"Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments."
He cites the successes of the American states along its Mexican border, Singapore, China, Botswana, and so on, relative to the poverty and failure of their respective immediate neighbours to justify this claim. Echoing of the institutionalists, he claims that all of them enjoy law and order, implicit or explicit private property rights, and dependable government services, and their citizens can go about their daily activities and jobs without fear for their life or safety or property rights. He therefore advocates promotion of greater transparency, more openness, and greater democracy, among the poorer nations.
I am not quite convinced whether Prof Acemoglu is not treading the same path of "sweeping explanations" that those he accuses others - Montesquieu (people in hot places are inherently lazy), Max Weber (Protestant ethic), Jeff Sachs (geography and weather), and Jared Diamond (advancement of technology) - of doing.
Enabling citizens to own property and carry out contractual transactions, and live without fear of crime or graft (or atleast unpredictable graft!) is a fundamental pre-requisite for the effective functioning of a modern economy. The recent success of the South East Asian economies and China, with their focus on economic freedom over democratic rights, has highlighted attention on the importance of the certainty inherent in rule of law (however flawed the law be). This disciplines society and administration - creates the enabling environment for individuals and businesses to conduct their business without assuming completely unpredictable and uncertain risks, and assures citizens of living their lives free from fear of crime.
The discipline and certainty provided by the traditional institutional arragements - tribal (as in case of Botswana), cultural (British colonial) and religious (Confucian in case of the Chinese and East Asians) - have played a critical role in their respective successes. This cultural-political milieu, often a legacy of historical evolution, are not easily replicable and often unique to societies. Pakistan is a neighbourhood example of the difficulty of putting in place stable governance structures that help institutionalize the incentives necessary to address poverty. Within India itself, the experience of different states offers a dazzling spectrum of diversity in outcomes in addressing development and poverty.
Further, the soundness and transparency of government institutions that underpin the success of nations - as the recent example of Iraq and the historical litter of long drawn out experiments with democracy from Asia and Africa conveys - is itself not something that can be easily transplanted into polities and societies. In other words, even assuming that fixing institutions will help rid off poverty, how do we fix governments that can align the incentives?
Assembling the right mix of ingredients required to fix institutions is the biggest challenge - one that can rarely be overcome with quick-fixes like transplanting or grafting institutions. It often requires the measured march of history to evolve organically, a process that can at best be expedited. And expediting this should be our effort.
In this context, a new paper by Lisa Chauvet and Paul Collier (full paper here) find that free and fair elections in developing countries improve economic policy by disciplining governments, though infrequent or uncompetitive elections may actually make things worse.