Extractive Dual Economy in Zimbabwe

Robinson and Acemoglu merely mention Zimbabwe's dual economy (and that it was a result of land allocation acts like in South Africa), but they do discuss the negative impact a dual economy has on growth and the disenfranchisement of huge amounts of people and needed to support the extractive economic institutions (particularly surrounding the mining industry) that stem from an apartheid-born dual economy.

The extractive institutions of Zimbabwean mining industry, diamond mining in particular, are representative of the extraction from the days of Rhodesian neo-apartheid. Celia W. Dugger writes in a 2009 New York Times Article: "Zimbabwe’s military, controlled by President Robert Mugabe’s political party, violently took over diamond fields in Zimbabwe last year and has used the illicit revenues to buy the loyalty of restive soldiers and enrich party leaders, Human Right's Watch charged in a report released Friday." The corruption, however, goes further than that. A News24.com article explains that "About $2 billion in Zimbabwe's diamond revenues have been unaccounted for since 2008" and goes on to explain that this money could be funding much worse than Robert Mugabe's super-mansion.

Espionage Scandal

This past week, information has come out that the United States has been using resources to spy on over 60 million phone calls in Spain, according to USA TODAY. Jose Manuel Garcia Margallo, the Prime Minister of Foreign Relations in Spain, is outraged, saying that he has asked the US Embassy previously for information on this. He claims that it could severely change relations between the US and Spain. A document provided by former NSA employee Edward Snowden allegedly shows that the NSA collected this information from December 2012 until January 2013. This is an extremely important critical juncture in foreign affairs between the USA and Europe. If these reports are in fact true, the trust that has long existed between Spain and other European countries and the United States could be lost, making further international relations extremely difficult. As a nation, the United States needs to provide an explanation before relations with these other powerful countries cease being lucrative. Other countries that have been implicated in this NSA scandal include France and Germany, who are both demanding explanations from the White House. A nation needs to keep its allies, and if these reports are validated, the United States will be at a risk of losing the friendly relations it has enjoyed, and as history has shown time and time again, nothing good comes from hostile relations.

Change is Brewing in Saudi Arabia

     Acemoglu and Robinsons' idea of persistence and path dependency may appear to hold historically, but Saudi Arabia seems to be quite dissatisfied with this idea. They are opting for "Plan B": generate a critical juncture or two and perpetuate meaningful change. Saudi Arabia has been broiled in conflict in recent history and has fallen into civil war; their populace is aching for change.
   

      Their most recent push for cultural change has come as long oppressed Saudi women have begun to attempt to push off many of the long held restrictions that they have been held over. Currently, women in Saudi Arabia are not permitted to drive because of extremely strict interpretations of religious texts, but they are taking to the streets to demonstrate against this inequality. Women have planned group drives through main thoroughfares to bring the issue to the attention of their fellow women, their oppressors, and the world at large. Although no rules have been changed as of yet, support is growing, and change is imminent. Hopefully, this progressive movement won't stop with just new driving laws.

The Royal African Company

             In 1672 a new company was formed in England, The Royal African Company. This company was comprised entirely of wealthy merchants from London looking to make a profit on the slave trade. It was a monopoly given by the King Charles II. This company was very profitable not only because it was granted a monopoly, but also because there was a high demand for slaves in the Caribbean. Between 1680 and 1686 an average of 5000 slaves a year were transported to the Caribbean. 
            However, after the Glorious Revolution in 1688, Parliament gained a lot more power relative to the Crown. English economics became more inclusive, partly because different groups could petition Parliament with their own cause, and if it was just, Parliament was likely to listen. Groups like the Society of Merchant Venturers had more power and influenced Parliament to repeal the Royal African Company's monopoly on the slave trade. This is just one example of how the critical juncture, the Glorious Revolution changed English economics to be more inclusive.

Mexican Corruption

Acemoglu and Robinson, authors of Why Nations Fail, argue that political institutions have a direct correlation to the economic success of nations. Living conditions in Mexico vary greatly with those of the United States. A reason for these differences is the difference in the solidty of the nations'  central governement. Mexico's central government is considerably weaker than that of the United States and is full of corruption which has crippled the nation's ability to advance for decades. In, Corruption in Mexico, Once Rarely Exposed, Is Starting to Come to Light  , Karla Zabludovsky writes about the corruption of Mexican governor, Andrés Granier. Granier says in a recording, “We go to Fifth Avenue and buy a pair of shoes; $600. I took clothes to Miami, I took clothes to Cancún, I took clothes to my house, and I have leftovers. I’m going to auction them off.” This is an interesting lifestyle for a government official who makes a reported $92,000 a year. It is also very interesting that Granier lived this lavish lifestyle considering his successor discovered that about $190 million in government funds were unaccounted for under Granier. This money could have been used to improve state programs and institutions for the people of Mexico, but instead was used to fund the extravagant lifestyle of a corrupt government official. Corruption in Mexico's central government is the reason there is so much poverty in Mexico today. 

Free Elections in Madagascar

Since gaining independence in 1960, the island nation of Madagascar has been a hotbed for divisive and often violent politics. In 2009, a coup ousted elected president Marc Ravalomanana as concern over the distribution of the nation's economic growth arose. While Madagascar operated as a constitutional democracy, the economic growth was highly unbalanced and extractive leading to much tension that culminated in the coup that removed Ravalomanana from the presidency.

But four years later, it appears that Madagascar is finally taking steps to return to more inclusive political institutions. The nation held a presidential election Friday that appears to reflect the genuine will of the public. Because power has been transferred back to the people, both candidates have campaigned on platforms that intend to "help the unemployed" and improve education standards. Free elections have effectively forced political candidates to take on positions that are politically, economically, and socially inclusive.

While the results of the election will not be known for weeks, it will take even longer to gauge the success of Madagascar's transition to inclusive institutions. If free elections can turn the tide that has risen in the last four years of social unrest, then Madagascar may be in for sustainable economic growth in the future.

India's bridge collapse prior to Commonwealth Game 2010

One and a half month before Commonwealth Game 2010 was hosted in India, the bridge next to Jawaharial Nehru Stadium, the main venue for the Commonwealth Game, collapsed into three pieces. This only added up to the already bad conditions prior to the Game, such as security concern where two tourists have been shot outside Jama Masjid, the prevalent spread of dengue fever, and the traffic chaos. These unfavorable conditions to host the Game has caused some athletes to pull out of the competition.

I believe that India's poor preparation for the Commonwealth Game is correlated with the still-existing traces of extractive institution in Indian government. The practice of bribery is commonplace in India and this results in an ineffective allocation of resources. For example, looking specifically at the bridge collapse case, construction companies could bribe the government to take on the bridge building project and hence, the government may not choose the most decent company to take on this project. This might explain why the "costs are running 17 times the original estimates, and the government's anti-corruption watchdog has identified 16 projects with suspect financing." Unless the prevalence of graft could be reduced and minimized, it will be a great impediment to the creation of inclusive political and economic situation where individuals or companies can compete on equal footing.

Singapores Dual Economy

During the recession in 2009 it became clear that Singapore has a dual economy. The recession made "exports [plung] across the world and Singapore’s economy contracted by double-digits." Oddly enough, "shopping malls were still bustling with people, [and] expensive eateries still packed with customers." The explanation to this was Singapore's dual economy which consists of a local, small enterprises, sector and an international, multinational corporations, sector. When the world economy tanked, the international sector was pulled down with it; however the local sector was left close to untouched.

This dual economy is a bit different from the classic model of a dual economy of which South Africa is a good example. In Singapore "the 2 sectors does not fall within the class distinction of the have and the have-nots, ie. one where income and wealth inequality explains much of the difference between the two classes," and therefore one sector does not work as an extractive power over the other. The international sector "did not seem to boost the welfare of ordinary Singaporeans as much as the GDP growth numbers implied, and they are not hurting Singaporeans very much on the way down, either."

Obamacare and Medical Monopolies

     As Obamacare officially became law with the reopening of our government, the importance of healthcare and healthcare costs in America will only grow. Healthcare in America is already very expensive because our system is incredibly complex, it is for profit, and government oversight is severely lacking both in quality and quantity. With the new mandate that (just about) every citizen must have insurance by around March, the medical market place is about to become much more complicated. However, a critical flaw in our medical system that is entirely unnecessary is the presence of medical monopolies.

     Certain hospitals across America are merging together to form a monopoly on healthcare services. Once in possession of these monopolies, hospitals can drive prices even higher than they already are. Of course, these aren't official monopolies but steps to "streamline" healthcare for the consumer. Much like England from the 15th to the end of the 17th century, monopolies are still an issue in America because companies continually find loopholes to exploit the system. Combine this problem with the impeding shortage of primary care physicians, the lack of residencies to train doctors who actually have MDs so that they can work, and an aging population, the roller coaster ride that is healthcare is just getting started. It seems to be the natural instinct of both American and English businessmen to use the system to reach the top, then destroy the ladder so no one else can challenge them.

The Roma People: Disadvantaged by Nomadism

The Roma people have long been excluded from European society, consistently segregated and discriminated against by whichever European country they happen to reside in. "Faced with stubbornly high unemployment and strained budgets, some European Union members are finding it easier to stigmatize and expel Roma than to provide them with the education, housing and employment they seek."

As Acemoglu and Robinson explain, a sedentary lifestyle is the key to establishing institutions to promote economic growth. With nowhere to settle, the Roma cannot develop their own educational and vocational institutions, and thus are dependent on eventual integration into European society to have access to education and employment. As long as the EU continues to segregate and deport the Roma, the Roma people will be trapped in nomadic life and unable to become successful participants in European society.

2013 TV135: Critical Juncture Headed Our Way

A team of Ukranian astronomers have discovered a massive asteroid that poses a real threat of hitting the earth in August 2032. It has made it on to NASA's "Space Danger List" and is the second asteroid ever to make it to the top of the list.

Though it is yet unclear wether the asteroid will hit the earth or not, should it hit it would likely become a critical juncture of massive proportions as it would release enough energy to destroy a state like New York and change the global climate which would doubtless necessitate institutions across the planet to change rapidly in order for their survival.

A Lost Season of Hockey

In September of 2004, the NHL closed its doors and locked out its players as a new collective bargaining agreement could not be struck with the NHL Players' Association. Ask a hockey fan about the season that wasn't, and you will still be met with anger. But eight years (and an additional lockout) later, the 2004-05 season appears to be a major critical juncture that launched the NHL into relevancy once more.

In the decade preceding the lockout, the NHL operated as a highly extractive league allowing richer teams to prey on smaller markets. The NHL was plagued by massive disparity between elite teams and chronic bottom feeders, and the on-ice product suffered considerably. Fans stopped coming and revenues stagnated and fell in many markets. The game was in despair as the league's unsustainable business model was being exposed.

The lockout presented an opportunity for the NHL and NHLPA to tackle its fundamental issues head on. The collective bargaining dispute was polarizing, highly divisive, and a major frustration for fans of the game, but it paved the way for the implementation of inclusive institutions, namely the salary cap, that allowed for upward mobility for teams that were previously trapped in the basement. As a result, the on ice product dramatically improved with higher parity, and record revenues were established in the NHL for each consecutive year following the lockout. Additionally, franchise values skyrocketed across the league, and the long-term health of small market teams was finally established.

While the lockout is a sore spot for many fans, it also serves as a critical juncture that fostered tremendous growth around the league as a result of the inclusive institutions that it implemented.

Those Civilized Vikings

A common misinterpretation is that vikings were savages. Though it is true that they plundered and extracted wealth from the rest of Europe, the domestic Viking society was relatively peaceful and civilized. They had the "thing" which is "the Viking cradle of democracy because their establishment, [the "thing,"] was an early attempt to introduce a representative system, allowing disputes to be settled in a neutral forum rather than by blood feud and violence alone." 

The "thing" was a general assembly where "Political decisions were made... laws upheld and disputes settled" and where "any free man was entitled to vote." According to A&R, the "thing" would be characterized as an inclusive political institution. However, whats so interesting about the "thing" is that it "was also a focus for religious activity, as well as trade and exchange." In other words, the thing was an inclusive economic institution as well. It created a huge incentive for trade with "booths, or huts, where traders came to do business with people attending the meeting." The vikings were highly civilized for their time with their own runic scripture, nordic religion, and hints of inclusive institutions. Many of the current scandinavian parliaments have their names derived from the "thing." Though I am doubtful, according to A&R's theory of persistence and path-dependent change, the "thing" may be a small part of why the Scandinavian countries have always been fairly stable, productive nations.

Critical Junctures and the Boston Red Sox

Any baseball fan reading this will remember Boston's epic plunge from the top of the American League's standings in August 2011 to missing the playoffs completely by their last game in September.  That collapse alone is arguably even more devastating than their league-worst record in 2012.  However, as Mike Salk explains, this monstrosity of a season led to a critical juncture paving the way for the current Red Sox team that will be playing in the World Series this upcoming Wednesday.
A&R theorize that a nation, in this case "Red Sox Nation", can often only throw off the shackles of extractive institutions to pave the road of a brighter future using inclusive institutions if a critical juncture occurs.  Salk asserts that the 2012 season as a whole was such a juncture, as "[i]t showed that the system was so flawed it needed to be burned to the ground."  Whereas before the juncture the ownership made all the decisions, such as bringing in the detestable tyrant-of-a-manager Bobby Valentine and assembling, in Salk's words, a "loathsome team", the new inclusive nature of actually allowing the front office, namely GM Ben Cherington and his advisers, to make decisions allowed Red Sox Nation to surpass virtually everyone's expectations. 

I Take My Tea with Money

The Koch brothers, widely credited with co-opting the Tea Party Movement that has swept extremist fiscal conservatives across the nation, may not hold office, but they are certainly able to decide who does. With a multi-billion dollar family fortune, Charles and David Koch have amassed both extravagant fortunes as well as immutable political influence.

By completely legal means, attributable to blatant deficiencies in campaign finance regulations, the brothers serve the same capacity as a large special interest. Just as increases in the economic strength of the burgeoning industrialist class of seventeenth century England led to a more pluralistic political institution, great concentrations of wealth also leads to the augmentation of individuals' political capital.

The Book-burning And Scholar-killing In Qin Dynasty

The people benefited from the extractive political structure always try to avoid creative destructions. Keep knowledge from spreading, keep the public innocent is certainly a good way to do it. 

The Ottoman Empire did this by imposing high restrictions on printing press while in China, there were two noteworthy incidents of destroying existing knowledge and forbidding new learning. While one being the famous "Cultural Revolution" leaded by Mao, the other was the "Burning of books and burying of scholars" in the Qin Dynasty happened after Qin Shi Huangdi, the first emperor in China, united China and tried to seize more centralized power. Following his chancellor's idea, Qin Shi Huangdi ordered to bury Confucian scholars alive and to burn all the non-official thought books and most of the history books, which was about 80% of the total collection of books at that time.

By doing this, he successfully forbad free thoughts (people talking about thoughts from different schools were to be killed if discovered) and created a "more stable" society, which, remained highly extractive, quickly failed within 50 years, largely resulted from the incident.

"Grassroots Marketization"

Acemoglu and Robinson frequently write of the need for inclusive institutions in fostering sustained economic growth. One group that's very close to home is helping create a more inclusive environment in a country known for institutions that are severely extractive: North Korea.

Liberty in North Korea (LiNK) is an on-grounds club dedicated to raising awareness of the oppression in North Korea while aiding refugees in establishing roots in the Charlotteville area. The idea behind LiNK is that it uses people power rather than international political coercion to undermine the Korean Government. It takes advantage of a little-known and infrequently discussed fact; that North Koreans are turning to unofficial and inclusive markets to better themselves.

Extreme extraction leads to debilitating poverty. LiNK is

helping to alleviate these conditions.

As the video on the national organization's home page indicates, North Koreans are acquiring contraband technologies to help facilitate their escape. If and when they do reach their goal - usually America or South Korea - they send money back home to help foster the unofficial market that helped them leave. To quote the video, "It's fueling the grassroots marketization of the country." This provides a sphere of inclusivity within the shell of the totally extractive political reality. Hopefully, LiNK can help North Korean refugees transform their country through this furtively bottom-up, inclusive approach. 

Where is China headed?

     A&R have asserted that the success of a nation comes from the correct combination of institutions both political and economic. The idea has been that these institutions must be inclusive in order to sustain long-term growth. The former Soviet Union served as an example of what was for a time thought to be an incredibly powerful combination of state power and economic extraction leading to massive growth. However, we learned that the growth created by these institutions can only be temporary and inevitably leads to collapse.

A booming Chinese metropolis. 

     China's state run economy, political inequality, and extractive economics has lead to remarkable growth in recent years, but it may slowing. In the next ten or so years we can hope to see whether China falls victim to their institutions, or redefines where sustained national progress can come from.

Child Marriages in Yemen

In the picture, the pretty, seemingly-ordinary Yemeni girl holding a pink scarf called Nujood Ali is not an ordinary girl at all. In spite of her radiant and cheerful expression, she has a scar deep within her - she is 10 and divorced. It might be surprising to some of us, but child marriages are indeed common in Yemen. Yemeni parents try to marry their daughter to middle-aged men in exchange for money. 

Child marriages in Yemen involve an extractive institution, in this case the girls' cold-hearted parents, who trade their daughters for money. This extractive institution thrives in Yemen especially because Yemeni judges, who represent the legal system, do not seem to be bothered by the ubiquity of these child marriages to the extent that they even support it, as the article mentioned,"There are plenty of judges who support him and are unsympathetic [to Nujood]."

Urban Decay in Britain

Small cities in Britain were once economic powerhouses. They were engines of industrial growth for years, supporting the larger cities in the quest for profit. However, as Acemoglu and Robinson could well predict, creative destruction left these towns behind. As Britain's economy became increasingly more dependent on forms of production and globalized trade that differ from the old industrial model, the Northern towns that thrived under it have, naturally, been hard-hit.

 

The North of England's decline was forestalled by the artificial pump of government money from Tony Blair and Gordon Brown's Labour governments. Public funding went to large building projects and arts promotion as well. However, with the rapid succession of the 2008 economic crisis and the election of the David Cameron's Tories into a coalition government, that decline has deepened. The larger cities have been able to diversify their economic output, while the smaller and medium-sized ones - places like Wolverhampton, Hull, and Hartlepool - have utterly failed in this regard. All three of the cities' unemployment is well over the national average. On top of this stagnation, there's another problem; 

"Fully 22% of people in Wolverhampton have no qualifications—against a national figure of 9%. As in Hull and Hartlepool, while not all the local schools are bad, their overall performance is appalling," ("The urban ghosts"). 

This has led some commentators to suggest that, instead of building civic institutions like aquariums or art museums, it would be more appropriate for the government to help the struggling masses from these areas to relocate or commute. After all, there is a precedent for such a shift. As cottage industries declined with the advent of industrialism, vast numbers of displaced peasants moved from the Cotswolds to London and other major centers of the new economic movement. Perhaps a similar migration will save the people currently suffering in the North's languishing cities.

The Catholic Church

The path of the Catholic Church is a great example of many of A&R's hypothesises. The Church can be seen as an extractive institution that underwent a critical juncture which eventually led to a change towards a more inclusive nature.

The Catholic Church in the 14th and 15th century was a very powerful and highly extractive institution. It preyed on the poor and the weak who sought redemption and peace in the church, so the Church became extremely rich through this extraction. This over-dominating power remained untouched until around year 1500 where Martin Luther challenged the church and its exploitation of the people. The Reformation was a critical juncture in which the Catholic church lost a great deal of its power as a large part of it split of into becoming protestants. This critical juncture led to the Counter-Reformation in 1545 which was the beginning of a more inclusive Catholic institution. One of the key creations of the Counter Reformation was the Council of Trent.

"The Council of Trent aimed to remedy the problems within the Catholic Church that had contributed to the Protestant Reformation. For instance, the Council sought to end clerical abuses and corruption, especially associated with the selling of indulgences."

From there on out, the power within the Catholic Church became more spread out, which lessoned the incentive for an extractive system.

Gold Rush in Darfur

Just a decade after genocide in Darfur, the region has once again been plagued by violence and infighting, this time because of large quantities of gold recently being discovered deep below the Sudanese ground. The mad dash to cultivate the massive amount of gold has made way for "state-sponsored violence" as the Sudanese government attempts to extract as much as possible from this new source of wealth.

"Humanitarian groups say the Sudanese government, led by accused war criminal President Omar Hassan al-Bashir, is pitting tribes against each other in a bid to get the most possible out of some 4,000 mines."

Led by al-Bashir, the Sudanese government is using the desperation of a poor and war-torn population to encourage infighting in order to concentrate the government's grip on the gold. The Sudanese president has thus far relied on loyal tribes to eliminate would-be threats to the government's extraction of the gold from privately cultivating their own share of the prize. In essence, al-Bashir is ensuring that minimal amounts of the newly found wealth find its way into the possession of private individuals. Rather, al-Bashir is promoting tribal violence in order to extract the gold through tribes that have already proven themselves loyal to his regime.

The ongoing situation in Darfur is not unlike the numerous examples of extractive institutions that defined the development of Latin America over the course of the past 500 years. In particular, the Spanish extraction of gold from their new world colonies provides an apt comparison for the extractive nature of the Sudanese government's response to the new sums of wealth. Just as conquistadors hoarded gold from the New World that would be extracted for the crown, al-Bashir is using his loyal tribes to claim as much gold as possible in an arrangement that will no doubt be mutually beneficial to the Sudanese government and the tribes that it chooses to sponsor. However, extractive institutions such as these leave the rest of the population in the dust and represent a stark contrast to inclusive institutions that would instead promote and encourage cooperative arrangements that benefit society collectively.

Bread and Circuses in Ancient Rome

In the Roman Empire, there were not as many opportunities for economic advancement as today for the common man. Many homeless and very poor people lived in Rome and they had few choices. To placate the poor and homeless of Rome, Emperors frequently gave out free wheat and public games at public expense, know to many as bread and circuses. The plebeians were content with free food and entertainment. The system worked for many years, but it was only a stop gap for the problem of economic inequality in Rome, caused by a lack of inclusive economic institutions. Plebeians were dependent on handouts from the state, so politicians could effectively buy the support of the masses, instead of helping them support themselves. As a result of placating the people instead of fixing the root of the problem, the Roman economy stagnated somewhat contributing the collapse of the Empire.

Corrupt Politics in Azerbaijan

     The country of Azerbaijan declared its independence from the Soviet Union in 1991. While Azerbaijan's economic future has been described as "promising", they continue to have extractive political institutions. The country recently re-elected President Ilham Aliyev, who has been serving for the past 10 years. The problem is the results announcing his re-election were reveal a full day before voting had even began. The country's facade of free elections was essentially broken with this incident. The election was not anticipated to be fair, but this incident just further confirmed the extent of authoritarian power in Azerbaijan.

     The extractive political power in Azerbaijan means that even though people are technically allowed to vote, their vote does not actually have any affect on the outcome of the election. The opposing candidate's appeals were rejected, further stifling opposition to the ruling powers.

Why the USSR failed

The collapse of the Soviet Union is invertible, resulting from numerous reasons.Some were showed in the video called “the tears of Russia – the collapse of the USSR”, like the threats from other countries and the corruptions of the high-position people. Dig deeper, we will find that its failure actually originated from its political and economic structures.

The Soviet Union was politically highly extractive, especially so after the 1980s. All of its policies and laws were determined solely by the few people in the government and all to their benefits (help them to steal more easily from the nation for instance). With all the power and 95% of the wealth rested in the hands of the privileged ones, millions of people starved to death, and the rest were monitored and prosecuted by the secret police. Its economic was extractive, too. Because people were not allowed to have personal properties, they generally lack the incentives to work, and were not trying to innovate at all. Due to the extractive structure, there was no creative destruction either.

As the problems resulting from the two aspects got bigger, the USSR tried to transit into the capitalism, but eventually failed and collapsed.