible in most of these places because, associated with both climatic conditions and the dense population, they had vectors of diseases that were very, very different than the ones the Europeans were used to, so the mortality rates that Europeans faced were very different.<\/p>\n\n\n\n The combination of these two factors meant that the colonization experience was very different and the colonial institutions were very different in these places. And to a first approximation, all of that big gap between places such as US, Argentina, Chile, and places like Peru, Bolivia, India, Pakistan, can be explained by these different colonization strategies and their institutional implications.<\/p>\n\n\n\n COWEN:<\/strong> As you know, there\u2019s a famous paper by Comin, Easterly, and Gong<\/a> showing there\u2019s a reasonably high correlation between per capita income in AD 1500 and the current day, especially once you account for the movement of settlers. Is that because the quality of institutions is so stable over time, over more than 500 years? Isn\u2019t that better explained by having the quality of human capital be more stable over time? That seems more plausible.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Well, I think it\u2019s a complex picture, actually. One of the papers that I wrote with James Robinson and Simon Johnson<\/a>, which we entitled \u201cReversal of Fortune<\/a>,\u201d is exactly on that point. The raw fact is that, if you look at which are the places that are more prosperous in 1500, those turn out to be relatively<\/em> less prosperous today. It\u2019s not to say that they became less rich today. Every place in the world became much richer because of industrialization, because of much better technologies, trade and all of that.<\/p>\n\n\n\n But relatively speaking, it was places that were empty, without any urbanization, without much established road networks or agricultural surplus, such as Chile, Argentina, US, Canada \u2014 relative to the places that I mentioned a moment ago: Bolivia, Peru, Ecuador, Mexico, India, Pakistan \u2014 that actually became richer. So, that reversal of fortune is a prima facie evidence against a purely geographic explanation.<\/p>\n\n\n\n Now, what else<\/em> could explain it? Well, essentially there are two broad categories. The details, of course, within those categories matter, but there are two broad categories. One is that it\u2019s the institutions, as I\u2019ve tried to explain. And second, it\u2019s culture. Perhaps Europeans brought their culture into some places or messed up the culture in some other places.<\/p>\n\n\n\n And the human capital is somewhere in between because human capital is an institutional feature, meaning that it really depends on the educational investments, but it also, of course, has a cultural element.<\/p>\n\n\n\n So a lot of the qualitative and the quantitative research that we have done puts much more emphasis and finds more support for the institutional interpretation. For example, if you take human capital, it wasn\u2019t that Europeans brought human capital to the places such as the US or Argentina or Chile. Actually, the Europeans who were more educated were the ones who went to places such as the Inca Empire or the Aztec Empire.<\/p>\n\n\n\n COWEN:<\/strong> But they brought ideas. The Declaration of Independence was brought over by English and other European settlers. And that was a powerful intellectual validation.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Absolutely. It was that idea \u2014<\/p>\n\n\n\n COWEN:<\/strong> Native Americans were not producing the same, so \u2014<\/p>\n\n\n\n ACEMOGLU:<\/strong> No, that\u2019s why I\u2019m saying that the whole<\/em> European colonization episode has to be taken in its entirety. But it isn\u2019t also a straight line to say that Europeans brought ideas and that\u2019s what really changed the trajectory in a good way.<\/p>\n\n\n\n Europeans settled in some numbers in Barbados. In 1680, about 10,000 people in Barbados had European ancestry and probably about 2,000, 3,000 were British. But these people, who benefited mightily from the plantation complex and from about 40,000 people being chattel slaves, did not have any idea of introducing a Declaration of Independence. They actually established a very draconian regime. Executions were commonplace. All the power was concentrated in the hands of about 150 families that were to be plantation owners.<\/p>\n\n\n\n And the way that the independence declaration evolved and other things evolved in the US was actually in reaction<\/em> to British power. The important story, which, of course, everybody knows, is that Declaration of Independence was in order for the Americans to reject the European imposition to some degree.<\/p>\n\n\n\n But actually, the story goes much further back if you take the first semi-successful colony in Jamestown. What makes Jamestown unique is not that . . . or actually, very common in some sense, but a first in history. It actually broke completely new ground institutionally to introduce the headright system<\/a>, smallholder property, to introduce the general assembly.<\/p>\n\n\n\n And none of this was because the Virginia Company, who colonized and owned the place, wanted to. They wanted to set up a system very similar to the one in Barbados or Jamaica. It was against the wishes of their British masters because the settlers said, \u201cNo, we\u2019re not going to go along with that.\u201d And they had enough political power to do it.<\/p>\n\n\n\n Therefore, the story is more complicated. It\u2019s not that the European ideas directly came. It\u2019s the European ideas interacting with the local conditions, and often the success came from local conditions making European strategies of dominance unsuccessful.<\/p>\n\n\n\n COWEN:<\/strong> If we think about the USSR, which has terrible<\/em> institutions for more than 70 years, an awful form of communism \u2014 it falls; there\u2019s a bit of a collapse. Today, they seem to have a higher per capita income than you would expect a priori<\/em>, if you, just as an economist, write about communism. Isn\u2019t that mostly just because of what is now Russian, or Soviet, human capital?<\/p>\n\n\n\n ACEMOGLU:<\/strong> That\u2019s an interesting question. I think the Russian story is complicated, and I think part of Russian income per capita today is because of natural resources. It\u2019s always a problem for us to know exactly how natural resources should be handled because you can do a lot of things wrong and still get quite a lot of income per capita via natural resources.<\/p>\n\n\n\n COWEN:<\/strong> But if Russians come here, they almost immediately move into North American per capita income levels as immigrants, right? They\u2019re not bringing any resources. They\u2019re bringing their human capital. If people from Gabon come here, it takes them quite a while to get to the \u2014<\/p>\n\n\n\n ACEMOGLU:<\/strong> No, absolutely, absolutely. There\u2019s no doubt that Russians are bringing more human capital. If you look at the Russian educational system, especially during the Soviet time, there was a lot of emphasis on math and physics and some foundational areas.<\/p>\n\n\n\n And there\u2019s a lot of selection among the Russians who come here. There are a lot of criminal Russian elements who come to Europe, and they do very well, but for different reasons than the mathematical or the physical-sciences human capital that they\u2019re bringing.<\/p>\n\n\n\n But I would say, what the Russian scientists are bringing . . . and that\u2019s very well documented. For example, in the case of after the collapse of the Soviet Union, Russian mathematicians came here, and they took jobs from American mathematicians because they were actually better.<\/p>\n\n\n\n Well, that\u2019s both human capital and institutions, meaning that the reason why that\u2019s actually persisting is not simply that the current generation of Russians have parents<\/em> who are very high human capital. That matters, of course. That matters for the values. But really, Russian educational institutions have persisted. Take away those, they collapse, and nothing remains.<\/p>\n\n\n\n And you\u2019ve seen that happen in some of the Russian republics, for example. They had pretty good educational institutions at the time, but then in the context of the civil wars that ensued, for example, some of those educational institutions have collapsed, and rebuilding them has been much harder.<\/p>\n\n\n\n COWEN:<\/strong> I\u2019m sure you know the Mankiw, Weil, and Romer paper<\/a>. They have a Solow model, but they put human capital in, and human capital has a very high degree of explanatory power. Presumably, you disagree with them, like in the context of their work \u2014 a Solow model, a growth model. What exactly<\/em> do you specify differently than Mankiw, Weil, and Romer?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Well, I think Mankiw, Romer, and Weil is a very important paper for its time, but it also has a lot of problems. The most major problem of Mankiw, Romer, and Weil is that it\u2019s a regression framework of cross-country differences or changes that really has no way of dealing with omitted variable bias<\/a>. And when we have seen that in the context of Mankiw, Romer, and Weil, if we go a little bit into the details, is that if you compute the implied rate of returns to human capital, they are about four or five times as large as what you would get from Mincer regression.<\/p>\n\n\n\n So the Mincer regression says if you get one more year of schooling, you\u2019re going to increase your earnings by about 6 percent in the US, perhaps as high as 8 or 9 percent in some developing countries. Let\u2019s say 10 percent. Let\u2019s be generous.<\/p>\n\n\n\n That means that if you are going to increase your rate of schooling by 3 or 4 percent, and if there are no major human capital externalities \u2014 and we can come back to that \u2014 then that\u2019s going to increase your GDP per capita by 25, 30 percent. That\u2019s a very small number relative to the gaps that we actually observe. So if you look at what \u2014<\/p>\n\n\n\n COWEN:<\/strong> The cross-human externalities are incredible, right?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Of course, I\u2019ll come to human externalities.<\/p>\n\n\n\n COWEN:<\/strong> If you take Bill Gates and put him out in the jungle, he can\u2019t do much. But if he works with other programmers \u2014 yeah.<\/p>\n\n\n\n ACEMOGLU:<\/strong> We\u2019ll come back to that. That\u2019s why I said let\u2019s come back to the human capital externalities. But let\u2019s understand \u2014 where Mankiw, Romer, and Weil either go wrong or right, depending on your views on human capital externalities, is that their implied returns that three or four years would be associated by three- or fourfold increases in income per capita.<\/p>\n\n\n\n And later literature that followed \u2014 some of it very good, some of it not so good because there are other methodological issues, but they all uniformly find much more limited returns to human capital. And that\u2019s not my work. Here, I\u2019m actually building on other people\u2019s work, such as Pete Klenow, Andres Rodriguez-Clare<\/a>, or others who have really made this point very effectively.<\/p>\n\n\n\n So the only nuance here is exactly what you\u2019ve pointed out: some sort of human capital externalities. Could it be that the return for a society from education is much, much larger than what we mentioned with Mincer regression, when we look at an individual\u2019s own<\/em> earnings increasing? And that would be the realm of human capital externalities, and those could come in one or two forms.<\/p>\n\n\n\n They could come either through some sort of local externalities, meaning that I get more education and I make people around<\/em> me richer. Or they could come through some sort of R&D externalities, that I become more educated, and as a result of that, I invent something and make everybody<\/em> in the world more productive.<\/p>\n\n\n\n Now, the first one, the local human capital externalities \u2014 that\u2019s something I actually investigated, for example, with my work with Joshua Angrist<\/a>, and we don\u2019t find much evidence for it.<\/p>\n\n\n\n And it\u2019s not so surprising at some level. There could be some small externalities, but are you going to become suddenly much more productive because a bunch of McDonald\u2019s workers suddenly increase their education level by two years? Sure, perhaps when you go to McDonald\u2019s, you\u2019ll get better service. There might be some other small externalities, but it\u2019s not going to be a transformative event to increase your rate of return by three- or fourfold.<\/p>\n\n\n\n Now, the R&D externalities are different.<\/p>\n\n\n\n COWEN:<\/strong> Wait, you moved from Turkey to MIT, right? That made you much<\/em> more productive.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Exactly. I\u2019m moving into an area with better technology and better institutions.<\/p>\n\n\n\n COWEN:<\/strong> But mainly<\/em> better people to work with?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Some<\/em> better people to work with, but the better \u2014<\/p>\n\n\n\n COWEN:<\/strong> For people at the top, the externalities probably are very, very high. So Mark Zuckerberg in Peoria is maybe doing quite well, but he\u2019s not building Facebook.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Absolutely. I think teams<\/em> really matter. If you\u2019re going to build a new product, you really want the very best engineers. But I\u2019m not sure whether I would call that actually an externality. If that happens in the context of a firm, the firm internalizes it. That\u2019s why firms pay really amazingly high wages to teaching human capital \u2014 people who make the people around them more productive. And if that\u2019s being reflected to wages, that\u2019s already in the Mincer returns.<\/p>\n\n\n\n So I think it\u2019s really hard to cook up stories for human capital externalities that\u2019s going to get you anywhere close to Mankiw, Romer, and Weil\u2019s type of numbers or implications.<\/p>\n\n\n\n COWEN:<\/strong> But say the Nordhaus paper<\/a>, which suggests most innovators get only about 2 percent of the returns of their creation \u2014 doesn\u2019t that mean the Mincer wage equation doesn\u2019t pick up many of the benefits of cooperation?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Right. For the very, very top innovators, there is clearly some externalities. I think the Nordhaus numbers are probably extreme because there\u2019s also a lot of business stealing that\u2019s going on at the top, meaning that when people innovate<\/em>, they actually take other people\u2019s markets.<\/p>\n\n\n\n Google got an amazing value. It\u2019s one of the most valuable companies that human history has ever seen. But some of it came because it actually took the market of other search engines, such as Yahoo or AltaVista.<\/p>\n\n\n\n It also created value for its customers, and it\u2019s also been pretty good at capturing that value. But the important thing, again, is those are very exceptional one or two innovations. When you say the average level of schooling increases from 10 to 11, we\u2019re not really capturing that. Some of the people who innovate and capture such values are not the most educated ones, and they\u2019re not educated in the US.<\/p>\n\n\n\n One of the great things about US is, actually, we attract<\/em> those talents, again because of the business environment, because of the institutional environment, as well as the teams that they can form when they come to the US.<\/p>\n\n\n\n COWEN:<\/strong> There\u2019s another paper<\/a> I\u2019m sure you know, by Casey Mulligan and coauthors, and he even argues maybe having democracy doesn\u2019t matter that much. It affects your political institutions, but if you adjust for demographics, that doesn\u2019t predict your educational spending. If you look at either Chile pre- or post-Pinochet, Spain pre- or post-Franco, other than how politics works, most of the budget doesn\u2019t change much. What do you think of that argument?<\/p>\n\n\n\n ACEMOGLU:<\/strong> I think that that\u2019s really off the mark. The early work on democracy \u2014 such an important topic, and people were really excited about understanding what democracy does. So they rushed in with the tools that we had available at the time in the 1990s or early 2000s.<\/p>\n\n\n\n But you have to be careful. Of course, if you judge whether democracy is successful or not by comparing China to Switzerland, you\u2019re going to get not very meaningful answers. That\u2019s like a chief case of comparing apples and oranges. I have written a couple of papers on this, and the econometrics here really matters for a variety of reasons. You don\u2019t want to compare apples and oranges.<\/p>\n\n\n\n You also want to be careful because it turns out that there\u2019s one surefire predictor of when a country democratizes \u2014 it\u2019s economic crisis. Dictatorships don\u2019t go often because they decide, well, citizens should rule themselves. They collapse, and they collapse more likely in the midst of severe economic recessions.<\/p>\n\n\n\n So you really have to take care of these things. And when you do that, you find two things that are both amazingly robust. One is that democracies grow faster. So when a country democratizes, for another three or four years, it takes time for it to get out of the crisis. Then it starts a much faster growth process. It\u2019s not going to make Nigeria turn into Switzerland, but a country that democratizes adds about 20 to 25 percent more to its GDP per capita.<\/p>\n\n\n\n And then the second thing, again, completely the opposite of what you said from Mulligan\u2019s research \u2014 one of the most important mechanisms for that seems to be that when you democratize, you tax more, so the taxation, the budgets go up. And<\/em> you spend more, especially on education and health, so the health of the population improves. Child mortality is one of the things that improves very fast. Primary and secondary enrollment improves a little bit more slowly, but it improves very steadily.<\/p>\n\n\n\n COWEN:<\/strong> Now, in your new book, The Narrow Corridor<\/em> with James A. Robinson, there\u2019s a theory about states and societies reinforcing each other in a Red Queen kind of manner<\/a> and giving you ongoing synergistic gains over time. What\u2019s the underlying factor that determines why some societies succeed in that and others don\u2019t?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Yeah, so I feel \u2014<\/p>\n\n\n\n COWEN:<\/strong> Does the theory collapse into some other theory, is another way of putting my question.<\/p>\n\n\n\n ACEMOGLU:<\/strong> I\u2019m sure every theory at some level collapses into another theory, but you know \u2014<\/p>\n\n\n\n COWEN:<\/strong> But geography theories don\u2019t, right? Disease burden theories typically don\u2019t.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Right, they don\u2019t. Just let me build on the democracy question. I think what\u2019s really interesting about democracy and this evidence that I talked about \u2014 it\u2019s really about society, regular citizens having their voices heard in the political sphere. That\u2019s what democracy is wonderful for.<\/p>\n\n\n\n But at the end of the day, that translating into better public services like education, healthcare \u2014 that\u2019s really what this book is about. That\u2019s what The Narrow Corridor<\/em> is about. It\u2019s how do you make states and societies work together? If you look at most of human history, it doesn\u2019t work. Either you have stateless societies, no centralized law, no third-party enforcement \u2014 so, lawlessness and lots of other costs \u2014 or you have despotic states that don\u2019t listen to society and impose their will, often very repressively and otherwise, on societies.<\/p>\n\n\n\n But the original part of the book is to say, actually, squeezed in between these two things, there is this Red Queen dynamics, the corridor where states and societies sort of support each other, and that supporting process is a contentious process. It\u2019s not that they are happily cooperating. They are trying to race with each other. Each is trying to have the upper hand. But as long as that competition doesn\u2019t become destructive, it can actually add to the capacity of both of them.<\/p>\n\n\n\n So in that sense, it is an institutional theory. It is also about norms and cultures because you really need to write norms and cultures for society to participate in politics, and the right sort of understanding of what that participation is about.<\/p>\n\n\n\n But at some level, I also don\u2019t see it that easily being reduced to other stories because it is exactly about this cooperation-and-competition dimension of state and society empowering both, which, at least to our understanding, was not an idea that has received much attention, but when you start thinking about it, it really opens up new horizons about your interpretation of the world.<\/p>\n\n\n\n COWEN:<\/strong> Just empirically, what do you think is the best underlying preexisting predictor of getting into that positive synergistic dynamic?<\/p>\n\n\n\n ACEMOGLU:<\/strong> We spend quite a lot of time in the book going through several examples of countries that have been able to do that, and there are two prerequisites. It is that you need to have both an already mobilized society with the norms and traditions of participating in politics, and you need to \u2014<\/p>\n\n\n\n COWEN:<\/strong> That\u2019s human capital somewhat, right?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Well, let me say the other element. Then I\u2019ll come back to the human capital. That\u2019s a good question, but I\u2019m going to disagree.<\/p>\n\n\n\n Then you also need some sort of institutional elements that survive or that are present, about how state institutions are run, how bureaucracy is organized, how administration is organized. Let me take a specific example, and then we can talk about human capital in that context.<\/p>\n\n\n\n You cannot talk about liberty without at least addressing, to some degree, why Europe is exceptional. Why is it that certain representative institutions develop most strongly in Europe and certain aspects of liberty \u2014 they did not only <\/em>develop in Europe; the demand certainly was there throughout the world \u2014 but they took strongest root in Europe. So what was special about it? Culture, Greco-Roman heritage, geography?<\/p>\n\n\n\n We say none<\/em> of this. It\u2019s actually the meeting of bottom-up political participation and the institutions of the Roman Empire, even after the Western Roman Empire had collapsed. So where does the bottom-up element come from?<\/p>\n\n\n\n Well, it comes from the Germanic tribes who were raiding and sometimes fighting with, sometimes fighting against the Romans. But after the Western Roman Empire collapsed, especially the Franks, sorry, amalgamation of several other Germanic tribes really took root throughout that area. The Franks did not have much human capital. They did not have any educational institutions. They didn\u2019t know how to read and write. They learned that from the church after they sort of adopted Christianity. But what they had were these traditions of organizing their politics.<\/p>\n\n\n\n This is recognized by Julius Caesar and Tacitus during the times of the Roman empires and the early chroniclers of the Merovingians and the Carolingians. They had this view that the chiefs had to serve the people. So the chiefs were often temporarily appointed during wartime, and out of war, they held back. They had all these assemblies.<\/p>\n\n\n\n Some historians call them the assembly politics of the German tribe. Everything had to be done through assemblies, and those traditions were the ones that they tried to fuse, and quite successfully in the hands of Clovis and Charlemagne, for example, together with the much more top-down Roman Empire\u2019s institutions.<\/p>\n\n\n\n So it\u2019s the human capital came out of that process, especially with the church\u2019s doctrines and teachings as one of the key repositories of human capital around the Middle Ages, sort of playing out. But when you look at the Merovingians \u2014 they did not have high human capital. They certainly had much less human capital than the Romans before the Roman Empire had collapsed.<\/p>\n\n\n\n COWEN:<\/strong> But I think you\u2019re thinking about human capital in terms of some kind of education. If you think of it in terms of norms, customs, and also ideas \u2014 they had Christianity. You get the conciliar movement quite early in western Christianity. You get underlying democratic forces. In the Bible itself, there\u2019s an emphasis on the individual, on the nobility of an individual who is not powerful in terms of military force but rather \u2014<\/p>\n\n\n\n ACEMOGLU: <\/strong>Okay, so those are good questions.<\/p>\n\n\n\n COWEN:<\/strong> Why isn\u2019t that the kind of Solow residual<\/a> of Europe?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Those are good questions. I agree some and I disagree some. First of all, as I said early on, norms are critical. And I said, what are the Germanic people, what are the Franks bringing? Yes, it\u2019s the norms. There they have some institutions \u2014 so the assemblies have become institutionalized \u2014 but it\u2019s mostly norms, as I said.<\/p>\n\n\n\n But the ideas that they are bringing aren\u2019t associated with any sort of religious ideology or anything like that. They\u2019re just much more practical, and the role of the church is actually quite much more complex than what might first meet the eye.<\/p>\n\n\n\n First of all, the Merovingians weren\u2019t, or the Franks weren\u2019t, initially Christian. They became Christian as a state-building effort. Clovis decided to convert to Christianity, but it wasn\u2019t a personal conversion. He converted together with all of his warriors, and he wanted to have the additional political hierarchy created thanks to the church. And we know that when the church institutions and the Roman institutions meet with other sort of conditions, they did not lead to anything like the corridor that we see starting during the Merovingian and the Carolingian times.<\/p>\n\n\n\n The place where the church was extremely strong and Roman institutions were extremely strong was Byzantium. The Eastern Roman Empire survived, and it was actually much better organized in many ways than the Western Roman Empire. Christianity played a very, very important role. Their bureaucratic traditions persisted, but no liberty emerged in the Byzantium Empire because you had the one<\/em> blade, which was the state institutions, but the other blade, the bottom-up politics, was completely missing.<\/p>\n\n\n\n COWEN:<\/strong> If you think about the longer-term history of Islam, which is in many parts of the world, there are some recent examples of electoral democracies in Muslim countries, but there are actually remarkably few compared to the history of Christianity. Doesn\u2019t that suggest the power of Christianity, as an idea on political institutions, is remarkably strong?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Well, I think Islam is not exceptional. There are many other religious traditions \u2014<\/p>\n\n\n\n COWEN:<\/strong> But Christianity<\/em> is exceptional in my account, not Islam.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Okay, let\u2019s talk about that. We can come back to Islam because we do actually spend quite a bit of time both about the origins of Islam as a state-building religion and also how it has been used and abused during recent times.<\/p>\n\n\n\n But about Christianity, I would say the Byzantium example says there\u2019s nothing exceptional about Christianity in the hands of the Byzantium emperors. Christianity was as repressive and as a top-down state religion as any. Examples of that abound from Portugal to Spain, both in their own countries when the monarchs became strong enough, or the way that they impose this in their colonies. Christianity turned out to be extremely consistent with top-down politics imposition, stamping out all sorts of rights and bottom-up elements.<\/p>\n\n\n\n COWEN:<\/strong> Sure, but once you get the printing press and literacy, individualism then blossoms, right? And demands for some kind of popular accountability.<\/p>\n\n\n\n ACEMOGLU:<\/strong> It does, but I will say that the roots of that are not in Christianity. The roots of that are exactly<\/em> in the mixture of Christianity with the bottom-up politics of the Frank institutions.<\/p>\n\n\n\n You see that, for example, again, in the case of the Anglo-Saxon England. In the case of Anglo-Saxon England, Christianity plays a much secondary role relative to the assembly politics in the way that the Saxons brought to the British Isles. You see those assemblies playing a role at every stage, constraining kings and completely changing the political traditions, even after the Norman Conquest.<\/p>\n\n\n\n Christianity comes in and out of the picture, but it\u2019s completely secondary. Now once, of course, those political traditions become well rooted and<\/em> the country is Christian, those two start merging, and some of the exporting of these ideas beyond the boundaries of the Germanic tribes themselves or Britain sometimes have a religious element. But I don\u2019t think I would interpret that as saying that there is something inherently different about Christianity.<\/p>\n\n\n\n COWEN:<\/strong> Is there something inherently different in East Asia and the Confucian tradition? You take South Korea, the Park administration in the 1960s \u2014 it\u2019s remarkably<\/em> corrupt. No rule of law. Yet South Korea now is a completely developed nation, more or less on a par with France.<\/p>\n\n\n\n ACEMOGLU:<\/strong> Yes, it\u2019s democratized.<\/p>\n\n\n\n COWEN:<\/strong> But isn\u2019t that endogenous to there being some cultural element in East Asia, which is common to Taiwan, Singapore \u2014 mainland China, we will see. But is that the case \u2014<\/p>\n\n\n\n ACEMOGLU:<\/strong> Yes, but I think what\u2019s very important \u2014 and we spent quite a bit of time in the book on this in the context of Chinese history \u2014 is not necessarily the notions of liberty or bottom-up politics.<\/p>\n\n\n\n What\u2019s really very exceptional about East Asia are the traditions of state capacity that go back to the Qin dynasty in China. And Confucius\u2019s teaching, as has been adopted by the successive Chinese dynasties, is an important part of it. It spreads from China to Korea to Vietnam. You have this more meritocratic organization of the bureaucracy, for example. And you have strong states, but at least with some capacity, not just tinpot dictators.<\/p>\n\n\n\n But what you want to think about there, again, is not a simply cultural thing. It does certainly survive in the forms of culture. It does certainly survive in the form of norms.<\/p>\n\n\n\n But its institutional underpinnings are very important as well: the exact way in which the state is organized, the exact way in which the bureaucracy is organized, and the relationship between state and society. The fact that society hasn\u2019t had much of a voice really helps some of those traditions evolve. If you go back in time long enough \u2014 for example, the Ottoman Spring period \u2014 China looks very different.<\/p>\n\n\n\n So it was a political change that happened, especially during the big wars of the Warring period<\/a>, that really changed those traditions, those institutions. So again, my interpretation would be that it\u2019s very much along the lines of what I\u2019m talking about, which is the interplay of norms and institutions together shaping these things. And there isn\u2019t a special Chinese genetic or some such human capital or idea that\u2019s surviving. It\u2019s those norms and institutions that are recreating themselves in different guises.<\/p>\n\n\n\n COWEN:<\/strong> And Why Nations Fail<\/em><\/a> \u2014 you\u2019re quite bearish on China. Do you still agree with that assessment?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Yeah, I would say that China is an experiment that we have never seen in the world. In many ways, if you look at the growth of China in the 1980s, it\u2019s very fast, but it\u2019s not unusual. There are many other countries that grow in more or less the same way, which is that you get rid of the most inefficient parts of your system, the completely regulated agricultural prices that were leading to famines when the country actually had hyper agricultural productivity in the \u201990s. You see the state-owned enterprises rationalizing and some private businesses entering into industry.<\/p>\n\n\n\n All of those are very similar to what happened with the Prussian growth, for example, in 19th century, with the Russian growth, but it all even has some elements of commonality with the Soviet growth during the 1930s, \u201940s, and \u201950s.<\/p>\n\n\n\n But what we are seeing right now is \u2014 against the predictions of many pundits, but very much consistent with the framework that we\u2019re presenting in The Narrow Corridor<\/em> \u2014 the imbalance between state and society meant that growth went hand in hand with the state\u2019s control over society not<\/em> weakening and, in many ways during Xi Jinping, getting stronger.<\/p>\n\n\n\n But what makes China exceptional is that \u2014 like no other despotic, extractive society in history \u2014 it has a complete obsession with innovation and technology. When you look at other despotic states, they understand they have to use technology. They understand they have to build some edge in some things such as war making, but they are not pouring resources. They\u2019re not trying to reorganize society in a new way in order to bring forth innovation while<\/em> still keeping that despotic control.<\/p>\n\n\n\n China is the first society that\u2019s really systematically trying to do that. China wants to keep the despotic control of the Chinese Communist Party while at the same time be a leader in digital technology, leader in Telecom, leader in AI, and it\u2019s pouring a lot of resources. It\u2019s providing incentives, and the question is whether this is going to succeed. My view is, it is not a complete failure, but it\u2019s not going to be a huge success.<\/p>\n\n\n\n You see the problems in it already, and we can go into some of the details. I don\u2019t want to keep going on and on. But there are tensions. You really need \u2014 you called it individualism. I\u2019m happy to call it that. I would have called it something differently. But you need that individualism spark. You need that experimentation for the most radical type of innovations to take place, and China is missing that. It\u2019s going to try to pour more and more resources to make up for it, but I\u2019m not sure whether it\u2019s going to work.<\/p>\n\n\n\n COWEN:<\/strong> How predictive do you think your theories are? Say you looked at Africa, knowing all of what\u2019s in your books and your articles, and you play a Philip Tetlock forecasting tournament. Which countries in Africa will do quite well over the next 30 years? Are you better at that than other people are?<\/p>\n\n\n\n ACEMOGLU:<\/strong> I don\u2019t think I would be that good at it because I think one of the things that you see when you start thinking about the complex of institutions and norms \u2014 details matter, leadership matters, collapses matter. You see some<\/em> elements that can be the basis of some broad tendencies. We said this in Why Nations Fail<\/em> seven years ago, and we\u2019re saying it again.<\/p>\n\n\n\n I don\u2019t think China is going to seamlessly democratize and enter the corridor and start having very strong civil-society institutions. You\u2019re not going to be able to build very strong state capacity institutions in places that have a tradition of completely distrusting the state.<\/p>\n\n\n\n You also are going to have a very different growth experience in places where you have a tradition of state capacity. So Vietnam is going to be very different than Burma, for example, because at least in parts of Vietnam, you have this tradition and institutions of states organizing production, organizing irrigation.<\/p>\n\n\n\n And in Africa, Rwanda and Burundi, with a tradition of much stronger state institutions, are going to be very different. Ethiopia has some of that also, and those countries can pursue a very different growth strategy than, say, Nigeria.<\/p>\n\n\n\n Nigeria is an amalgamation of many, many, many different ethnicities, tribes, and nationalities. It had none of it. Well, Yoruba perhaps a little bit has some of these traditions of older empires. But the country is not going to have a top-down growth strategy like the one that Rwanda and Ethiopia have.<\/p>\n\n\n\n But these are just very general tendencies. Nigeria can collapse into civil war again, and it\u2019s very difficult to predict those things. You can predict the fault lines. You can predict some of the comparative advantages. You can predict what is going to be very difficult. But making very specific predictions is going to be very hard.<\/p>\n\n\n\n COWEN:<\/strong> If you had<\/em> to name two or three nonobvious nations to be bullish on, are there any picks you would make?<\/p>\n\n\n\n ACEMOGLU:<\/strong> That\u2019s a great question. Well, I don\u2019t know what nonobvious means \u2014<\/p>\n\n\n\n COWEN:<\/strong> Denmark. Denmark will do fine, we can agree.<\/p>\n\n\n\n ACEMOGLU:<\/strong> In Latin America, I would pick Uruguay and Chile. I think those are two societies that have made the investments for both getting the bottom-up politics working and the top-down state institutions.<\/p>\n\n\n\n They both have very deep conflicts. Chile is a very highly unequal country. Economic inequality, I think, actually under<\/em>states social inequality. And you are seeing that with protests. We\u2019re seeing that with distributional conflicts. But despite that, I think this combination makes Chile unique in many ways. And Uruguay, I think, has attempted to do the same thing.<\/p>\n\n\n\n I think Ethiopia is a great example to watch. It\u2019s been crushed under brutal dictatorships for so long, but it has some of the elements of state institutions that are much stronger than the rest of Africa. And again, what you\u2019re seeing with Abiy Ahmed<\/a> now is this attempt to bring out the bottom-up element. I think that\u2019s very important.<\/p>\n\n\n\n You can go a little bit more micro. In the book, we talk about Lagos. Lagos is a super interesting case because it was the favorite example for everybody who wanted to talk of chaos and anarchy. It was a lawless city falling into pieces. Gangs were roaming the streets. But then what you actually witnessed in Lagos is exactly the type of thing that our framework suggests is a way out.<\/p>\n\n\n\n Some politicians who understood that the only way out of the morass was, you\u2019re going to promise to offer better state services, better tax collection, better refuse collection, better schooling, while at the same time encourage society to monitor them better. So the dual action of increase the state\u2019s capacity while society\u2019s controls get tightened as well.<\/p>\n\n\n\n COWEN:<\/strong> Now in these conversations, we usually have a segment, underrated versus overrated. I\u2019ll toss something out. You give your opinion. You\u2019re free to pass. Orhan Pamuk<\/a>.<\/p>\n\n\n\n ACEMOGLU:<\/strong> I think he is just right. He\u2019s an amazing writer and a brilliant voice for Turkey.<\/p>\n\n\n\n COWEN:<\/strong> Turkish pizza<\/a> \u2014 overrated or underrated?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Oh, I love it. I love it. I\u2019m not sure whether I would say under<\/em>rated, but yes, I love it, so perhaps underrated.<\/p>\n\n\n\n COWEN:<\/strong> Randomized control trials as a method for development economics.<\/p>\n\n\n\n ACEMOGLU:<\/strong> The way I would put it is that every tool is useful. You should not overuse and overemphasize any tool. If you think that randomized controlled trials are useless, that\u2019s absolutely wrong. But if you think that they\u2019re going to answer the majority of the questions in development economics, that\u2019s even more wrong.<\/p>\n\n\n\n COWEN:<\/strong> Cross-country growth regressions \u2014 underrated or overrated?<\/p>\n\n\n\n ACEMOGLU:<\/strong> Same thing. I think they were hugely overrated. They have so many problems. But if I say they are overrated, I wouldn\u2019t mean to say that you should not look at cross-country data. If your questions are about which countries develop and national development paths, which are just overwhelmingly important for lifting millions and billions of people out of poverty, you have to look at cross-country comparisons.<\/p>\n\n\n\n