Tuesday, November 20, 2007

Institutions Vs Culture: What is the Main Driver of Economic Development

Greg Clark from UC Davis said:

Most economists think English political institutions ensuring free markets and individual incentives caused the Industrial Revolution. Consequently efforts to aid areas like sub-Saharan Africa, with living standards now BELOW those of the Stone Age, have focused on getting them "good" institutions. However, my book, "A Farewell to Alms," argues from the long historical record that good incentives -- secure property rights, low taxes, stable governments -- often just produce complete economic stagnation...

Even now dirt-poor Malawi has better economic incentives than rich Sweden, where the government seizes 50% to 60% of an extra income wage earners produce, and distributes free medical care, education and pensions. My book argues instead that modern growth is largely a cultural achievement. Societies cannot grow without a cultural transformation.

James Robinson at Harvard reacted to Clark's cultural thesis, his main point is that good insttiutions matter in a nation's economic development.

Read more here on their debate of the topic up at WSJ.

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