Неэргодическая экономика

Авторский аналитический Интернет-журнал

Изучение широкого спектра проблем экономики

The Concept of Inclusive Institutions and Its Applications

This article examines the concept of inclusive institutions (CII) put forward by Daron Acemoglu and James Robinson. It draws analogies and parallels between the CII and earlier economic theories and doctrines, revealing their organic interconnection and continuity. Particular focus is put on a more precise definition of inclusive and extractive institutions made possible by the introduction of the concepts of guarantees and freedoms of two social groups, the elites and the masses. The author shows that many systemic crises do not lend themselves to an adequate explanation without these clarifications.

A Systemic View of History

 

The concept of inclusive institutions (CII) elaborated in the work of Daron Acemoglu and James Robinson is becoming more and more popular [2]. Their book can be called epoch-making since it presents a unique attempt to revise and rethink the whole world history in the framework of a single theoretical scheme. It has to be admitted that on the whole the authors have solved the ambitious task they had set themselves. Not surprisingly, the new theory has already been commented on in periodicals in this country, including substantive reviews of this monumental work [20]. Nevertheless the conversation about inclusive institutions is far from over, and many issues merit at least a detailed discussion.

In a preface to the book’s Russian edition Anatoly Chubays rightly says that the problem that gives the title to this best-seller can be considered to be the pinnacle of economic knowledge. Indeed, the authors have tackled a scientific super-task, not confining themselves to the narrow themes of their professional interests. It is no accident that the book is the result of a pooling of efforts by a prominent macroeconomist, Daron Acemoglu, and a practicing political scientist, James Robinson. Their theory is, if anything, a synthesis of the principles of economics and political science. Let me note parenthetically that the authors have also published a more academic piece of work [1] replete with models and mathematical applications. However, they have avoided the traditional extreme of mainstream, a surfeit and analysis of complicated models. As Thomas Piketty [12] rightly notes, “the discipline of economics has yet to get over its childish passion for mathematics... at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves.” Acemoglu and Robinson steer clear of this traditional pitfall of economists to achieve a qualitatively new level of understanding and generalizing historical trajectories.

The success of the book with the wide audience owes much to the style of presentation which can be described as a method of stylized historical examples. Each thesis is illustrated and explained through concrete historical facts which the authors deliberately cleanse of superfluous details to reveal the essence of the problem under discussion. The potential of the method of stylized examples in discerning new trends and studying the future has been noted in the literature [6], while Acemoglu and Robinson have demonstrated its fruitfulness in retrospective historical studies.

At the same time, despite all the merits of the new theory not all the explanations and interpretations of its authors are impeccable; many of them portray reality in a skewed and even distorted way. These mistakes often stem from the extremely broad geography of historical events and I have a feeling that at times the authors do not fully understand the specificities of some of the countries they analyze. Therefore, another look at the meaning and details of the new concept and a discussion of some of its disputed points would not come amiss. That is the purpose of this article.

Let me make it clear from the start that I do not purport to give a full-scale critique of the new concept. That has been partly done in [3; 4], which rightly pointed to the monocausality of CII. I will confine myself to minor corrections of the new theory on the basis of the shortcomings that I have noticed. Moreover, I believe that the monocausality of the CII should be seen not as a shortcoming, but as a merit because it makes it possible to attain a level of simplicity that brings out the essence of the scheme and makes it operational. Let me note that what has by now become the traditional opposition of the geographical and institutional factors is by no means fatal and can be resolved by tying them in within the framework of a single logical chain. For instance, the current state of Iceland, which can serve as a model of European democracy, is based on the inclusive institutions it has built. However, these very institutions are to a large extent the consequence of the country’s geographical position; absolutism never had a chance there as excessive concentration of power and wealth in the hands of a single person invariably led to that person simply being killed. The harsh northern climate, a small population and a limited array of available comforts dictated their equal distribution among members of the community and mutual help; excessive enrichment of some almost automatically meant the death of others, which prompted drastic actions to limit social inequalities. However, the role of the geographical factor did not prevent the trajectory of Iceland’s development over the past centuries from being shaped in the framework of inclusive institutions.

 

Inclusive and Extractive Institutions

 

The main categories of the new theory are the concepts of inclusive and extractive institutions. Inclusive institutions are institutions that permit and stimulate the participation of large groups of the population in economic activities, which in turn ensures the best possible use of their talents and skills on the basis of free choice of where to work and what to buy. In other words, inclusive institutions (II) ensure the involvement in the economy of large masses of people and consequently of a greater amount of human capital. Extractive institutions (EI) are oriented towards squeezing maximum profits out the exploitation of one part of society to enrich the other part. In other words, EIs limit the participation of the masses in the economic turnover and consign them to a place of the exploited social group incapable of using its human capital productively.

The introduction of two types of institutions almost automatically solves the riddle of the wealth of nations. IIs launch the cycle of creation and effective application of human capital, which produces innovations and new technologies, and that in turn leads to growing production efficiency, active economic growth and the increase of social welfare. Higher living standards and more democratic institutions of interaction between economic agents prompt constant reappraisal and improvement of existing institutions making them still more inclusive (see Fig. 1). Thus, the emergence and successful functioning of IIs makes society wealthy and prosperous, while EIs, which shackle the creative energy of the masses, lead to its gradual impoverishment.

At first glance the concepts introduced are almost self-evident and the theory based on them is quite reasonable and convincing. However, in practice two major problems arise. The first problem is genetic as observations show that very few countries in the world have achieved the coveted prosperity. This means that EIs are universally predominant and have no intention of yielding ground to progressive IIs. In other words, EIs are a natural, almost intrinsic state of society while IIs have to be fiercely fought for. This can be put in another way: the seizure of state power by a group of cruel-hearted individuals (the elite) who mercilessly exploit the rest of the population (the masses) is the norm of social life whereas any deviation from this scenario should be seen as a happy exception from the rule. That is indeed the case. But at this point there arises the need to fine-tune the theory to be able to understand the nuances of the process of building effective IIs.

 

 

Fig. 1. Inclusive Institutions and Social Welfare

 

The second problem is methodological: while the concepts of II and EI are quite understandable and operational at the substantive level, in identifying the institutions in a specific country at a specific time more precise criteria and definitions are needed. For instance, what institutions predominate in China today, extractive or inclusive? A still more difficult question has to do with the degree of inclusiveness. For example, in which country are institutions more inclusive, in the USA or in Canada? To answer these questions, a formal definition of II and EI is required. Unfortunately, Acemoglu and Robinson do not provide any clues for an accurate measurement of the phenomena of extractiveness and inclusiveness.

As it turns out, the phenomenon of effectiveness of institutions, including their extractiveness and inclusiveness, can be quantified. Danilo Zolo [21] came up with a fruitful political science approach based on the premise that the political process is contradictory in character and consists in fine balancing of polar values of personal security and freedom, protection of the political regime and maintaining social diversity, effective management and human rights, etc. Proceeding from this [8], a basic index of institutional development was proposed that combines the index of guarantees G and the index of freedom F.2 Proceeding from this structure, a more rigorous definition of II and EI can be given.

To this end let us divide society into two qualitatively different parts, the elite and the masses. Then inclusive institutions are those in which the representatives of the elite and the masses have a level of political, economic and social guarantees and freedoms higher than a certain critical level GE>G*; FE>F*; GM>G*; FM>F*, where E and M are indexes of the elite and the masses respectively; the asterisk indicates the lower boundary of freedoms and guarantees. Then extractive institutions are those in which the representatives of the elite have a level of political, economic and social guarantees and freedoms above a certain critical level, and the representatives of the masses below that level: GE>G*; FE>F*; GM<G*; FM<F*. Needless to say, this is a highly simplified definition of the two types of institutions, but it opens up additional analytical opportunities.

I mean that guarantees and freedoms of the masses can be fairly easily measured. I am referring to aggregate estimates.3 In the ideal case in II the indices of guarantees and freedoms for the elite and the masses are roughly the same: GE≈GM; FE≈FM. In the case of EI the gap between these indices for the elite and the masses is huge and tends to infinity: GE–GM→∞; FE–FM→∞. Thus, in the case of II there is relatively even distribution of guarantees and freedoms between the elite and the masses, whereas in the case of EI there is over-concentration of guarantees and freedoms in the hands of the elite. I will demonstrate elsewhere that such detailing of the concepts of II and EI is necessary to explain the crisis phenomena which Acemoglu and Robinson do not address. I should stress that the need to divide the institutional conditions for the elites and the masses and for the latter to achieve a certain threshold level of such conditions, just like for the elites, has already been noted [13; 14]. I am merely applying this thesis to the CII.

 

Complementarity of Economic and Political Institutions

 

History shows that both the EI and II tend to be stable and conservative: once established, they are quite difficult to transform. This fact needs to be explained systemically. The CII provides a fairly convincing decoding of the underlying mechanism of stability. To understand the phenomenon, two types of institutions — economic and political — have to be considered simultaneously. The former have to do with property rights and norms of economic interaction between agents, and the latter with the rules of obtaining and transferring state power. The reference point is invariably the political institutions which give the initial impulse and predetermine the economic institutions constructed. Thus, political and economic institutions are mutually complementary in two respects: for example, extractive political institutions geared to preserving the power of the ruling elite generate specific extractive economic institutions that sideline the masses, which in turn increases the incomes of the elite and thus strengthens their power and the established extractive political institutions. Instead, inclusive political institutions that imply regular change of power, initiate inclusive economic institutions that allow many agents to compete for a place in the elite, which creates social forces supporting the preservation of political pluralism and the established inclusive political institutions. Thus, the synergy of political and economic institutions ensures the stability of the established institutional regime.

However, the stability of institutions is not immutable, it may be disrupted. In such cases IIs morph into EIs and vice versa. The two processes are fundamentally different. While IIs may degrade over time due to gradual spontaneous dissipation of guarantees and freedoms for the masses, passing from EIs to IIs requires the implementation of a fairly complicated process of institutional transformations. The former process is akin to degeneration and fading of passionarity of ethnoses, and the latter process, to upward evolution due to various mutations.

The constant drift toward EI is due in large measure to the fact that the power at societies with EIs is well-nigh unlimited and therefore desired by many. This leads to constant attempts to seize power on the part of various influence groups. Even a slight dip in the struggle of the masses for their rights may suffice for some elite group to prevail and upend the existing IIs. Moreover, transition from EI to II implies redistribution of super profits of the elite among the masses, which is problematical if the principles of efficiency and fairness are observed. The reverse process, again, is much simpler: it is not too difficult to appropriate the incomes of the masses without observing any rules. The above-said explains why II is an extremely rare phenomenon compared to EI.

 

General Scheme of Institutional Evolution

 

Inclusive political institutions have two important attributes. The first is political pluralism, that is, relatively even distribution of power between various political groups. The antipode of political pluralism is absolutism when state power is concentrated in the hands of one person. The second is strictly periodical change of power in accordance with legal procedures. The antipodes here are either prolonged stay in power of one ruler (party) or illegal seizure of power (government coups and revolutions) by other political groups.

Numerous attempts to move from EI to II as a rule end in failure. This is largely due to the fact that an extractive regime is nearly always in a vicious circle of poverty, when the “iron rule of the oligarchy” dictates a change of elites through coups and revolutions while extractive political and economic institutions survive. Even a change of the power elite per se does not replace EI with II. If such a transformation is to take place three basic conditions are required:

1) the existence of a new influential progressive class (for example, the class of merchants during the Glorious Revolution in England);

2) broad opposition coalitions (for example, the Glorious Revolution was not a coup or a mutiny of a small number of conspirators, but a powerful social movement which had a broad base in various strata of the population);

3) initial conditions in the shape of a pluralistic system of checks and balances (for example, the parliamentary tradition in England going back to the Magna Carta).

 

 

Fig. 2. Scheme of Institutional Evolution of EIs

 

 

If the above three conditions of overcoming EI are lacking there emerges a vicious circle whose inner logic is approximately this: a political group under its leader, driven by lust for power, seizes power; political power bodies form extractive economic institutions which seek to ensure the economic interests of the powers that be and their enrichment; the huge accumulated wealth in the hands of the power elite reinforces its political positions and so on. Simple replacement of one political grouping by another does not change the institutional pattern which puts into effect the “iron law of oligarchy.” By the same token, attempts to replace the elite under an extractive regime never end because the stakes in the political game are very high: nothing less than unlimited power and almost unlimited opportunity for gain. That is why extractive regimes are rocked by endless military coups.

In addition to the above-said, another key factor is the existence of strong centralized (state) power in the country at the time EIs are transforming into IIs. It is impossible to build IIs without an established state machine which supports the monopoly of force within the bounds of the law. Otherwise the situation descends into a confrontation of various paramilitary groups none of which is able to prevail on the nationwide scale.

However, strong centralized power is a necessary but not sufficient condition for transition to IIs because it is an instrument that cuts both ways. On the one hand, it can keep a tight rein on elites and establish law and order in the country as the basis for further progressive transformations. On the other hand, strong centralized power is often tempted to suppress all opposition and establish totalitarian control. The dual role of central power is fraught with the danger of consolidating EI: cleansing the country of all alternative sources of violence easily transforms into a purge of all political opponents. This is added proof of the difficulty of passing from EI to II.

Even so, EIs are not eternal, and history knows of many examples of EIs being successfully overcome. CII offers a quite elegant scheme of the formation of IIs in the process of institutional evolution (see Fig.2). The scheme falls into two fundamentally different stages.

The first phase is accumulation of small institutional achievements on the basis of political pluralism. This is a process determined by the cultural, historical, geographical and psychological features of an ethnos. Because the changes are small and constant, the process can be considered to be continuous. Over a long period of time such small changes accumulate and institutional differences between countries become substantial. However, these cumulative changes as a rule have no definite evolution vector and cannot radically change the situation by turning EIs into IIs. For that to happen there needs to be a second phase, an accidental external shock. It is a powerful event which has all the hallmarks of the Black Swan (according to Nassim Taleb), i.e., it 1) is unpredictable in principle, 2) triggers large-scale consequences and 3) can easily be explained once it occurs [18]. External shock brings about a turning point when a discretely appearing challenge intensifies the result of many years of institutional drift. This may result in an institutional shift, i.e., a fundamental transformation of a political system in the direction of inclusiveness. If such a shift occurs elements of inclusive political institutions are formed; otherwise extractive political institutions remain unchanged.

There are some anthological examples of the scheme described above. For example, by 1346, when bubonic plague hit Western Europe, due to institutional drift peasants had greater independence and negotiating power than their fellow peasants in the east of the continent. Superimposed on the vastly different initial conditions was an external shock, the advent of Black Death which dramatically reduced the number of working hands. As a result, in Western Europe it led to the liquidation of feudalism whereas in Eastern Europe a similar process merely stimulated “a second edition” of serfdom. One more example. By 1600, because of the constant struggle of English barons against absolutism the King in England wielded less power than in France and Spain. This is why an external shock in the shape of the discovery of colonies created in England a competitive system of Trans-Atlantic trade whereas in France and Spain the monarchy established its monopoly of foreign trade. Thus the Black Swan in the form of bubonic plague brought about an important institutional change in England, i.e., abolition of serfdom, and Black Swan in the form of trade with the colonies brought about another shift in the shape of competitive foreign trade. Different institutional choices made by different countries at a turning point caused the institutional trajectories to diverge in the centuries that followed, which resulted in different rates of economic growth and different levels of social well-being.

 

Forces of Acceleration and Deceleration of Inclusive Transformations

 

If the EI starts to evolve and development proceeds in the framework of new IIs, a long-lasting mechanism of improvement of new institutions is set in motion. Not infrequently, the process becomes irreversible, though the danger of a rollback always exists. Fig. 3 shows the general scheme of “favorable feedback.”

 

 

 

 

Fig. 3. The Role of Creative Destruction in Improving Inclusive Institutions

 

 

IIs release the creative energy of the masses which takes the form of technological progress. However, all technological innovations trigger the so-called creative destruction mechanism. This means that along with the emergence of new production facilities, services and trades some old facilities, services and trades disappear. This forms two social groups, the winners and losers as the result of the introduction of the novelty. The former support innovation and seek to increase the inclusiveness of the working institutions and the latter obstruct innovations and resent the broadening of economic pluralism. As a rule, the former group outnumbers the latter as a result of which the balance of forces shifts in its favor and the impulse for further democratic reforms of political institutions prevails. Yet even such “favorable feedback” contains an element of opposition to progressive institutional shifts.

Democratic political reform can only take place under the flag of the rule of law. Departure from that principle in the context of IIs is problematical as it amounts to the destruction of all the previous institutional gains. Such a sacrifice is unacceptable for too many political groups and forces, so reform procedures remain legitimate. Reform in the process becomes a democratic value in its own right. The reason for this is that reform itself is seen as a planned “repair” of old institutions and is not fraught with any catastrophic consequences whereas the alternative is a revolution, a spontaneous dismantling and total destruction of old institutions. In other words, reform ensures institutional continuity, while revolution destroys it. Not surprisingly, in most cases reform is chosen.

A very different situation arises when EIs are running the show. In that case innovations also create groups of winners and losers, but the group of losers in this case is not rank-and-file economic agents, but political groups which wield power and therefore determine the course of institutional transformations. These groups have the final say and as a rule technological and institutional innovations are rejected. Here we deal with an acute conflict of interests between a majority and a minority. The problem often develops into a psychological conflict within the ruling coalition when all its representatives understand the true state of affairs and are genuinely eager to stimulate economic growth, but dread the prospect of losing their political and economic positions as a result of future growth. The institutions that promote growth may change the balance of wealth and power in society in a way that would harm the dictator and other power elites. To overcome the resistance of the ruling elite it is necessary to weaken power by introducing in it a critical dose of inclusiveness; instead, there will be a vicious circle of poverty.

Examples of innovations being blocked are numerous and striking. For example, Johannes Gutenberg’s printing machine began its triumphant march in Western Europe in 1460, while in Egypt it did not start until 1800. The fear Ottoman rulers had of seditious ideas that could be spread through books led to a ban on book printing. Similar examples are the refusal to build railways in Austria and Russia, etc.

 

Methodological Analogies and Parallels

 

The CII created by Acemoglu and Robinson marks a serious advance. However, it can hardly be considered a new page in the social sciences. There are scores of works proposing theories that are at least very similar to CII. Let us consider some of them.

The immediate forerunner of CII is arguably Douglass North’s violence theory (VT) which includes two institutional methods of organizing society: the order of limited (privileged) access to resources (LAO) and the order of open access to resources (OAO) [9; 10]. II and CII are practically equivalent to the concept of LAO in VT and EI in CII is equivalent to the concept of OAO in the VT. Thus, II and OAO contribute to dynamic economic development while EI and LAO inhibit the creative potential of individuals and society as a whole. Thus the introduction of two institutional regimes that determine long-term economic and technological differences between countries can be seen as traditional for modern economic science.4

The next concept closely related to CII is arguably the theory of institutional traps (TIT) proposed by Viktor Polterovich [16]. TIT considers stable but ineffective institutional states; CII identifies these with EI which are essentially typical institutional traps into which society almost automatically falls in creating the foundations of its statehood, a trap from which it is very difficult to escape. The conceptual apparatus of TIT is, if anything, more extensive than that of CII whereas the EI regime is more global compared to the traditional macroeconomic institutional traps. There are obvious opportunities here for effective combination of the two theoretical constructs. More recent developments of the general theory of reforms offer a deeper insight into the failures of reforming EI [15]. This may warrant a thorough study of the phenomenon of “premature inclusiveness trap” referred to by Anatoly Chubays.

Another interesting analogy can be drawn between the general scheme of institutional evolution in CII (see Fig. 2) and the general scheme of evolution in Taleb’s concept of antifragile social systems [17]; the similarity of the two concepts is highlighted in the schematic representation of the concept of antifragile system (see [5]). In both cases there is the factor of a sudden stress (shock), which sets in motion the hypercompensation effect (restructuring of institutions) leading to a higher level of efficiency. Thus, in this respect too CII has a substantive pre-history.

One cannot help seeing a remote but quite discernible parallel between CII and Taleb’s model of individual success [19], which again is brought into higher relief by its minimum schematization (see [7]). There is in fact a parallel here between small institutional achievements in CII (struggle for rights, forming of political parties, social activism, etc.) and individual work capacity according to Taleb, cultural features of a nation (love of freedom, bellicosity, etc.) and individual talent, shock at a turning point (geographical and scientific discoveries, pandemics, etc.) and lucky strike in an individual fate. Thus, the range of explaining factors and the scheme of their interconnection are very similar in the two theories under consideration.

The above-said does not detract from CII. On the contrary, it confirms again that the new doctrine is organically linked with other evolution theories providing extra proof of its validity and productiveness. A fact that cannot escape notice is that while CII and historical examples cannot impress modern economists, it is seldom that they are so smoothly combined, with every thesis of the theory repeatedly bolstered by vivid examples. In that sense CII certainly merits being used as a working analytical instrument by social scientists.

The body of accumulated historical experience, some of which is found in the book by Acemoglu and Robinson, contains both successful and failed attempts at transition from EI to II. Each country has been looking for its “own path” which led it either to victory or to defeat (we leave aside the numerous cases when the stability of EI suits both the elites and the masses). This brings me to the question of alternative methods of building II. No IIs known to the world are ideal, however, the IIs built in the USA have proved to be very viable. Still, world history continues experimenting. Today China is creating its own II model and is successfully challenging the USA in the framework of one-party communist rule. The future will tell whose IIs are more effective.

 

Excess of Extractiveness and Excess of Inclusiveness

 

In explaining CII Acemoglu and Robinson assume that freedom is good and the more freedom there is the better. However, there is more to this question than meets the eye. First, in addition to freedom there are also guarantees of conditions for the exercise of rights and fulfillment of obligations. Such guarantees and freedom are equally important. Second, problems arise not only when freedoms and guarantees are in short supply, but also when there is an excess of them. This means that inclusiveness by itself does not guarantee progress and rapid economic growth; its volume should be optimal, like that of all the other economic variables. Violation of this principle leads to the loss of economic effectiveness with all the consequences that entails.

I will cite several simple examples to illustrate my point. The first has to do with rapid political democratization of Russia after the collapse of the USSR. Impoverished people struggling to survive, I think, did not need any democracy, so that policy makers could often buy election votes for a song. As a result all political norms were grossly distorted and an inefficient power elite was formed. Here freedoms outstripped guarantees as the absence of minimum conditions for normal existence was paralleled by the granting of political freedoms. During that period the balance between economic guarantees and political freedoms was skewed.

A similar example is provided by events in Ukraine in 2014 when a government coup was followed by the secession of Crimea and the war in Lugansk and Donbass. Calculations show that political freedoms in Ukraine on the eve of these events far exceeded political, economic and social guarantees [8]. Thus, freedoms running ahead of guarantees can not only bring to power undesirable political groups, but provoke military conflicts.

Another vivid example from the history of modern Russia is offered by the university system which has seen rapid developments since 1991 (let us not go into the objective and subjective causes of the process). The result was an “education bubble,” the country became a world leader in terms of the percentage of people with higher education which was for the taking. Students could freely choose professions only to discover that they could not find an adequate job in the field for which they had been trained. Thus, having got the freedom to study anything, people had no guaranteed opportunities to apply their skills. The result of such a course of events was ineffective spending of public and private money. The 2014 crisis of the higher education system led to its paralysis. The inefficiency of the institutions regulating it became obvious. The phenomenon can be described as excess of human capital. Incidentally, Pyotr Turchin in his structural demographic theory has long been using the concept of “overproduction of the elite” [22].

Still on the subject of higher education, I would like to note an interesting trend in modern Russian higher education institutions: they have all put security guards at the entrance, whereas even in the Soviet Union access to most higher education institutions was free. At the same time, modern universities in Russia are full of administrative and auxiliary staff who greatly outnumber the teaching and research staff. Thus guarantees of safety are provided at the cost of a restricted regime at open education institutions and the establishment of unworkable norms of behavior. In this case guarantees are ensured at the expense of freedom. Considering that state higher education institutions are run on a one-person-in-command principle it can safely be said that academic freedoms are being curtailed to guarantee control of government-administered institutions.

While the last example illustrates an excess of extractiveness when the ruling elite seeks maximum control of its assets at the expense of civil freedoms, the case of the “education bubble” reveals an excess of inclusiveness when the entire population has an opportunity to study without guaranteed employment afterward. All these examples show that the definition of II needs to be more precise: at inclusive institutions, representatives of the elite and the masses have political, economic and social guarantees and freedoms within certain critical values G**>GE>G*; F**>FE>F*; G**>GM>G*; F**>FM>F*, where asterisks indicate the lower and upper limits of freedoms and guarantees. It inducates that while the lower limit is critical for the masses, the upper limit is critical for the elite. Thus, if the masses have no minimum of freedoms and guarantees, we are looking at EI. However, if the elites have too many freedoms and guarantees, that is also a sign of EI. Incidentally, the trap of premature inclusiveness referred to by Chubays is due to the imbalance between the guarantees and freedoms of the masses and the elites.

 

Applied Significance of the Inclusive Institutions Theory

 

For all the elegance and substantive character of CII its prognostic power should not be overestimated. The reason is that the main concepts are difficult to verify and that history is made by humans. That is why CII cannot provide specific forecasts of future successes and failures of various countries. Even so, the existence of two institutional regimes makes it possible, according to Acemoglu, to explain all the trends of the past century; moreover, the struggle between these two types of institutions will predetermine the trends in the next hundred years [11].

Thus CII makes it possible to analyze the global challenges and problems facing various countries. Perhaps the most interesting conclusion concerns China and Russia. The elites in these countries are exerting titanic efforts to ensure economic growth. Meanwhile, the CII delivers its own verdict: however impressive the successes of countries with EI may be they are bound to be temporary and will sooner or later be followed by technological depression [11].

While this forecast should not be challenged it needs to be kept in mind. In its  recent past Russia has already suffered several major technological fiascoes. The doctrine of innovation-driven economy initiated by Dmitry Medvedev has failed; so has the doctrine of re-industrialization of the country and creation of high-tech jobs initiated by Vladimir Putin. The current doctrine of global import-replacement put forward in response to international sanctions is sputtering. All the areas of society’s life are being heavily bureaucratized. All these facts show that launching technological progress in the context of a rigid vertical power structure is problematical. Most probably in the future the authorities will have to sacrifice a certain amount of extractiveness in order to put the economy on the path of real growth.

 

* * *

 

The West with its progressive IIs has offered the world another academic novelty, the CII. The new theory has signs of a certain ideological bias. The authors extol Great Britain, the cradle of capitalism, and the USA, the crowning of modern capitalism. The IIs in these countries are models for other peoples and states. The past and current problems of these countries are omitted although they are known to be no less massive than those facing many developing economies. There are likely to be discussions aimed at working out a more balanced position. However, on the whole the CII provides an excellent working tool for analyzing the current problems of the countries with inefficient institutions. This tool permits not only to spot the weak points in a country’s institutional development, but to identify the areas in which institutional corrections need to be made. With some tweaking and improvement, the CII may well become a milestone in understanding the laws of the development of human civilization.

There are of course alternatives to the CII, for example the structural-dynamic theory based on the modern complexity theory [22]. This theory is also good at explaining the causes of political and economic crises, but it gives no insights into the effect of the wealth and prosperity of a nation. In that sense the CII seems to be preferable as a theoretical construct.

 

References

 

1. Acemoglu D., Robinson J. Economic Origins of Dictatorship and Democracy. Cambridge, Mass.: Harvard Univ. Press, 2006.

2. Acemoglu D., Robinson J. Why Nations Fail—the Origins of Power, Prosperity and Poverty. New York: Crown Business, 2012.

3. Arslanov V. V. “Inclusive Institutions”: The Main Factor of Sustainable Growth? Article 1. Obshchestvenniye nauki i sovremennost (ONS). 2016. No.4, pp. 36-47.

4. Arslanov V.V. “Inclusive Institutions”: The Main Factor of Sustainable Growth? Article 2. Obshchestvenniye nauki i sovremennost (ONS). 2016. No.5, pp. 49-62.

5. Balatsky Ye.V. The Concept of Antifragile Social Systems and Its Applications. Obshchestvenniye nauki i sovremennost (ONS). 2015. No. 6, pp. 116-130.

6. Balatsky Ye.V. Management Paradoxes of Reform in University Sector. Zhurnal Novoy ekonomicheskoy assotsiatsii. 2015. No. 2, pp. 124-149.

7. Balatsky Ye.V. New Features of Global Capitalism. Obshchestvo i ekonomika. 2013. No. 3, pp. 59-80.

8. Balatsky Ye.V., Yekimova N.A. Assessment of the Institutional Development of Russia. Moscow: Pero, 2016. (In Russian.) 9. North D.C., Wallis J.J., Webb S., Weingast B.R. In The Shadow of Violence: The Problem of Development in Limited Access Societies. Paper for the XIII April International Research Conference on Problems of Economic and Social Development, Moscow, 3-5 April, 2012. Moscow: HSE Publishing House, 2012. (In Russian.)

10. North D.C., Wallis J.J., Weingast B.R. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. New York: Cambridge Univ. Press, 2009.

11. Palacios-Huerta I. (ed.) In 100 Years: Leading Economists Predict the Future. Cambridge, MA: The MIT Press, 2013.

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Media Source

 

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Notes

 

1 The article was written with financial support from the Russian Fund for Humanities Research (Project No. 16-02-00483).

2 I don’t consider here the issue of how the indices are calculated; the important thing is that it is possible in principle to makes these calculations and to draw conclusions from them.

3 I leave aside the issue of partial evaluation of the efficiency of institutions by numerous analytical companies [8]. For the sake of simplicity, I proceed from aggregate evaluations of guarantees and freedoms.

4 Some important divergences between TV and CII are noted in [13; 14].

 

Translated by Yevgeny Filippov

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