A Tale of Two Cities

Gabriella Reimer is a recent graduate from Providence College where she majored in political science, global studies, and Spanish. This summer Ms. Reimer participated in Dr. Stephen Smith's 2018 AEI Summer Honors Program course on "International Economic Development: Why Institutions Matter."

The city of Nogales is one of the few settlements that actually straddles the U.S.-Mexico border. In Nogales, Arizona, the average household income is $30,000. There is clean drinking water, the population has access to basic health care, and most children are in school. The government also provides a variety of services, including sewage systems, roads, as well as law and order. In the city of Nogales, Sonora, however, the average household income is $5,000. This half of the city has high infant mortality rates and most adults have not earned a high school diploma. Crime is rampant, roads are dilapidated, and the life expectancy for citizens of Nogales, Sonora is much lower than their Arizona counterparts.

What accounts for the incredible dichotomy between these two sectors of the same city? In the book Why Nations Fail: The Origins of Prosperity, Power, and Poverty, Daron Acemoglu and James Robinson attempt to tackle this very question. They conclude that instead of geography or culture, which many other scholars have cited as most influential in explaining developmental outcomes, it is actually a society’s political and economic institutions that explain development failures or successes. Many states lack the political infrastructures necessary to promote economic growth and prosperity, while other states possess strong political institutions that protect economic interests and competition.

The Importance of Political Institutions

During my week in AEI’s Values and Capitalism seminar on International Development, my class continually returned to the argument that Acemoglu and Robinson make: political institutions, above all else, help us to explain why some nations are prosperous and others exist in cycles of poverty. Although their analysis hinges on both economic and political institutions, Acemoglu and Robinson place cardinal importance on political institutions, arguing, “While economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has” (Acemoglu & Robinson, 43). This was a novel concept to many of us in the course who have predominantly focused on the economic and quantitative side of international development, eschewing more qualitative questions.

The most developed nations in the world possess economic institutions that promote competition, opportunity, and freedom. In societies such as the United States, the United Kingdom, South Korea, and Japan, citizens are incentivized to succeed and work hard, select their occupations, and enjoy private property protections. Over time, this economic environment allows for the emergence of innovations in technology and education–key engines of development and prosperity. Yet these economic institutions are only made possible by certain political institutions. The existence of reliable laws and systems of order ensure that property rights are protected and that perpetrators are brought to justice when these rules are violated. Our class concluded that ultimately political institutions that are inclusive, open to participation, and democratic, produce economic institutions that are also interactive and allow for the accumulation of wealth and capital.

Room for Improvement

While Acemoglu and Robinson make a convincing argument, there were aspects of their thesis that I felt needed refining and development. In their book, the authors discredit outside factors, particularly culture and geography, positing that instead institutions are primarily responsible for the divergence from the country’s ability to develop. Their argument seems to suggest that political and economic institutions exist in a vacuum. I would argue that outside factors, including but not limited to, geography and culture are actually incredibly important in the formation of political and economic institutions. For example, Venezuela possesses massive oil reserves, a geographical factor that played a significant role in the formation of Venezuela’s political structure and institutions. Terry Karl argues that the state and political structure were formed around the oil economy, creating the extractive political and economic institutions that exist in Venezuela today. Furthermore, cultural contextualities in the Middle East have resulted in political institutions that are exclusive and hierarchical. As a result, many Middle Eastern economies are riddled with corruption and stagnation. These outside factors ultimately help us to understand the origins of a state’s political and economic institutions, and in result, their level of economic development.

Nevertheless, the argument that Acemoglu and Robinson raise was something that our group continued to revisit throughout the week. If a country lacks strong and accountable political institutions, is giving aid a pointless endeavor due to the likelihood that money will be squandered? Should development initiatives in the Global South give greater attention to cultivating strong and accountable political structures? Could microfinance offer us a possible tool for building stronger political institutions? These are questions many of us walked away with and will continue to grapple with for years to come. I have personally come to believe that building accountable and inclusive political and economic institutions is going to be the way forward for much of the developing world. I have no doubt that my classmates and myself will become pioneers in this field as we champion sustainable and accountable development practices in our future academic and professional endeavors.

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