Russ Roberts

Weingast on Violence, Power and a Theory of Nearly Everything

EconTalk Episode with Barry Weingast
Hosted by Russ Roberts
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Barry Weingast, Senior Fellow at Stanford University's Hoover Institution and the Ward C. Krebs Family Professor in the Department of Political Science at Stanford University, talks about the ideas in his forthcoming book with Doug North and John Wallis, A Conceptual Framework for Interpreting Recorded Human History. Weingast talks with EconTalk host Russ Roberts about how violence shapes political institutions, the role of competition in politics and economics, and why most development advice from successful nations fails to lift poor nations out of poverty.

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0:36Intro. Economic development, growth, institutions. Societies develop different ways to deal with violence, which in turn affects opportunities for growth and development. Three types of societies, or orders. Hunter-gatherer (primitive) order: little specialization, lots of fighting. Limited access order: solves problem of violence by ensuring that the different specialists in violence don't fight. Creates rents—rights to particular activities such as trade are given out to different groups, which creates monopolies. But doesn't that create violence as people try to get access to those special favors, privileges? Key: Distribution of goodies and privileges has to reflect the distribution of power, access to violence. Physical power, ability to bludgeon your fellow man, is aligned with economic power, ability to exploit your fellow man. Examples: Most historical states. Medieval Europe, Tudor England, Carolingian France. Most modern developing countries such as Bolivia, Argentina, India, Russia. Sovereign, dictator, leader—the dominant coalition—is in charge of economic access. Is goal of this system to prevent violence? In some sense it is, because it's better to be exploited than in conditions of civil war. In violent situation economy is in flux, hard to make investments or produce wealth. Then why don't orders with limited access to economic and political power, with not many warlords and gangs, grow? Several reasons. Hard for individuals to form organizations, limits on competition, monopoly rents. These societies produce great wealth compared to primitive order. But compared to modern era with open access orders they do much more poorly.
7:24Opportunity to form organizations is critical, but why? North Korea, ancient Rome—pretty successful—lots of folks have lots of resources, not just the monarch. You'd think that would be a source of potential capital for investment. What handicaps these countries? System of privilege, still are limits on competition. Schumpeterian competition, creative destruction, producing new ideas, new forms of organization, new products that out-compete the old. Car replaces horse and buggy. Not the company that produces carriages that produces the automobile. Requires that anybody can form an organization with the next idea. Thinking of organization means thinking of cooperating, five people with capital getting together to form a company, or American Civil Liberties Union, but all kinds of association. Association has implications for politics, interest groups, book groups, as well as economic groups. But in ancient Rome, they could have the equivalent of soccer clubs, book clubs. "Civil society" evokes the richness of society. In some of these states those kinds of associations are ruled out because they are dangerous to the regime. Wouldn't these regimes still want to encourage some kinds of economic associations? Trade-offs. New organizations compete away the monopoly rents and privileges which are part of the glue of society. Key to where economists go wrong is that "economists assume away the problem of violence." Without violence it's natural to form organizations. If growth continues for a generation or two, almost everyone's slice of the pie grows. In limited access societies, is the issue that the length of time for that kind of growth would just be too long, or it is a question of relative status, dictator would rather be a dictator of a crummy place? Each has some embodiment around the world, but main issue is about violence. Part of the value of the privileges is that it prevents violence, and allowing free association risks violence.
15:24Why is that the risk? American living standard growth occurs through creative destruction, forcing innovators to share rewards. E.g., agriculture 100 or 200 years ago, more people worked on farms—most people today are glad about that because of the advantages. Why doesn't that take place in limited orders? Very little risk in America that violence will break out just because of a new car company forces old ones to compete. It's not just that the police aren't doing their job. Pedevesa [Should be Pemex? Pedevesa is Venezuela.--Econlib Ed.], state-owned oil company in Mexico. Privilege is that it has an immense labor force paid through the oil revenue. Inefficiently large, wages above competitive wages. What would happen if it got rid of this? It's also a private army. Who would win? Armed forces in Mexico do not have a lot of experience. It's not in the interest of government to threaten this firm. It's an equilibrium. Bryan Caplan podcast on the Myth of the Rational Voter, voters are ignorant and irrational and not always aware of what is in their best interest and have no incentive to vote that way. Is issue uncertainty, economics, or are you saying that something really radically different could come out of rearranging the incentives. In the short run rearrangement might not be better off. What is the ability to buy out privilege? Huge land grants in Latin America, land doesn't go to the highest value user. Lack of property rights, lack of capital, but also difficulty of buying people out. Land owners start from position of privilege. How do you sustain that deal? Why should we buy them out? Might lose their privileges without being compensated. In U.S., water rights. Sugar quotas. Inefficiency. Change in policy might lead to bigger pie, sufficiently large the people could be made better off, but there is no guarantee that everyone will be better off. Rawls's veil of ignorance, what's rewarded in the new world is not what's rewarded in the new world, so tendency to stick with status quo.
23:44Dollar figures: Per capita income in limited access orders between $400 and $8000 (in today's dollars). Open access orders are $8000 and above. But there is enormous range for growth between $400 and $8000. Why can't they get past the ceiling? Richest limited access examples, Mexico, Argentina, Brazil, Russia. Open access societies are in fact above $20,000. Only few societies in between, transition, South Korea. Hard to bridge gap. Equilibrium. Most countries today are limited access. Still lots of room even between $2000 and $8000. Potentials include becoming more sophisticated organizationally and more specialization. On average, it matters a lot where you are born. However, there are individuals in limited access order who do quite well. Arye Hillman, aren't so much poor countries as there are poor people. Just much smaller group. India, middle class is 200 million people, almost as large as U.S. But they have 800 million people, so most are living in poverty. Do privileges tend to be hereditary? Yes, but also could be organizationally based. Where does the sovereign come from? Hereditary monarchy, such as Saudi monarchy, Stuart kings of England. But also Communist Party, the PRI in Mexico; could even have military succession rules, e.g., Brazil, even use elections to select the next leader?
30:00Book has implications for economic development. From new paper, "Limited Access Orders in the Developing World: A New Approach to the Problems of Development", failures of development:
Existing development policy is based on models of the developed world, and attempts to make developing countries look more like developed ones. Unfortunately the social dynamics of developed countries fundamentally differ from those of developing countries. Development practitioners therefore face a mismatch, between the development problems they seek to address and the available tools. They aim to implement social, economic, and political institutions, characteristic of the developed West, in societies that often cannot even secure basic physical order. To improve state capacity, they might, for example, administer donor funds conditional on improving government transparency through better financial auditing of public funds. But they do so in countries where potential leadership groups compete for control through violence, intimidation—and occasionally the ballot box—and where new groups replace old groups at regular intervals. Development practitioners face the futility of trying to solve a problem without knowing its cause and to build state capacity in societies that regularly dismember their governments. Development tools based on First World experiences are ill-suited to the development goals in Third World countries.
Natural human tendency to graft willy-nilly some of the institutions of open access orders onto limited access orders without realizing their inappropriateness. Example: markets and competition work like a charm in open access orders but limited access countries resist this kind of advice because it destroys the glue holding the society together. Paradox: even the people being exploited defend it. Better to be exploited than in the midst of violence. Current Russia, impression is that it's more violent than it was under a police state. Is it better to be in a police state under Stalin or Andropov than today where it's more economically open? Very different kinds of natural states. Under Yeltsin significantly more freedom and flexibility. Would average Russian citizen be better off if we tried to introduce more competition? It's violent now, so there is likely to be more violence by trying that. Doug North points out that one of the key things about making the economy of some society to work is getting the people to compete on the margins of price and quantity. Astonishing about Russia—they compete on the basis of violence. Banking industry murdered each other, now oligarchs, much more stable. In U.S. use of violence is not only against the law, but not in fashion. Cultural disdain for violence as a competitive technique. Toyota doesn't break Honda's windows. What role does culture play in that choice? Ironic to call U.S. a violent society. What sustains open access orders? Three pieces: open access to organizations of all types, political, economic, social, religious. Degree of law, constitutions. Beliefs, forms of inclusion as opposed to exclusion, equality, sense of all equal before the law. Consensus condition, how citizens police the constitutional rules is that they are able to act in concert against violations. When you act in concert you threaten those in power and are more likely to be able to defend the rules. Polls in limited access societies: over a majority in Venezuela say that there are circumstances in which coups are justified; South Korea, transitional functioning democracy since 1987, Park Chung Hee, majority of people say that there are circumstances in which an authority would do better. Can't imagine that in America. Court Packing, Franklin Roosevelt, proposed to emasculate the Supreme Court by expanding it. We now have weekly polls from the era indicating that there was never a majority of the country in favor of it. Means that some of the beneficiaries are saying the public opinion polls are wrong. In Latin America, court packing gets majorities in favor of it. Why do we have that consensus here? Has what that consensus covers shrunk over time? Boundaries of public policy in terms of what the Supreme Court seeks to prevent has changed dramatically. Contracts clause, takings clause, were swept away in the 1930s as binding constraints. But equal protection and due process clauses have become more important. Hard to measure way Constitution works.
42:01Trying to graft western institutions: democracy and elections. Open access orders have much richer set of organizations, and so people more likely to be able to have organizations represent themselves. Limited access orders may have elections, but they may be hamstrung. Tragic brilliance mechanism: there are limits in open access orders on what the government is about, boundaries. In U.S. water service, electricity service doesn't depend on who you vote for. But in Mexico PRI would cut your water off if you failed to vote for them. Like Chicago under the older Mayor [Richard M.] Daley--slight joke, but Hyde Park, home of U. of Chicago, often voted for Daley's opponent and it's alleged that he would give Hyde Park poor snow removal and garbage collection. What is possible to help currently-poor societies? Bono solution, U.N. solution: if we'd just work together. Treat it like an engineering problem. Other side, Bill Easterly, a trillion dollars provided since WWII with very little payoff. Some success stories like Southeast Asian tigers, but not by virtue of the aid. What can be done? Progression of natural states for limited access states: fragile, basic, mature Fragile: only organization is the state, Chad, Somalia, Rwanda, Afghanistan. Basic: some differentiation of organizations but all organizations are part of the state. Mature: private organizations, though elite-based. Progression of sophistication politically and economically. Important to see what stage a particular country is in first when providing aid or development advice.
49:14Role of violence. Bob Bates, Prosperity and Violence, asks: Why is it that when early modern European states were developing countries able to make the transition while African nations are unable to? Violence tendency lower, greater sophistication in government institutions. Victualing board which supplied the ships, 7-years war, French and Indian War, 1756-1763, one in series of wars between Britain and France, but British are still unable to bottle up the French fleet even with more fleets. Who supplies the ships so they can stay at sea? Was monopoly by a Lord, started to open up that process. Competitive urge caused Britain to transform itself. Think about post WWII Africa during the Cold War. Competition between U.S. and U.S.S.R., both giving money to Africa, so much so that they didn't have to husband their economies in order to survive. Subsidized U.N. to police the borders, so that the West subsidized the U.N. to police the borders, hence preventing the kind of competition needed in Africa to succeed. Think about Southeast Asia, etc. Movie, The Queen about how monarchy dealt with death of Princess Diana. What does the monarchy do, what is a figurehead? They don't do much, but they get a big financial reward. Somehow in England the monarch was able to get to a position of being a figurehead. Other parts of the world face that competition and could afford to be inefficient. Competition in the face of organization was already in place in Europe. Doorstep conditions: making incremental increases in access easier. Movement from system of pure privilege to a system of rule of law for elites. Moving from a judgment whereby by the king decides who is more powerful vs. rules of law, more judicial or court-based. Who can sue the Lord of the manor, only other Lords, or also serfs? Who has access? Growing mercantile access can sometimes be allowed access, helping economy grow. Franchise, Parliament in 18th century represented 1 in 10 adult males, but having that allowed them in the 19th century to expand access.
57:46Traditional view is that special interests carve out rents, special privileges, havens from competition for themselves. Turn on its head. It's true that they want to create rents. But with open access giving privileges to a few denies others. U.S. around Civil War, railroads, could only afford to build one but three possible routes. Coalition against each possible route. General principle. We still have immense numbers of competitive markets. No restrictions on ability to create new markets. IT industry in last 25 years would have been harder in a country like Mexico, but easy in U.S. Early Bush administration, steel tariff, popular in some parts of country, manufacturing employment plummeted, car makers complained, legislation dropped not because of economists pointing it out, because of power of special interests on the other side.
1:01:10Bruce Bueno de Mesquita, leaders' incentives. Overlaps in research. He discusses size of the selectorate, large in democracies, small in dictatorships. In small selectorates state tends to give out private goods, in large selectorates it tends to give out public goods. Fits well with Weingast, North, and Wallis's research. Unemployment insurance, poverty relief, health benefits. Who you know versus by virtue of being a citizen. Difference in research: different ways of thinking about the state. Bueno de Mesquita's research begins with thinking about the state's monopoly on violence; Weingast, North and Wallis say you can't start there but have to think about the ways states form. Can't take size of the selectorate as given.

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COMMENTS (10 to date)
Grayson Hill writes:

I don't know if I would say that Russia was less violent under the Soviet State. It was less openly violent, and publicly violent, but that's because (if it's even true in that sense) that violence was overshadowed by the violence inflicted on the people by the State.

Which was not negligible.

David writes:

The example of the inefficient Mexican oil company was not made clear enough. I don't think any claim can be made for the United States as a model of efficiency. We spend more than the rest of the world on our military, burn 1 in 4 barrels of world oil production in a very inefficient manner, inefficient wasting of food, processing of nuclear energy, health system...

Maybe the problem with limited access societies is more to do with the inequality the rent takers cause then lack of efficiency.

Salaam Yitbarek writes:

de Mesquita's work formalizes the intuition that regardless of what type of political institutions exist, the wider the support for a regime, the better it is for a larger segment of the population.

North et al formalize the intuition, often cited by dictators and their cronies, that people prefer full stomachs and stability to anarchic democracy.

These are nice theories that explain a lot, but I think, in dire need of synthesis. The abstractions they make leave too many questions unanswered, especially when it comes to policy prescriptions.

(How about endogenizing 'culture' for a start?)

Camilo writes:

I was thrilled to learn that Barry Weingast was the guest this week and hope that someday an interview with Douglass North happens. And yes, PDVSA is the Venezuelan national oil company and PEMEX is Mexico's.

Fabio writes:

I don’t understand the Latin-American examples about rules of succession... Actual Brazilian, Chilean, Argentinean, etc… Presidents were democratic elected in free voting procedures.

And Pedevesa is a Venezuelan company.

Isaac Crawford writes:

I enjoyed this podcast quite a bit. I've been living in Yemen for the past year and have been puzzled at how the government is formed and how it functions (?) the way it does. I do think that worries about violence play a major role here. If the central government became destabilized, there is no telling how much violence there would be here. Several tribes are at least as well armed and trained as the government. General civil war would be an even worst case scenario than what the Yemenis have right now, which isn't much...

Isaac

B G Bissell writes:

I just wanted to say I have listened to several of the podcast - all of which I've found interesting. I appreciate that Prof. Roberts will ask his guests the same questions that I (unlearned listener) am thinking. I also like the way he chimes in with his own thoughts and further explores the guest's topic.

muirgeo writes:

Once again thanks for an excellent podcast.

neil writes:

Bastiat's broken window made this argument far more succinctly. If we flip Wiengast on his head and theorize that wealth drives civil society. A little peace for whatever random reason-->more wealth--> more civil society. So we have the case of "Unbroken Window Rents" invested in productivity leading to further "unbroken window rents" ...

LemmusLemmus writes:

"I don't know if I would say that Russia was less violent under the Soviet State."

This article says no:

This article employs newly available crime and vital statistics data from Russia to debunk two myths about violence in an international context. The first myth is that the United States is the most violent industrialized nation in the world. The second myth is that in spite of other problems associated with Soviet society, at least the totalitarian regime was able to maintain low rates of crime and violence. The newly available data reveal the inaccuracies in each of these statements. Not only is the current Russian homicide victimization rate more than 3 times higher than in the United States, but it has been comparable to or higher than the U.S. rate for at least the past 35 years.

Source:

http://hsx.sagepub.com/cgi/content/abstract/5/3/267

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