Tuesday, August 28, 2007

Institutions matter, but we should not take institutions as exogenous

Farewell to Alms, pp.112-192 Tyler Cowen Marginal Revolution Through a series of fascinating arguments, Clark constructs building blocks for his larger argument. I count several major strands in this section:
1. There is a discussion of "survival of the richest"
2. A discussion of why technical advance was so slow before 1800
3. A discussion of how much institutions matter, and asking why medieval England didn't grow more rapidly.
4. "The emergence of modern man"
These arguments are a bit hard to evaluate, since Clark has not finished presenting them or tied them all together. I regard each section as pathbreaking, but in terms of reservations, I will present two notes of caution...
1. Exactly which national groups evolved a sufficient love of capitalist ways of life? Clark's statistics show that the wealthy had more surviving kids in England, relative to the poor. Furthermore some numbers suggest that the same was less true in accident-prone primitive societies, where selection is based more on luck and physical force.
Even putting aside the debate on how long evolution requires (who will be the first to mention lactose intolerance and dachsunds in the comments?), does this explain the economic supremacy of England? Recall that England climbed out of the Malthusian trap but most of the rest of Europe did not. Was positive selection more pronounced in England than in Italy? Than in France? There is no evidence for those propositions, which in any case strike me as unlikely. Even if one buys into positive selection, we have at most "positive selection for some countries vs. others," not "positive selection elevating England over the rest of Europe and driving an industrial revolution." Positive selection doesn't get us very far in explaining the climb out of the Malthusian trap, which was more or less unique to England and the Netherlands.
Clark mentions in passing that positive selection bred the Chinese to be natural capitalists. If we accept this portrait, I am now more confused about
a) where positive selection operated and where it did not, and
b) what was the marginal product of positive selection, vis-a-vis industrialization?
Until the 1980s or so, the Chinese record simply isn't very good over the last few centuries. In fairness to Clark we have not yet finished his discussion of these factors. I'll also note that I see positive selection in terms of culture, family norms, and peer effects, rather than genes. Or you might think it is some mix of the two. If you focus on the biological issues in the comments I think you're missing the strongest and most general version of the argument.
2. I am not persuaded by Clark's argument that "institutions do not matter." True, medieval England had limited government intervention but it did not industrialize or "take off." Clark's discussion is right on, and if the English example does not persuade you try medieval Iceland, which was probably even freer.
But my conclusion differs from Clark's. I conclude "science is more important for growth than we had thought, and the simple fact of freedom does not itself guarantee much progress for science." In this view the institutions which support science matter profoundly. Science, science, science. I recommend Jack Goldstone's forthcoming book, much of which focuses on science and engineering culture in early modern England.
Infrastructure also matters. In medieval England the state wasn't strong enough to help establish a large open geographic area for trading. Early English economies were still local rather than national, and yes economies of scale matter.
That all said, I will accept a reformulated argument: "Institutions matter, but we should not take institutions as exogenous." On this middle ground just about all of Clark's substantive contributions will hold up. So I view him as overstating his case, and taking too big a swing at institutional theories. This overreaching, however, does not negate his core arguments. So maybe you disagree with Clark on this point, as I do, but you cannot use it as reason to dismiss his other claims.
By the way, here is Ricardo Hausman on the book. Here was installment one of this BookForum. In closing, we can now see that Clark's core arguments don't depend on Malthusianism; they require only that economic growth is something very difficult to accomplish, and indeed that is the case. Posted by Tyler Cowen on August 28, 2007 at 06:07 AM in Books Permalink

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