WNF Chapter 5

In Chapter 5 A&R explains that you always don’t need to have inclusive economic and political institutions to have growth – it is possible to have growth under extractive institutions, but it does not last. To quote one of the good bits:

The Soviet Union was able to generate rapid growth even under extrative institutions because the Bolsheviks built a powerful centralised state and used it to allocate resources towards industry. But as in all instances of growth under extrative institutions, this experience did not feature technological change and was not sustained. Growth first slowed and then totally collapsed.

And later on:

By their very nature, extractive institutions do not foster creative destruction and generate at best only a limited amount of technological progress.

There are numerous further examples and A&R explain that extractive institutions are also characterised by infighting and instability.

This leaves me with a recommendation for further reading. If you are interested in learning more about the Soviet economy, have a look at Red Plenty by Francis Spufford. It is economy history written like a novel. You follow characters and their stories and learn more about the central planning, shortages, hardships, role of pushers etc. It is an excellent book.

And then a thought thrown out there. The SA economy grew rapidly in the 1960s. How much of that can be characterised as growth under extractive institutions and how would one go about decomposing the sources of growth in that period? How much of the conflict that we see today (e.g. Malema at Marikana) is instability and infighting to gain control over extractive institutions?

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