Given the growing income inequality in the United States, the relationship between wealth and compassion has important implications. Those who hold most of the power in this country, political and otherwise, tend to come from privileged backgrounds. If social class influences how much we care about others, then the most powerful among us may be the least likely to make decisions that help the needy and the poor. They may also be the most likely to engage in unethical behavior. Keltner and Piff recently speculated in the New York Times about how their research helps explain why Goldman Sachs and other high-powered financial corporations are breeding grounds for greedy behavior. Although greed is a universal human emotion, it may have the strongest pull over those of who already have the most.

via scientificamerican.com

 

All the difference in the world

From Adam Smith and Max Weber to the current day, scores of writers have grappled with these questions. Some scholars, like Weber, have argued that religious or cultural differences create vastly different economic outcomes among countries. Others have asserted that a lack of natural resources or technical expertise has prevented poor countries from creating self-sustaining economic growth.

Economists Daron Acemoglu of MIT and James Robinson of Harvard University have another answer: Politics makes the difference. Countries that have what they call “inclusive” political governments — those extending political and property rights as broadly as possible, while enforcing laws and providing some public infrastructure — experience the greatest growth over the long run. By contrast, Acemoglu and Robinson assert, countries with “extractive” political systems — in which power is wielded by a small elite — either fail to grow broadly or wither away after short bursts of economic expansion.

“You need political equality to underpin economic prosperity,” says Acemoglu, the Elizabeth and James Killian Professor of Economics at MIT. More specifically, he says, economic growth depends on widespread technological innovation. But widespread innovation is only sustained where countries promote rights, giving more people the incentive to invent things.

And while Acemoglu and Robinson have documented this thesis during roughly 15 years of joint research, now, in their new book, Why Nations Fail, released this week by Crown Publishers, they look more closely than ever at the collapse or stagnation of countries that lack these inclusive political systems.

Elites, Why Nations Fail asserts, resist innovation because they have a vested interest in resisting change — and new technologies that create growth can alter the balance of economic or political assets in a country.

“Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people,” Acemoglu and Robinson write. Yet when elites temporarily preserve power by preventing innovation, they ultimately impoverish their own states.

Why cultural explanations of prosperity fail

In Acemoglu’s own telling, their interpretation of history “is obvious at some level. Institutions shape incentives, and incentives are important.” However, he adds, “it’s not the conventional wisdom.”

Indeed, Weber, in 1919, influentially argued that the “Protestant ethic” — a culture of work buttressed by a belief system that rewarded forward-looking investment — had made Protestant European countries wealthy. In a related approach, many writers have recently argued that culture of Islam restricts growth. Others, such as life scientist Jared Diamond in his 1997 best seller Guns, Germs, and Steel, have asserted that the availability of natural resources has had an enormous effect on long-term prosperity.

Acemoglu and Robinson believe that these explanations fall short. For one thing, European countries with different sorts of cultures, Protestant and Catholic alike, have grown rich. Secondly, different countries within the same broad cultures have performed very differently in economic terms, such as the two Koreas in the post-war era. Moreover, individual countries have changed their economic trajectories even though “their cultures didn’t miraculously change,” as Acemoglu says.

Finally, some countries with similar kinds of natural resources have taken sharply different economic paths in the modern era; the average Spaniard is six times as wealthy as the average Peruvian, for instance.

“We were inspired by Guns, Germs and Steel,” Acemoglu says, “but our thesis is very different.”

‘Natural experiments’ around the world

Instead, as Acemoglu and Robinson see it, the “turning point” in world economic history was England’s “Glorious Revolution” of the late 1600s, the key moment in a longer-term process that expanded the political and property rights (including patent protections) available to people. Plenty of innovators existed before then, but had not been rewarded for their efforts; by the late 1700s, England had embarked on the largest sustained period of economic growth since the Neolithic age.

To test this reading of history, Acemoglu and Robinson use a variety of “natural experiments” (some developed in collaboration with MIT economist Simon Johnson) to examine how, other things being equal, contrasting political institutions alter the economic trajectories of countries.

Take North and South Korea, two countries with a common history, culture, climate and natural resources. Since their split in 1948, North Korea has become one of the poorest countries in the world, while South Korea is rich; there is now a tenfold gap in wealth between the states. Why? Because South Korea, Acemoglu and Robinson assert, despite political turmoil of its own, has evolved into an inclusive political system. The Korean peninsula, Acemoglu says, is a classic example of “two countries with very different institutions, but not because the people wanted it. That gives you a window into the long-term consequences of an institutional divergence.”

Likewise, the city of Nogales, Ariz., shares a culture, history, climate and resources with its twin city of Nogales, Mexico, right across the border. But the Nogales in the United States has an average household income of $30,000, three times that of Nogales, Mexico, which long languished under one-party rule. Similarly, in Africa, Botswana — which has maintained a democracy with property rights since gaining independence in 1966 — has the highest per-capita income in the sub-Saharan region, while its neighbor Zimbabwe remains an impoverished dictatorship.

Countries like Zimbabwe, Acemoglu says, also discredit the idea that autocratic leaders simply do not know which policies would lead to growth, a notion he finds to be “overwhelmingly popular among academics” who want their own findings to be implemented.

“Most consequential ‘policy mistakes’ are by design,” Acemoglu says. “These leaders are choosing policies that don’t maximize economic prosperity, because their objective is different: to hold onto power or simply enrich themselves.”

Why Nations Fail has already drawn plaudits from many social scientists. Joel Mokyr, an economic historian at Northwestern University, calls it an “incredibly creative book,” and hails its emphasis on politics. In decades past, Mokyr says, economists focused more “on models and competition, and institutions didn’t matter.” But in the future, he says, “what will remain influential from Acemoglu and Robinson above all else is an understanding of the significance of political power in the distribution of economic resources.”

Lessons for today

To be sure, some extractive states do experience economic growth due to “technological catch-up,” as Acemoglu and Robinson note in the book. The Soviet Union boasted a tremendous growth rate — 6 percent annually — between 1928 and 1960, as it changed from an agricultural to an industrial economy. But the country had no way to encourage further technological innovation, and began collapsing by the 1980s.

Other states in world history have experienced significant growth, and then collapsed. Acemoglu and Robinson believe that the ancient Roman republic grew in large part by extending rights to citizens and developing a partially inclusive political system, but that when Rome became an autocratic empire around 30 B.C., its economic fate was sealed. The same process occurred in Venice, a trading powerhouse of early modern Europe where the elite class choked off innovation in an attempt to keep the spoils for itself.

Such examples carry lessons for today, Acemoglu and Robinson believe — such as the notion that history does not occur in progressive fashion.

“Political institutions are very conflictual,” Acemoglu says. “They are always challenged. There is no guarantee there won’t be steps back, like in Rome or Venice. I think it’s very important to recognize that, because it prevents complacency.”

Another lesson is that prosperity hinges on rights being granted throughout society, not just to a limited class of people. “Property rights are very important, but in a context where everybody has access to them,” Acemoglu says. “You can’t have a situation where only slave owners or plantation owners have property rights. That’s not enough.”

Looking around the globe today, the limited extension of political rights in China makes Acemoglu cautious about the long-term prospects for Chinese growth “unless the country reforms itself” politically. Yet Acemoglu says he and Robinson are “optimistic” about the prospects for growth in the North African states witnessing revolutions in the last year.

For all the ongoing problems in establishing an inclusive political system in Egypt, he says, “against all odds, people are going on the streets again. The big thing is that the genie is out of the bottle. People know they can have their voices be heard. Once they have that emboldening, it’s much harder to keep a repressive, unresponsive regime going.”

Original Page: http://web.mit.edu/newsoffice/2012/why-nations-fail-0323.html

Mexico's drug war intrudes on Monterrey, a booming metropolis

IN MONTERREY, MEXICO When American baseball executives were looking for a place to move the struggling Montreal Expos franchise five years ago, Mexican investors brought them here, to this booming metropolis two hours south of the Texas border.

The case for Monterrey was a strong one then. Business journals ranked the city as Latin America's safest, and hundreds of U.S. companies were setting up operations. Nothing would cement Monterrey's reputation as a world-class city like a Major League Baseball team.

"It would have been a source of pride for all of Mexico," said Roberto Magdaleno, general manager of the local club, the Sultans, as he looked out over his aging ballpark.

Instead, the Montreal Expos moved to Washington and became the Nationals. And the Zetas drug cartel moved to Monterrey and began dumping bodies.

As Mexico's wealthiest urban area, Monterrey is a symbol of the country's aspirations, with a well-educated workforce, leading universities, thousands of foreign business executives and a per-capita income twice the national average. But today the city is at the front of Mexican President Felipe Calderon's U.S.-backed drug war, and its future is clouded by lawlessness. As one top executive here said, "If Monterrey is lost, all is lost."

Until recently, the city's chic shopping plazas and shady streets filled with joggers seemed more like Houston than Ciudad Juarez, the gritty, low-wage manufacturing town along the Texas border that is being depopulated by eight homicides a day. But the same qualities that made Monterrey appealing to investors - good schools, exclusive neighborhoods, upscale restaurants - made it attractive to bosses of the Gulf cartel and its main rival, Los Zetas.

The two mafias are locked in vicious competition at a particularly inopportune time for Monterrey. With the U.S. economy rebounding and labor costs rising in China, the city is poised for another boom. But a surge in violence is putting its economy at risk.

"It could be devastating for Monterrey's international image," said Jesus Cantu, a professor at the Tecnologico de Monterrey, Mexico's top university.

Homicides in the city and the surrounding state of Nuevo Leon more than tripled last year, to 828, state prosecutors said, and January's tally of 144 killings was the highest monthly total on record.

Last month, the 60-year-old security chief of the local prison was snatched from his home, and his butchered remains turned up in a cardboard box. Ten days later, the corpse of the state's top intelligence official was found in a burned-out car, one of more than a dozen police officers slain this year. In the past week and a half, assailants have attacked five Monterrey-area police stations with grenades and automatic weapons.

Motorists travel in fear of having their cars commandeered for impromptu roadblocks set up by grenade-throwing gangsters. Gunmen stormed a seafood restaurant in a middle-class neighborhood Feb. 16 and held patrons hostage, robbing and beating them, then stripping and sexually assaulting several women.

"The city has changed," said Carlos Miguel, a 42-year-old accountant shelling out $120 to buy his wife a 5,000-volt stun gun at a kiosk in a mall. "We don't go out at night anymore."

Local officials insist that Monterrey is not descending into the kind of criminal anarchy that has turned border cities into no-go zones. Despite the grisly headlines, the region added 95,000 jobs last year and pulled in $2.4 billion in foreign investment, a record amount. Construction cranes still sculpt the city's skyline.

Scott Wine, chief executive of Minnesota-based Polaris Industries, stands by his decision to open a 420,000-square-foot factory in Monterrey this year, where his company will manufacture all-terrain vehicles. But when he attended a meeting that Calderon held last month to soothe jittery foreign investors, Wine said, business leaders asked tough questions about security. "Monterrey is world-class in manufacturing, but it needs to be world-class in safety again," Wine said.

Yet even Monterrey's biggest boosters say their town's reputation has been scarred. Helicopter maker Eurocopter announced last month that it was scrapping plans to build a $500 million facility here. "We could grow a lot more if we didn't have these security problems," said Juan Ernesto Sandoval, Chamber of Commerce president.

Monterrey's captains of industry have been drawn into the fight. Lorenzo Zambrano, chief executive of cement giant Cemex, assigned his top executives to help the state government carry out its rescue plan. He said leaders have let cockroaches into the kitchen. "We have to work together to fight this plague," Zambrano said.

Calderon said he will send four more army battalions to Monterrey and the border region, which Mexican newspapers have taken to calling the "northern front."

Top state officials say they have a comprehensive plan to boost social spending, reform the judicial system and purge the police of corrupt officers. Salaries for starting officers will nearly double, from roughly $600 a month to $1,100, Lt. Gov. Javier Trevino said. "We are facing problems created by many years of social neglect," he said. "But it is no longer possible to live on little islands of security."

In San Pedro Garza Garcia, the Monterrey suburb that is Mexico's richest enclave, Mayor Mauricio Fernandez has tried to do just that, stoking his reputation as a "rudo," one of the tough guys in the pantheon of Mexican wrestling.

"The more prepared you are for war, the less likely you are to be attacked," said Fernandez, a scion of Monterrey wealth whose family made its fortune in paints and plastics. "If you pick a fight with me, you are going to lose."

Fernandez has installed 2,000 security cameras, quadrupled the police force, set up neighborhood watches and built his own intelligence service in a $65 million bid to "armor-plate" the district. "I pay for information, just like the FBI or Scotland Yard," he said.

But Monterrey's affluent are skittish. At the Ferrari dealership, both of the $350,000 cherry-red models on the showroom floor had been bought and paid for, but the owners have been too fearful to pick them up, employees said.

In August, the U.S. Consulate ordered its personnel to move their children out of Monterrey after two security guards were slain in a botched kidnapping attempt at an elite school attended by children of consulate staffers.

Nervous Mexican parents now keep their kids at home at night, and concerts by the Jonas Brothers, Bon Jovi and Lady Gaga have been canceled. Even Magdaleno, the baseball executive, said games have been moved up to 7 p.m. so fans can get home early.

The threats became too much for Alejandro Junco, publisher of El Norte, Monterrey's largest newspaper, and the national paper Reforma. He moved his family to Texas after someone dumped a corpse at his ranch and the Zetas cartel started demanding extortion money from the summer camp run by his daughter. Junco now commutes to Monterrey by private jet, then arrives on the roof of his newspaper offices by helicopter. He says he feels lonely.

"I loved my life here. I wouldn't give it up for anything. But I did. I gave it up," Junco said. "We had trouble before, but nothing like this. Nothing."

A representative of the Zetas demanded that Junco take down a Reforma Web site - called the Red Hot Border, Frontera al Rojo Vivo - because the cartel didn't like the comments section. "They said we had 72 hours, or they would blow up our building," Junco said.

The publisher took the site down, then later brought it back, without a comments section.

Original Page: http://www.washingtonpost.com/wp-dyn/content/article/2011/03/10/AR2011031006270_pf.html

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