By John Chilton
Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”
Sherlock Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
Holmes has already deduced that Gregory arrested the wrong man for murder: that dog would have barked if a stranger had been present at the murder scene. As it turns out, the real murderer knew the dog wouldn’t bark in his presence.
Economists Daron Acemoglu, Simon Johnson and James Robinson examine African poverty and identify the mosquito as the culprit, of sorts. Their analysis is explained for a wider audience in Tim Harford’s new book, The Logic of Life. It is a rather reductive theory and there is no doubt much more complexity to the problem of poverty in Africa. But it is a powerful story none the less.
Malaria and other mosquito-borne diseases kill many children born in Africa. But that is not the explanation these economists give for depravation in Africa. Instead, it is the curious incident of the mosquito that did not bite. For European colonialists malaria was extremely deadly. To avoid being bitten they made a choice: they avoided settling in Africa and settled in safer places, places we now know as the United States, Canada, Australia and New Zealand.
Lest the reader draw any false conclusions about where this logic is taking us, a detour into the history of economic thought is in order.
We all know that economics is known as the dismal science because it deals with the reality that we live in a world of limited resources. Even so, I have never found economics dismal. The reason is that I understand it to be about how to make the most of our limits. What brightens my outlook even more is that “the how” is most likely to be achieved in a classically liberal context of individual freedom of choice – the pursuit of life, liberty and the pursuit of happiness.
However, contrary to what we “know,” economics was not labeled the dismal science because it deals with the world of limited resources. It was given that label because economists during the period of classic liberalism assumed that all men (at least) were created equal. Economic science rejected the assumption that some races were superior to others; it rejected drawing the easy but false inference that those who fell behind were either stupid, lazy or lacked virtue. The economists of the classically liberal tradition – Smith, Mill – said, no, the explanation for differences in the wealth of nations (aside, of course, for differences in natural resource endowments) has to do the development of institutions that facilitate mutually beneficial exchange and teamwork. This news was dismal to those who preferred to assume that the economic advancement of their society was explained by their racial superiority – and justified slavery. Economists joined Christian evangelicals of the day in the fight against slavery; they agreed all humans share the same nature and have the same rights.
The institutions that foster mutually beneficial exchange include government-facilitated institutions like property rights, the rule of law, and enforcement of contracts. But government can also hinder beneficial economic exchange. In the extreme, think of a kleptocracy designed to extract wealth any time it is created – it destroys economic incentives to trade or invest. Limiting the power of government to take is part of the formula of the wealth of nations.
The story that the economists Acemoglu, Johnson and Robinson tell lines up with the views of the classical liberal economists about the source of the wealth of nations. In countries where Europeans settled they demanded creation of institutions that fostered mutually beneficial exchange so that all (Europeans, n.b.) had a shot at benefiting. The consequences for indigenous people in these region was clearly adverse. (Aside: the Pilgrims did try a system of communal sharing for a few years; the abandonment of that system is another story, perhaps.)
In countries subject to European colonization, but little European settlement, Europeans set up very different institutions. There, as Harford puts it, they “made the … selfishly rational decision to establish the slave trade … and set up abusive economic systems to exploit the land and people or scrape up as much gold and ivory in the shortest time…. The plantation economies became independent with a political system designed to suck out every cent of short-term gain and funnel it to the guys in charge.” (p. 205)
Such systems are corrupt and corrupting – just imagine what it is like to grow up in such a society and how, for example, it influences your attitude towards trusting others and deflates your aspirations for fulfillment. Or consider what it does to the incentive to build a professional reputation. Or consider how the financial disintermediation we are experiencing in the U.S. is influencing our economy at this moment, and imagine how a wariness to invest or make loans is an everyday fact of life in many African countries.
Social systems, particularly abusive ones, are hard to change. The gulf between North and South created by the mosquito has persisted due to the plantation system inherited in Africa from when it was under Northern rule. The next time you find yourself wondering why Africans – be they journalists or farmers or politicians or civil servants or religious leaders – are different, remind yourself they are not different. People are just people. Rather ask yourself how institutions are different, and remind yourself different institutions create different attitudes and incentives. How righteous are you, really?
Dr. John B. Chilton is an economist on a busman’s holiday. He has taught at the University of Western Ontario, the University of South Carolina and the American University of Sharjah. He is keeper of The Emirates Economist, a weblog on economic events in the United Arab Emirates and the Gulf.