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Dignity and the Wealth of Nations

To understand the significance of the presidential election this weekend in Russia, read a book written by two U.S.-based academics and being published this month. “Why Nations Fail,” by Daron Acemoglu and James Robinson, of the Massachusetts Institute of Technology and Harvard University, respectively, is a wildly ambitious work that hopscotches through history and around the world to answer the very big question of why some countries get rich and others don’t.
Their one-word answer, as Mr. Acemoglu summed it up for me, is “politics.” Mr. Acemoglu and Mr. Robinson divide the world into countries governed by “inclusive” institutions and those ruled by “extractive” ones. Inclusive societies, with England and its Glorious Revolution of 1688 in the vanguard, deliver sustainable growth and technological innovation. Extractive ones can have spurts of prosperity, but because they are ruled by a narrow elite guided by its own self-interest, their economic vigor eventually fades.

“It is really about societies that have a more equitable distribution of political power versus those that don’t,” Mr. Acemoglu told me. “It is about societies where the elite, the rich, can do what they want and those where they cannot.”

For many of us, that is a welcome conclusion. It may also seem to be an obvious one. But Mr. Acemoglu pointed out that academics, policy makers and business leaders have often advanced quite different views. One perspective is that all that matters is economic growth and the right technocratic mix of policies necessary to deliver it. This approach, implicit in the prescriptions of so many International Monetary Fund missions, is that if countries can get richer, everything else will fall into place.

A version of this view, which has gained particular currency since the collapse of the Soviet Union, is that the key is private property. Establish property rights, the reformers in Warsaw, Moscow and Beijing believed, and economic and social success will inevitably follow.

But Mr. Acemoglu and Mr. Robinson argue that if an extractive regime is in charge, neither wealth nor private property can save a country from eventual decline. The Russia of today, they believe, is a textbook extractive regime, and that is what makes the vote this weekend, and the unexpected protests that preceded it, so significant.

“Russia is ruled by a narrow clique,” Mr. Acemoglu said. “The only thing that is keeping it going is a big boom in natural resources and a clever handling of the media.” The point, Mr. Acemoglu argues, is that wealth in and of itself doesn’t lead to sustained growth: “Saudi Arabia can get a lot of growth, but that is not the right growth. Take away the oil and Saudi Arabia would be like a poor African country.”

A crucial argument Mr. Acemoglu and Mr. Robinson make — and one foreign aid donors and policy advisers too often miss — is that the leaders of extractive regimes don’t implement policies that stifle sustainable growth out of ignorance. They aren’t stupid; they are merely and rationally pursuing their own self-interest. The real ignorance is that of outsiders who fail to appreciate that in an extractive regime, the interests of the rulers and the ruled do not coincide. “When you think of somebody like Chávez, you will see that his objective is not to enrich Venezuela,” Mr. Acemoglu said, referring to President Hugo Chávez. “He is not letting markets work because his goal is something else.”

Mr. Acemoglu and Mr. Robinson’s analytical framework helps to make sense of one of the seeming paradoxes of the past 12 months — the prosperous middle-class people who have taken to the streets in the Arab world, in India and in Russia to protest crony capitalism. If you believe that economic growth today is a sufficient condition for long-term prosperity, these affluent agitators are puzzling. That leads observers to search for softer grievances, like the quest for dignity.

But Mr. Acemoglu and Mr. Robinson believe that dignity and long-term prosperity are intimately connected. The protesters, who put the demand for political rights ahead of everything else, are right; the academic consensus that argues they should simply focus on the correct economic policies is wrong.

In the early Putin era, the Acemoglu and Robinson approach was very much a minority view. As recently as 2008, an essay in Foreign Affairs magazine by a pair of influential Western scholars laid out the “conventional explanation for Vladimir Putin’s popularity” thus: “Since 2000, under Putin, order has returned, the economy has flourished, and the average Russian is living better than ever before. As political freedom has decreased, economic growth has increased. Putin may have rolled back democratic gains, the story goes, but these were necessary sacrifices on the altar of stability and growth.”

The two writers strongly disagreed: “This conventional narrative is wrong, based almost entirely on a spurious correlation between autocracy and growth. The emergence of Russian democracy in the 1990s did indeed coincide with state breakdown and economic decline, but it did not cause either. The reemergence of Russian autocracy under Putin, conversely, has coincided with economic growth but not caused it (high oil prices and recovery from the transition away from communism deserve most of the credit).”

The authors conclude with a prediction about Russia’s future that fits neatly within their framework of extractive vs. inclusive institutions and labels Putin’s Russia the former: “The Kremlin talks about creating the next China, but Russia’s path is more likely to be something like that of Angola — an oil-dependent state that is growing now because of high oil prices but has floundered in the past when oil prices were low and whose leaders seem more intent on maintaining themselves in office to control oil revenues and other rents than on providing public goods and services to a beleaguered population.”

Mr. Acemoglu and Mr. Robinson are pretty tough on Western experts, officials and business people who, they say, are too easily seduced by the leaders of extractive regimes, particularly ones enjoying temporary bursts of prosperity.

But the 2008 Foreign Affairs essay highlights a very important exception. One of the authors of this devastating critique of Putinism was Michael A. McFaul, the new U.S. ambassador in Moscow. That appointment, lauded by many inside and outside Russia for utilizing the skills of an acknowledged Russia expert, may be one reason to be hopeful about Russia today.

By Chrystia Freeland