Posted by: Dirk | November 14, 2017

Why Latin American Nations fail – new book

I have seen that Matías Vernengo and Esteban Pérez Caldentey have edited a new book on Latin American development, or rather, it’s failure to develop properly. The book is available here, where the introduction can be read for free. The book is especially interesting because it is a reply to the New Institutionalist approach, which is severely flawed according to the authors. In a teaser article at the WEA, they write:

Given their importance, we believe institutions deserve a broad, critical and multidisciplinary approach beyond the property rights approach, which could then provide a basis for alternative policy recommendations. This is what we try to show in the book and in its different sections and chapters. The book is divided into two sections. The first highlights several key problems associated with New Institutionalist arguments and, in particular, with the way it is applied to view and understand Latin American development.

The New Institutionalist approach provides a limited view of comparative historical analysis failing to read and understand history on its own terms. An illustrative example is Acemoglu and Robinson´s characterization of the Spanish and English colonizations as being extractive and inclusive respectively when in fact the historical record shows that both types of colonizations were at times extractive and inclusive. The more recent historical experience of Japan in the post-WWII era, South Korea and some other Asian nations such as Singapore shows that economic success was not based on inclusive institutions.

Also, the New Institutionalist view overplays the role of the market and downplays the role of the state in the process of economic development. Several institutions of the developmental state that promoted industrialization, including the bureaucracies that managed macroeconomic and commercial and industrial policies, development banks, publicly funded or directly public universities and research institutes were central in many experiences of development, and were also part of the Latin American experience until the debt crisis of the early 1980s. The reversal of many of these policies after the crisis, and the predominance of the Washington Consensus, have not led to vigorous growth as New Institutionalist views would have indicated.

The discussion of Acemoglu and Robinson – authors of “Why Nations fail” – should be very interesting.

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