Culture, Politics, and Economic Development

PAUL COLLIER

ANNUAL REVIEW OF POLITICAL SCIENCE

Abstract: For a generation, political science has been dominated by the analysis of interests within the framework of rational choice. Although this has enabled major advances, it struggles to provide a plausible analysis of many instances of sociopolitical dysfunction. This article reviews recent innovations in economics, psychology, and economic history that are converging to rehabilitate culture as a legitimate element of analysis. Culture matters, and its evolution is amenable to formal scientific analysis. But these processes need not be benign: There is no equivalent to the invisible hand of the market, guiding a culture toward social optimality. An organizational culture can trap a vital public agency, such as a tax administration, into severe dysfunction. A societal culture can trap an entire country into autocracy or poverty.

Quality of government and regional competition: A spatial analysis of subnational regions in the European Union

ANTONIO BUBBICO, JOHAN A. ELKINK, MARTIN OKOLIKJ

EUROPEAN JOURNAL OF POLITICAL RESEARCH

Abstract: Building on previous work on competition networks and governmental performance among British local governments, this article investigates the diffusion of government quality across subnational regions of Europe through strategic interaction with neighbouring regions or competitor regions more generally. The article demonstrates the presence of spatial interdependence using standard spatial regression models and controlling for common explanations of quality of government. In particular for regions with high levels of autonomy from the national government, there is clear adjustment in government quality to be seen in response to disparities with competitor regions. The article further investigates the intensity of this geographical effect separately in the north and south of Europe in order to estimate the potential for virtuous or vicious cycles of good governance in the two regions, respectively. It is found that while regions in the north develop relatively independently of each other but respond to competitive pressure across Europe, in the south regions demonstrate a higher level of local interdependence, increasing the possibility of virtuous cycles – but also of vicious ones.

The market process of capitalization: a laboratory experiment on the effectiveness of private information

EDUARD BRAUN, WIEBKE ROß

JOURNAL OF EVOLUTIONARY ECONOMICS

Abstract: The notion of present value is an integral part of economics. So far, however, its rationale rests upon the well-known neoclassical assumptions of complete information and perfect rationality. The present value derives as the result of a calculation that requires the knowledge of the discount rate and the future returns of the evaluated assets. This paper presents a laboratory experiment that demonstrates that the present value of assets can also be discovered by participants of a production process endowed with incomplete information. The knowledge concerning future returns is not given to any one, but dispersed among the participants who, in addition, have no idea of their position in the production chain. In accordance with Hayek’s theory of the market process as a discovery procedure, the present value is found without any one subject being able to determine it individually.

Adam Smith’s Philosophy of Science: Economics as Moral Imagination

MATTHIAS P. HÜHN

JOURNAL OF BUSINESS ETHICS

Abstract: The paper takes a fresh look at two essays that Adam Smith wrote at the very beginning of his career. In these essays, Smith explains his philosophy of science, which is social constructivist. A social constructivist reading of Smith strengthens the scholarly consensus that The Wealth of Nations (WN) needs to be interpreted in light of the general moral theory he explicates in The Theory of Moral Sentiments (TMS), as the two essays and TMS stress the importance of the same concepts: e.g., moral imagination, the socially embedded individual, and humility. The connecting tissue between all three works is made up of sentiments and values. Smith regards the socially embedded human as the agent in all three realms (knowledge creation, morality, economics), and humans are always driven by values. Smith not only conceives of economics as an applied moral philosophy, but also bases both research areas on a view of knowledge creation that stresses specific epistemic values. If mainstream economic theory (and business theory that is based on it) wants to have any claim to Adam Smith, it would have to change not only what it argues but also how it argues. Economists would have to replace the language of mathematics with the language and logic of moral philosophy and give values centre stage.

Economic Freedom in the Early 21st Century: Government Ideology Still Matters

KAI JÄGER

KYKLOS, Volume 70, Issue 2

Abstract: Empirical studies show that government ideology has hardly influenced welfare expenditures since the 1990s, casting doubt on the general ability of national governments to design economic policies according to their programmatic appeals. This study takes a comprehensive view on policy-making by using a modified version of the Fraser Institute’s Economic Freedom of the World Index. I focus on the aspects of economic freedom that provoke party polarization and that national governments are capable of influencing. The results suggest that government ideology still matters in the early 21st century: The empirical analysis of 36 OECD or new European Union member states from 2000 to 2012 shows that left-wing governments are associated with significantly lower economic freedom. Economic freedom continues to be the guiding principle that divides left and right in economic policy-making because the left still promotes relatively higher levels of government spending and regulation.

Human capital, knowledge and economic development: evidence from the British Industrial Revolution, 1750–1930

B. ZORINA KHAN

CLIOMETRICA

Abstract: Endogenous growth models raise fundamental questions about the nature of human creativity, and the sorts of resources, skills, and knowledge inputs that shift the frontier of technology and production possibilities. Many argue that the experience of early British industrialization supports the thesis that economic advances depend on specialized scientific training, the acquisition of costly human capital, and the role of elites. This paper examines the contributions of different types of knowledge to industrialization, by assessing the backgrounds, education and inventive activity of major contributors to technological advances in Britain during the crucial period between 1750 and 1930. The results indicate that scientists, engineers or technicians were not well-represented among the cadre of important British inventors, and their contributions remained unspecialized until very late in the nineteenth century. The informal institution of apprenticeship and learning on the job provided effective means to enable productivity and innovation. For developing countries today, the implications are that costly investments in specialized human capital resources might be less important than incentives for creativity, flexibility, and the ability to make incremental adjustments that can transform existing technologies into inventions and innovations that are appropriate for prevailing domestic conditions.

The limits of liberalism: Good boundaries must be discovered

ADAM MARTIN

THE REVIEW OF AUSTRIAN ECONOMICS

Abstract: Determining good boundaries for governance jurisdictions is among the most difficult problems in political theory and political philosophy. But to whom the rules of a given jurisdiction applies is a problem that afflicts private as well as public governance. Clubs have boundaries no less than cities, states, or nations. This essay applies Hayek’s conception of competition as a discovery procedure to boundary problems, arguing that good jurisdictional boundaries are subject to a great deal of contingent variation according to particular the conditions of time and place. Philosophical speculation, therefore, cannot fully replace a trial and error process that facilitates social learning about where good boundaries fall. I outline the features of good boundaries that make them subject to such variation, then evaluate two criteria for evaluating whether existing jurisdictional boundaries are good: one that emphasizes ex ante consent to boundaries, and one that focuses on the ability of individuals to exit from jurisdictions ex post, arguing that the exit-focused approach is underappreciated.