The Long Road to Good Governance

EconBuff Podcast #47 with Kevin Grier

Dr. Kevin Grier talks with me about the long road to good governance. Dr. Grier explains why so many countries are so poor for so long despite the path out of poverty being known. We discuss what these economic components are and Dr. Grier argues that it is the origin and development of the state that has made and continues to make it so hard to get good governance and national wealth. We explore the origin of governance, with Dr. Grier explaining how states arose to solve the problem of violence. Dr. Grier says this became a balancing act between elites, who had the power to address the violence, and the rents paid to these elites. Dr. Grier lays the framework for understanding modern governance by defining the natural state, or limited access orders, and open access orders. Finally we explore isomorphic mimicry, good enough governance, and second best institutions, and their potential ability to help poor nations reach better governance.

Source Castle Stuart, Inverness, Scotland

Author Dave Conner from Inverness, Scotland

Transcript

Stitzel: Hello, and welcome to the EconBuff Podcast. I'm your host, Lee Stitzel. With me today is Dr. Kevin Grier. Kevin is the Gordon Tullock Professor of Political Economy and Professor of Political Science at the Free-Market Institute and the College of Arts and Sciences at Texas Tech University. Kevin welcome.

Grier: Thanks Lee. Thanks for having me.

Stitzel: So, Kevin. Our topic today is the road to good governance. And so, I just want to start us off with a pretty broad question, and that is why are so many countries so poor for so long?

Grier: O.K. well, thanks Lee, and it's great to be here. I've enjoyed my time here at in Canyon, Texas. And so, just to jump right in --- income gaps are getting huge. They're getting bigger, even though extreme poverty is going down to a certain extent, gaps between countries are getting bigger and bigger. And it's weird because everybody in the poor countries knows what it takes to get rich, but they're not doing it. So, my answer to why are so many countries so poor for so long is that they haven't been able to escape, kind of, their vestigial primordial governance. And that's a governance that kept the peace by rewarding elites and excluding common people.

Stitzel: So, part of the reason that we have a gap in those incomes over time is that the countries that have escaped this --- they’ve grown, and it's left these other countries behind. So, how much of this is, like, some actual development problem versus, you know, there's a way that different countries can see how they should be performing economically, and they're just not doing that?

Grier: I think it's almost 100% the second. Like that, you know, Singapore has shown you don't need a lot of natural resources. Japan has shown you don't need a lot of natural resources. So, it's not really that. Trade is a great equalizer, in terms of you don't have to have a big domestic market to be successful. You know, countries have shown that. So, the idea that, like, markets and capitalism and competition and business make countries richer is pretty uncontroversial. As I was talking to you guys earlier today, even like Bono from U2 recognizes that now, right? He was trying to redistribute his way to wealth for Africa. And it turns out they would like to do economics their way to wealth.

Stitzel: And they need to do that through accessing, kind of, the global market. Do you think there's a trade-off between capitalism and free markets and globalism? Or --- is you've got to play the game the way that it’s currently constructed?

Grier: Well, nobody really wants to play the game with total complementarity and total openness, right? We just passed an anti-inflation act that is basically a buy American act. So, we embrace globalism. And even the U.S., who benefits more from the global system than anyone. We embrace it very cautiously, very at arm's length, very careful not to let voters think we think this is great, right? So, nobody seems to want to politically embrace it. But that's so far in history --- that’s the only way we know that countries can get rich.

Stitzel: So, are these countries that are poor --- they’re developing --- are they worried about, kind of, getting on to the global scene, and then being out competed, and then they can't compete in that sphere? And if they are, should they be worried about that?

Grier: So, I don't know the answer to that. Like, I haven't spoken to, like, the finance minister of Haiti and ask him: what's your problem sir? You know, if I got a chance to talk to him I would ask him that. But they shouldn't be worried, right? We've seen --- just like people are worried about, you know, Chat GPT taking jobs, we've seen ---- over and over and over again that, like, there's always jobs. There’re always new ideas. There's always been innovation. Maybe that will stop, but there’s no reason for us to think that it will. It's certainly --- there's no historical reason to think that it will. Comparative advantage is a really powerful tool. You know, these countries are, like, low-skilled countries where low-level manufacturing could be very economically viable. But they're not getting on that train. They're not getting on that ladder, the ladder of development, if you want to think of it that way. And I think the reason why their governance is.

Stitzel: So, what role does the state play in getting good governance, and then how is that related to national wealth?

Grier: So, like, Adam Smith said: little else is needed to go to extreme opulence from total barbarism than peace, easy taxes, and a tolerable administration of justice. So, they need to enforce rules impartially, all right, stay out of the way of private enterprise to a certain extent, [and] keep the peace, all right? And that's --- Adam Smith makes it sound easy. It turns out historically that that's actually really hard.

Stitzel: Would you say it's simple but hard?

Grier: Yes.

Stitzel: Or is it both complex and hard?

Grier: I think it's pretty simple, but really hard.

Stitzel: So, it occurs to me there’s a way in which it can be made to sound so easy. But it's not even clear to me that that's what the state the government of these particular places is even trying to do. So, if that's not what they're trying to do --- right, we write down our econ models, and we put in benevolent dictator. Lots of places have dictators. We probably wouldn't call too many of them benevolent, although, you know, maybe many of them do actually care about their people. I don't know, but they don't seem to be trying to solve for that particular problem --- is that because they can't do that, or is that just not what they're doing?

Grier: So, I think it's a combination, right? I think that, you know, there are people in any of these really poor countries that would like to innovate. They would like to give into the global system. They would like to grow. They would like to provide more opportunity for the young people in their countries. But, I mean, that's just not what their government is set up to do, right? Their government is set up to keep the peace by keeping elites pacified, by creating rents or special economic favors, giving them to those elites in rough proportion to their power. This is what North, Wallis, and Weingast call the natural state or the limited access order. And this is, kind of, historically what governments have been since the inception of, you know, since the first bandit settled down and put a fence around his people and called it a kingdom, right? That's kind of what government's been set up to do --- control violence, solve violence, [and] let people be in peace. But, you know, controlling violence and keeping elites happy is not really what we need for modern economic growth.

Stitzel: So, your paradigm of what the state is doing is balancing this peace with keeping happy and they’re doing that through economic currents? Is that your basic idea?

Grier: Yes. I shouldn't say mine, right? This is North, Wallis, and Weingast.

Stitzel: Of course.

Grier: You know, there were two of those guys who are my professors. And at the time when I was a student, I didn’t think so much of them. But one of them has won the Nobel Prize. And the other one has over a hundred thousand citations. So, I probably should have paid a little more attention in grad school, but I am catching up at this late date. And I really think that that their explanation is essentially correct.

Stitzel: This is my experience as I mature is appreciating my professors more, appreciating my parents more, [and] just all these people that when you're first coming to the problem. And I don't even know if it's necessarily maturity. But when you're first coming to the problem, you just don't appreciate how complex it is, and how nice it is for somebody to have some ideas like the ones that you’re talking about for people to work with. Like, that's such an impressive thing to do. So, I've been reading up on Roman history. I happen to have come across a Roman author, Roman historian, named Tacitus since I've been reading. And you mentioned Chat GPT, so I’ve been balancing, pulling factoids from Chat GPT to supplement my reading so I can like understand what's going on, right? And there's a story that Tacitus is telling, because he's writing the history of his father. I think you'd pronounce it Agricola. And  that’s probably an embarrassing pronunciation, but what am I going to do? And he's going, and Rome is pressing into Britain, right? And one of the British generals --- they're probably around where Scotland is now up in the north part there. And they're, you know, getting ready for their last stand. And the general --- gives a long speech, which is very cool, highly recommend anybody read that. But one of the lines he has in there is Rome makes a desert and calls it peace, right? So, I'm thinking about this way that you're talking about [that] we're going to balance violence and elites. And then, you know, we've got these --- what did you say --- there's the first bandit that put up borders around us people to protect them. And then, we've, kind of, got this this history of, you know, empires expanding and then contracting and conquest. And it really is a story of violence. And it really is a story of empires. But it's even not just the empires. It's the people that they would have been conquering too. Those elites are potentially trying to extract economic benefit out of that. So, how does how does, kind of, the course of history, maybe, especially, Western history fit with your paradigm that your professors and that you are, kind of, advocating for?

Grier: Sure. So, I would take a pretty reductionist view, and probably, like, any historian might want to cover their ears here for the next minute or so. But, I mean, I think most of the things that we think of history --- big events, battles, [and] conflicts is fighting over rents, right, fighting over economic privileges and economic profits, either internally when aren't satisfied with what they’re getting, or externally when a ruler perceives weakness elsewhere and sees economic rents that he can grab. You know, I think that's history, right, in a nutshell.

Stitzel: So, this is what Rome is doing?

Grier: Yeah, absolutely.

Stitzel: Right.

Grier: They’re not going there to, like, build up economic development in Scotland, although I should note they didn't conquer Scotland.

Stitzel: Yeah. They had very little in reach in that part of the world, apparently, and then never really had full control, and then was pretty tenuous. But other parts of the world --- they had really extensive control, basically in all directions…

Grier: Yes.

Stitzel:…from Rome. And then, it's kind of interesting, because, right, the fall of Rome comes a lot to do with the goths and the way that they're fighting back actually in Italy itself. So, I always kind of find that it's a little, I don't know, if ironic is too strong of a word there, but let me let me turn, kind of, this idea of the natural state. Can you tell us what the natural state is, and sort of, maybe, how that fits in this paradigm that we've been exploring?

Grier: Sure. So, we would call natural state basically almost every state or government through history, and most of the states and governments that still exist today. And the idea basically is that everything is personal, right? It's built on personal relationships, not impersonal ones. It's like not what you can do, but who you are, and who you know, and who's on your side that determine success. So, there are societies where, you know, elites don't face the same rules and restrictions and regulations as common people. They're given special privileges, and they're given those privileges from history to, sort of, keep the peace and contain violence, right? The single biggest thing you need from a state is to stop there being constant warfare, right? Warfare's bad for everybody. Civil violence is bad for everybody. You know, any kind of investment --- any kind of, even just farming, you know planning stuff that you plan to keep around for a while --- if you think everything's going to get burned down, you know, you're not too likely to do much more than subsistence. So, the number one goal of a government is to keep the peace, right? And these natural states have done that by co-opting elites into this sort of loose grouping of people that get special interests and get special favors. And they do that by excluding some groups from some parts of the political process, or some parts of the economic process, or both.

Stitzel: I think it's straightforward based on, you know, the listening audience is going to, you know, live in a world where we get to vote. And, I think, straightforward to think about how people are not excluded from the political process. What does it look like for people to be excluded from the economic process?

Grier: O.K. Well, let me just back up and say you can vote and still essentially be excluded from the political process, right? In Mexico for almost 90 years --- one party won every single election. That party controlled most of the media in the country. The party itself was who counted the votes at the election. So, voting and being included in the political process are not necessarily the same thing, right? We really would like to see to think everyone's included --- we'd like to see like that competing parties rotate in power, all right? That's, kind of, like a truer definition of democracy than just having elections. Can the one group lose? And if they do lose, will they accept the other group and vice versa? Being excluded from the economic process, I mean African-Americans can't play Major League Baseball, all right? Women can't work in factories. Women can't be CEOs. Women can't be doctors. You know, certain ethnic groups are constrained from going into certain occupations. A very crude version of this would be like the caste systemin India. But it happens, you know, all over the world.

Stitzel: In your view of this, does it have to be that these people are excluded by law? I mean because some of what you're talking about can technically be legal, but people's attitudes and cultural customs and stuff don't prevent that or do prevent that.

Grier: So, there are like heavy-handed laws that do this, like apartheid laws in Rhodesia at the time, and in South Africa that just say hey this, you know, it's illegal for you to try to do this. And then there's just simply the fact that, like, well for example Elinor Ostrom who’s the only woman to ever win the Nobel prize in economics --- not one single econ PhD program would take her. Her PhD is in political science because no econ program would take her in. And turned out --- oh she's pretty smart. She won the Nobel Prize. Her idea invented a whole new way to think about governing collective, you know, using the collective governance of common pool resources and things like that, that is amazingly innovative. So, just by routine, by custom, by old boys club, by prejudice, you know, whatever it is that exclusion is what creates the rents for the existing elites.

Stitzel: So, how does that relate to the state in this case? Is that something you're saying this the state needs to eradicate and thereby just demonstrated that it's achieved this higher level of equality? Or is that a byproduct that’s emergent? How does that?

Grier: That's a really good question. So, the way I see it is like if this, if the state or the government or the country, you know, wishes to become prosperous, right, [then] they need peace, they need justice, and they need a tolerable administration and easy taxes, and a tolerable administration of justice, right? And that's hard to do when your whole system for centuries has been set up to keep the peace by keeping powerful groups satisfied by giving them economic rents. It's just fundamental that that idea of a limited access order is just fundamentally opposed to, like, modern economic growth, where we have innovation, where it's ideas that matter, where everybody needs to be included. And so, it's a real --- that's, kind of, the central puzzle is [that] it's not so much to me [and] it's not so much why are there still so many natural states. To me it's like how in the heck did anybody ever get out of this trap to a more open state to a more inclusive state?

Stitzel: There’s, kind of, two directions we can go here. But I really want to ask this question which is, you know, you've talked about this idea of these rents to elites. And then, you’ve talked about this idea of equality before the law. Obviously, those have an enormous amount of interplay between those things. And on one hand, we do want to say the situation that we find developed countries, that we find, you know, the West in is a lot of governments that we would think they've, sort of, transcended the natural state into a better, what you call open access order. And we might have achieved quite a lot of equality before the law in some ways, and in other ways maybe not. And that, demonstrates, you know, that, sort of, right --- it's not a binary. It's not one-zero good-bad governance. But we're much closer to an ideal state of governance. And yet, I think a case could be made pretty strongly that we still see a lot of rents going to elites in the current economies, even in places that we would say have better governance. What's your thoughts on that, and what that means for the state of governance today?

Grier: Sure. So, rich people in America have a lot of influence. I don't think there's any denying that. But one thing that's interesting is that rich people in America don't tend to be long-term dynasties, right? They don't tend to be like, you know, you can go to Mexico and say: here's these 10 families and they have an incredible amount of economic and political power. Throughout Latin America, I mean, you can identify, you know, these are the elites, these are what they do, and it doesn't change, right? They're getting protected. They’re keeping the peace in the system, sort of, ossifies. At least in the U.S, right, Bill Gates [and] Steve Jobs didn't start out rich. There's a lot of debate about whether Elon Musk started out rich or not. He didn’t start out nearly as rich as he is now, right? So, we do see elites, and we do see them getting profit. But we see them getting profit and sometimes enormous profits. In a fairly open and competitive system, right, they didn't have to have a certain last name. They didn't have to be of a certain ethnic group. They didn't have to have come from a certain part of the country, all right? So, we definitely see elites in elite power in the U.S. And sometimes, we can, kind of, talk about the government helping that or you know. But by and large on average, it's, kind of, coming through capitalism and through markets and through the enterprise system, where we're getting our elites rather than getting them through hereditary (heredity) or custom or tradition. Or so I think it's a little bit different.

Stitzel: So, in your view, do you need to have no rents going to elites to know that you've got sort of the best possible version of governance, right? Is wealth inequality a measure in this metric? Or it’s --- it is that people are going to be able to get ahead? And people have different ambitions, and work ethic, and probably a lot of noise in there, just random luck? And as long as people are coming to that through competition and innovation, [then] that’s [or] that can still be a category of good governance even with?

Grier: Sure. So, I'm more of an equality of opportunity guy than inequality of outcomes guy, which, I think, is, kind of, what you're getting at here. So, that's what to me that's what I would like the state to provide, right --- that it doesn't matter if I'm an African-American kid in Mississippi, or, you know, my parents came over on the Mayflower and I live in Boston, right? You know, we still have access to education. We still have equal access to the justice system. We still have the opportunity, you know, the idea that you could be whatever you want to be. As corny as that sounds, that's what I view as good government.

Stitzel: One of my colleagues argues the elites would still be elites in a different system, different government, different economic system. So, our Jeff Bezos would, in our world he's an entrepreneur and a capitalist and running a big firm. And if we lived in an alternate universe where the US were, you know, full-blown communists, that he would just be high uplevel bureaucrat or dictator or something like that. What's your take on that in light of the discussion that we’ve had so far?

Grier: So, I hope this isn't someone that I know and I'm friends with, because I would disagree with them, all right? It's most of the other. And I don't mean to say that the US is a totally merit-based system. I don't mean to say that at all. But relative to a lot of other places, it is, right? And I don't mean to say that what we call merit sometimes is just luck as well. That's obviously true too. But if you have a good idea, or you get lucky, you can get success regardless of your background. And if so many alternate universes, success comes from who your family was, what you’re your ethno-geographic status is, and not from personal endeavor, right? So, that luck really doesn't have --- you can't even use luck really to get ahead in those societies. You're just in it. So, I would disagree with that. I don’t think --- and Jeff Bezos is like he's a nerd, right, like me. I've done pretty well for myself. If I lived in a more brutal society, I would be dead long ago, because I wouldn't have been able to kowtow, and I wouldn't be able to keep my mouth shut, and somebody would have cut my head off. So, I'm very happy to live in the one that I live in. I don't think I would have done nearly as well in an alternative.

Stitzel: So, there's this is a half-baked idea. So, let me see if I can sort of work this out, right? On one hand, we want this impartiality. We want, you know, the system to have everybody equal before the law. And on the other hand, you know a state should be organized and should be governed for the good of its people. So, in your view here, this, like, equality before the law, does that [or] is that --- that means the people who belong to that state and belong to those people, you know, how do you take into account issues like immigration or treating other states, which may or may not be our allies or enemies, into account? Do you have comments on that?

Grier: Sure. So, let me first say that, like, having equality before the law and having equality of opportunity is good for everybody in the long run, right? It's going to make this country more resilient, any country, and it's going to make them richer, right? We get wealth in the modern world through either copying people's ideas to catch up, much like China has been doing, or creating new ideas. And to the extent that we exclude people, or don't educate people, or don't let them fully participate in this process, we're going to have fewer ideas. We're going to be poorer than they otherwise would have been. So, these things are not like that there’s a sacrifice, right, we're gonna in some sense. You know, and in terms of applying to others, I mean, that's, like, really politically loaded, right? My personal view is I'm not a full Brian Caplan open borders guy. But…

Stitzel: Right.

Grier: I would be fine if there were twice as many people living in America as there are now. You know, if we were to increase the population of America by, you know, 600 million in 10 years, I actually would be fine running that experiment. I would be very optimistic about how it would turn out.

Stitzel: So, I kind of want to turn. And then, we've explored, I think, very well, kind of, what it is that we're talking about. And now, you've got these, maybe I'll say two engines of a spectrum here. If the natural state is natural, because that's naturally what states tend towards, how do we get from there to this ideal that you're talking about --- this open access order?

Grier: Right. So that's a good question. There's a sell my famous quote in development circles by this dude named Gordon Brown, who used to be the Prime Minister of England. And he said something like: when it comes to the rule of law, when it comes to establishing the rule of law, the first 500 years are the hardest. Right? Historically, this has been a long slow process. We wrote very flowing language in 1776 and 1787 about the equality of everyone, and everyone had inalienable rights. But we didn't mean it, right? We absolutely didn't mean it because it didn't include women. It didn't include minorities. It didn't include poor people, right? It took the U.S. to live up to the rhetoric of 1776 and 1787. It took us ‘til 1970, maybe when minorities could vote and do things without government restrictions of onerous taxes or regulations, or without fear of physical violence. So, 200+ years. I guess we beat Gordon Brown’s estimate, right? We made it a little bit faster. But yeah. It takes --- so far it seems like it takes a really long time, and it's piece by piece, [and] step by step. And I don't think we could say even that there’s one path that's good for everybody, all right? And that, sort of, leads into --- I don’t know if this is where you want it to lead into --- but this leads into another topic that's near and dear to my heart; and that is our efforts to help these natural states become rich are somewhat misguided, because we don’t take into account that those rents, and those things that we think of inefficient, are there to keep the peace, to keep the social fabric together. And just telling them to be like Denmark, or be like the U.S., they know that, right? They know if they didn't have corruption, if they had equality of the law, if the judges were honest, [then] things would be a lot better. They know that. They just can't get there. And one reason why they can't get there is because, you know, their society is set up that those things are actually serving a function. Those inefficiencies are serving a valuable function --- keeping elites satisfied [and] keeping elites, you know, with the program.

Stitzel: Yeah. That's exactly where I wanted to go with that. We were talking about representation. So, you're saying we didn't get to living up to the ideals that were expressed at the founding of the United States until we got people, you know, the individual rights to vote. Earlier you were saying --- and yet you can have what seems to be the right to vote --- there’s not any actual representation. What's your thoughts on, you know, the different ways that we could have representation? I think our reflex is to think: well, I've got the right to vote. That vote gets counted. And as far as I'm concerned --- counted fairly and truly.

Grier: Right.

Stitzel: And yet, you know, you could live in a different way that the world was constructed, where you have representation at a household level or at, you know, these systems that are more like feudal systems or something like that. And that person could really, at the head of that localized system, could really care about the people that are in his household…

Grier: Right.

Stitzel:…and represent them, you know. So, how do you think about that in this context of --- you could have a situation where you don't really have a unified nation the way that we think about it now. And there's all these different little groups, and those households really do care. And obviously, there’s going to be people in that system that they don't care about as much, unfortunately.

Grier: Right.

Stitzel: So, are you, kind of, rejecting that type of representation system wholesale? Or you're saying there's so many people at the bottom of that hierarchical structure that don't get any representation?

Grier: A little bit of both. A little bit of both. So, I mean, I would say that the way the U.S. does representation now --- a lot of people's votes don't count. I was telling the story at lunch about living in Oklahoma and wanting to vote libertarian, right? What a what a Sisyphean [ineffective effort]. What a ridiculous useless gesture that that is. So, we have winner take all elections, essentially. You get one more vote --- you get the whole thing. And we have single member districts. There's just one representative per district. Representation, I believe in the United States, could be much more broad and much more representative if both of those things didn't hold. So, the clearest alternative would just be, like, what what's called proportional representation, so that you don't vote for, say, [the] president by electoral votes by state. And instead, you then --- so, it wouldn't be winner takes all. So, whatever party runs --- if they get X percent of the vote, they get X percent of the seats in the legislature. So, me and my fellow libertarians don't have the crazy task of trying to win a geographical district in Oklahoma. But, if we get of 11% the vote nationwide, we will get 11% of the legislature being libertarians, all right? And maybe, who knows, maybe we'd even get a government ministry out of that. Maybe we'd even get a cabinet position with 11%. So, another way to do that is multi-member districts --- have the same system we have now but elect more than one winner out of those districts. That would increase the depth or the realness, I think, of the participation. So, you know, if you have these winner take all elections, you know, it's not that many people are getting represented. The people on extremes aren't getting represented at all. You know, it's all coming down to just minor things in the middle. And, like, people think Trump and Biden are so different. You know, I tell my students this all the time: no, the median voter is stronger than Trump or Biden. And if you look at, like, all the things that Trump was doing wrong --- like kids in cages at the border --- still, there. Right? Minimum wage --- $7.00 and whatever --- still that. Student debt ---- onerous --- is still onerous. All these tariffs on China ---- still on China, right? The median voter really, you know, median voter winner takes all elections really constrains what's going to happen. And I'm a big fan of trying something nuts. I would love to see the U.S. try a PR proportion representation system. I think that’s actually a better way to get representation.

Stitzel: That's --- you had a great answer there for exactly what I was trying to get at is [that], you know, just, I don't feel very represented by either red or blue. You're --- [it] sounds like you’re sympathetic to that. And, you know, some of my listeners are going to be people that are red or blue. And some of them are going to be somewhere in between. And then, obviously, you've got such a menu of different things that we even care about. So, yeah. That's exactly where I was going with that. So, I find that very interesting. That's something that you've…

Grier: Sure. And I mean, what do people say when you’re trying, when you say you want to vote third party, and they want their candidate? They say: no, you’re throwing your vote away! Don't do that! You're throwing your vote away. And in our system, they're, kind of, right.

Stitzel: Yeah.

Grier: You really are throwing your vote away, in a way that in a PR system you wouldn't.

Stitzel: So, let me turn back now. We were talking about how to get from one to the other. And you're saying it's difficult to get rid of different things that we perceive as bad in the natural state; because those are serving a purpose, however distasteful they might be, the alternative might be worse. And then, we might know what the outcome looks like. We say: O.K., we'd like to be like Denmark or Sweden or USA or any number of different countries. How do we? How do we get there? There's not a --- I think you said this, right? There's not a path there. There's not a --- do this, then that, then this, [and] then that. So, what's our? What's our even hope for those kind of countries?

Grier: Right. So, that's a good question, a hard question that I don't have an excellent answer to. I guess I would punt a little bit and say: one thing we could do is not give counterproductive advice [and] not give unhelpful help so to speak. And, you know, you can kind of summarize what the World Bank, what UNICEF, the United Nations, what the British development agency, [and] what U.S development agencies [do]. They essentially want the country they're trying to help to adapt the bureaucratic institutional constitutional structure that the rich countries have. My friend, and much better economist than me, Lant Pritchett calls this isomorphic (excuse me) mimicry. You take on all the trappings, but they're empty and they're hollow, right? You don't get the functionality. So, that, I think, is a pretty big indictment of our international aid programs, both internationally and within the US, is that we don't realize that these inefficiencies we're telling them to get rid of --- we don't realize that those are functional that they're serving a purpose, right? We don't realize that if they don't have the capabilities in place, that just setting up these institutions is like after World War II in the Pacific Islands there were things called cargo cults. And like, the Pacific Islanders --- some of them had never seen airplanes. And they would drop supplies with parachutes. And some of these islands, and if the war was over, it was over. And the islanders missed the stuff. Some of them would build paper mâché airplanes, right, to try to mimic what they saw in hoping of getting the outcome of the supplies. So, I call this, like, cargo cult economics, right? That if we build some facsimile of the delivery mechanism, we'll get the stuff. And that hasn't proven out. That hasn’t proven out at all.

Stitzel: So, what you're saying is we could have what looks like the types of institutions that we want to have, but they're not actually doing anything. And that's a fascinating idea, you know. But it even occurs to me there's a different way, where we can, kind of, have this --- we could have a --- system where we could actually have one of these institutions and it work in one way or another. But if you don't have the other things, are you going to be able to keep it? So, let's say we had a good independent fair justice system, but everything else in the country is corrupt, everything else is back at the natural state, and everything else is personal as nepotism is corrupt.

Grier: Hmm mmm.

Stitzel: Are you going to be able to even keep --- even if that's a real, even it's not mimicry….

Grier: Yes.

Stitzel:…I'm usually we'll be able to keep --- the whole, that part of the system?

Grier: That's a a really good question? And, like, how to sequence reforms is a technical issue that people study. You know, like, some sort of former Soviet countries, excuse me, were criticized for (excuse me) what was called “Big Bang Reforms” [or] everything at once. And they argued it should have been sequential and so on. So, I don't have an answer to that. I'm sorry. I'm very disappointing with my lack of answers here today. But I would say that if I had to pick one thing to get right and let it fight with the bad things I would pick the legal system, right? I would pick equality before the law and property rights and enforcement as being the one thing: because that's going to over time chip away at nepotism. It's going to over time chip away at exclusion and things like that. So, you picked me the biggest one. If I had to pick what, you know, give me an institution that works and put it in a country and have it really work --- that's the one I would pick.

Stitzel: So, what was in the Adam Smith quote --- easy taxes and then?

Grier: Peace, easy taxes, and a tolerable administration of justice.

Stitzel: Yeah O.K. So, then we've got a good legal system there, and then controlling violence, and then easy taxes. Of course, I don't he didn't mean that to be comprehensive.

Grier: Right.

Stitzel:  You know.

Grier: He said little else. He didn't say nothing else.

Stitzel: Right. You know, but those are big three in terms of institutions that we would want we would want to be able to get right. And a system that is violent and heavy tax burden and a well-run justice system, yeah, probably out of the three different combinations we could have there --- that would be the one that we might want to go with. But I would even despair of that, sort of, being able to get.

Grier: Yeah.

Stitzel: So, how do we see countries that have got there? How did they get there? Does history hold answers? And yet, you can't mimic the U.S if you're in a developing nation either.

Grier: You can't mimic the U.S. where it is now, right? If you have a GDP of $1,500 per person, right, and the U.S. has a GDP in comparable terms of $60,000 per person, [then] you can't just simply take the U.S. institutions, right, and the U.S interest, and the U.S policies. I mean, that's just --- you're nodding and smiling. But that’s what we're telling them to do, right? And it doesn't make any sense, right? You'd be better to think about when the U.S was poor, what did they do to start to get rich --- not that now that the U.S. is rich, [but] what institutions? That’s very cargo cult thinking in my opinion, right? The U.S. has all this stuff. We’ll write our constitution like theirs. We'll have a bicameral legislature with the President, you know, and magic! And so, I think a better guide for these countries would be: what did the currently rich countries do in their path to become rich?

Stitzel: O.K. so let me throw out this somewhat heavy somber analysis. A lot of those went through war to get to that place. We went through bloody revolutions, and we went through violence, and we went to civil wars. And what? Is that unavoidable that you're gonna have to go? We're in this one equilibrium of a natural state. We want to end up in this equilibrium of this other place, and we're going to have to come to violence in order to get there? That’s the thing that shakes you out of an equilibrium? Not just adding one institution at a time, or not just, you know, from a top-down [where] somebody comes in and installs institutions that aren't really ours?

Grier: Right.

Stitzel: Does it have to be that?

Grier: So, we've seen what looked like promising revolutions in Africa that didn't last very long. Like, Rwanda had genocide, ethnic division, strife, [and] massive, unbelievable poverty. Paul Kagame came in, you know, “liberated” the country, outlawed any discussion of tribalism, you know, [and] tried to modernize. It was the darling of the U.S. [and] was supposed to be democratic. That was in 1996, in the mid-90s. Paul Kagame is still president of Rwanda today. And many of Paul Kagame's political opponents are in jail today, right? So, the revolution just put in a new boss, right? Pete Townshend [songwriter of the band The Who] was right about that --- meet the new boss, same as the old boss. It's often true. Uganda --- crazy guy Idi Amin, right? Finally get rid of him --- a lot of political instability, A lot of terminal leaders. Museveni comes in [and] 35 years later Museveni is still president. There's an age limitation in the Constitution. He just rewrites his birth certificate to claim that he's young enough to still be president and somehow he wins the elections. So, revolutions like that don’t seem to be --- have a very high success rate. They --- to me they don't. And, you know, we’re lucky enough in the case that, you know, absent what's going on in, like, Ukraine and stuff like that, national borders are pretty firmly set at this point. If anything, we might expect to see, you know, voluntary devolution of some places. But like, you know, I'm not worried that someone's gonna conquer, you know, the Central African Republic and take it over. And we would shy away from that because we would call it colonialism. So, I think the violence part isn’t necessary, all right, at all. But I think you know that getting some part of the economics right in the short run is necessary.

Stitzel: So, if I can rephrase my question very succinctly --- I was not proposing it was sufficient, but I was asking if it was necessary.

Grier: Yeah.

Stitzel: You're saying it's neither necessary nor sufficient.

Grier: I think that's right. That's what I want to say.

Stitzel: I think not sufficient should be relatively clear based on any number of examples, you know. So, you can give us hope there by saying it's possible.

Grier: So, let me just say like the us would have been a super-rich country if we never had the American Revolution, right? Pretty clear. Like, England was our parent. We had all this land. We had, you know, a lot of freedom to do stuff. We were mad at the British. They were really nice to us, right? The things we complained about [and] the things we drummed up grievances about were pretty minor. So, the U.S. Revolution was, kind of, a weird thing. The American Revolution --- and I don't think it was at all, like, fundamental. In fact, if we hadn't had an American Revolution, [then] we probably would have gotten rid of slavery sooner, you know, because the British --- what was that [the] 1830s? So, you can fact check me. If we had ChatGPT, that would be great. We should have that on the further pods. But yeah, you know, they got rid of slavery before the U.S. did. And if we were still their colonies or part of their Commonwealth, [then] we would have gotten rid of it sooner. So, I don't think, like, if your example (if an example) of a country that needed a revolution to get rich is the U.S., [then] I don't think it's a good example.

Grier: Yeah. That's a good response. So, I was talking with a colleague and a, you know, I don't really know this stuff necessarily firsthand, you know. But they were talking about the rate of taxes that then was one of the things that got the U.S. moving towards revolution. So, obviously, we're thinking about the Tea Party incident and whatnot. And there’s those you look back at, those like actually relatively low rates of taxation.

Grier: Yeah.

Stitzel: And of course, if maybe ChatGPT would allow this, but if I could magically be interviewing somebody who's leading that they would say: it's not the rate, [but] it's whether you even have the right to do such taxation, right? And so that, I think back to, you know, the easy taxation that Adam Smith is talking about. That may not just be the rate, right? That may be the legitimacy of whether or not you can you can do that, right? That's the rule of law. And that’s --- is this a thing that you can do, you know? When I teach public finance as I am right now, I've got a section and they’re talking about, you know, when the federal government took up the right to levy its own taxes, right, where states were the only ones that were doing that before. So, I think about that as, kind of, a, you know, obviously we're on the margin here in terms of how close we are to a true open access order compared to not. So, just a thought more than a question there. So, let's talk about what would give us some hope to go from a natural state to an open access order, and it not be isomorphic mimicry, and it not be, you know, my, sort of, radical revolution equilibrium to equilibrium is the only solution. So, let's talk about good enough governance, and second-best institutions, and some things that might give us some hope in getting from one place to the next.

Grier: Sure. So, let me preface this by saying I think one big thing we need to do is to have perspective and to have patience, right? If we think about how this happened for other countries, like we're talking about is a long slow process with setbacks, and nothing, like, just a, you know, wham-bam kind of a deal. So, you know, in most countries in sub-Saharan Africa have been independent since the 1960s. So, 50-60 years --- they're barely getting started. So, I mean, obviously, I'm not saying we just leave them in poverty. They've got a long ways to go. I don't mean it to say it like that. But I think we need some perspective that there just aren't quick fixes. There's not a quick way to, like, reorient your government from protecting elites to keep the peace, to promoting innovation and enforcing equality and enforcing transparency. Those are --- that's a 180 degree turn in governance. And it's not going to happen. Historically, at least, it hasn't yet happened quickly. So, that's --- that would be my first thing is to say we need some perspective. We need to understand that if we're searching for magic bullets and quick fixes, [then] I don't think we're going to find them. The second thing I would say in more substantive living, I would say is that this idea of cargo cult or isomorphic mimicry is not working. And it's not going to work. And a moment's reflection should make us believe that it's not going to work, right? It's not taking into account the context and the situation that's currently there. It's telling these governments, you know, the stuff you've been doing for hundreds of years that have kept the peace and kept you in power --- yeah, don't do that anymore. Do the opposite. Not surprisingly they'll sign the papers, you know. The United Nations treaty against corruption has 181 countries to sign it. Robert and I were only able to find about 25 countries that actually did something about corruption when we looked at the numbers and not the signatures. So, you know they'll sign the papers. But that doesn't mean they're doing the thing. They're talking the talk. It doesn't mean they're walking the walk. So, I think we need to, in some sense, give up on this idea that the way to get development is to give them the same government we have now. This is what Danny Roderick calls second best institutions or what Merilee Grindle from Harvard calls good enough governance. So, things, anything that, sort of, nudges these countries to get some wealth, to get some progress, to be able to show, like, look this is working, [or] this will work look, you know, is helpful. So, like, you want me to talk about some examples of this?

Stitzel: Yeah, absolutely.

Grier: O.K., so like, one example would be, like, special economic zones, right? That's not neoclassical-neoliberal accepted policy, right? The whole country should have the same. The whole country should be in an enterprise zone, you know. But the problem is, like, elites don't really want that. They're controlling what they're controlling. They don't want entry. They don’t want competition. They don't really want innovation if they cannot control it, all right? So, what did Mexico do, bless their hearts, right? They said: hey look, let's just take this little strip of land along the board, just the --- and we’ll call it Maquiladora. And we'll let them, like, not have all these crazy regulations. And we'll let them export to the U.S. And we'll see if we can build up manufacturing. And it, kind of, worked. And then over time, what they did was --- they expanded the geographic reach of what could be counted as a Maquiladora area. Like, it's --- there's places now deep into Mexico that have that distinction of being in the Maquiladora, the border special economic zone. So, one way to think about doing is just like a kind of, demonstration project, right? Don't worry elites, you're fine. You've got 99% of the country. Everything's fine. We're not doing anything radical. Let's just have a little fun over here and see what’s going to happen. And then over time, more people see that more people want to do it. Even elites might get into their head: hey, if this country was 10 times richer, [then] I could be better off, even if I don't have all my special privileges, all right? So, that's one way of thinking about it.

Stitzel: And that area on the border is not exactly the most economic. It wasn't the most economically rich in vibrant area. We'd actually had Robin here at the at WT in order to talk to some of our students about that. She was talking about how rough this geographic terrain was, and, sort of, not very productive for any number of reasons --- transport, agriculture, etc. And yet, economic freedom is so powerful.

Grier: Yeah.

Stitzel: That that's just enormous. The other thing that I was I was going to comment there --- we study special economic zones under a variety of different names when it's done here in the United States. And we always find that this is bad. It has all these bad outcomes because the whole United States is so special economic zone. So, any type of subzone like that is just a rent-seeking machine, right? But when it’s actually relative to the rest of the country, when it's actually economic freedom, [then] it's actually going to bring big benefits. And that's, kind of, this idea of second-best institution.

Grier: Yes.

Stitzel: So, did you have another example that you wanted?

Grier: Just to follow up on this. Like, China did something relatively similar. China, you know, is more authoritarian than Mexico. But they started their transition to capitalism by special economic zones in certain places, by allowing certain kinds of firms to export just slowly, you know, just trying to keep the existing elites pacified. You know, it's, kind of, like an act, you know. Like, look over here. You're fine. Everything's the same. And then, over here on the other side, oh we're doing something pretty interesting. You know, I mean, and that can get momentum. So, that, I think, is a great example of things that, like, you know, a neoliberal-neoclassical economist would say: no, don't do that. It's bad. It’s rent seeking. It could actually be helpful.

Stitzel: So, in this case an elite that had higher percentage control of the smaller economy is worse off than one that has a high a lower percentage control of a larger, more productive economy. So, we, kind of, gated that idea that we talked about in economics that development is not a zero-sum game, right? It's not --- if I’m growing, you mustn’t necessarily be contracting. So, allowing for special economic zones that then become larger that get more and more growth that can be a situation where, I think, you alluded to this, right? The elite could say: I might have less control, but the economy is 10 times larger. I might rather have that as an elite….

Grier:…a smaller slice of a much bigger pie.

Stitzel: Yeah. So, do you this might be an impossible question? Do you eventually, if you're in a nation like this that's got special economic zones or other types of second-best institutions, do you eventually have to extract yourself from that? Or what do those kind of institutions look like?

Grier: So, I think so. Like, I don't know the answer to that. But I think. So, I mean, no country has got to, like, the frontier of, like, U.S., you know, U.S., South Korea, the richest countries, Norway, [and] Sweden. No country has got to that without pretty liberal, pretty transparent, pretty open, you know. We think of Sweden as like this big welfare state, but Sweden has a pretty open economy in terms of, you know, businesses and what you can do and things like that. So, I think to get all the way there, yeah, like Mexico, you know, it's still not very rich. They're way better off than the basket case countries, right? They’re, you know,  in the teens, somewhere up 15, 16, 17. And these are all, like, internationally adjusted dollars.

So, they don’t match up to the numbers you might read in the paper. But Mexico's probably out a third of the U.S, close to a third of the U.S standard of living. China, for all its advances, is still poorer than Mexico. So, you know, but they're way better off than China was in the 1970s, right? They’re way, way better off than they were in the 1970s. So, it's a long process, you know. Will China get there? Will they be able to have equality before the law for everybody? I don't know. I would predict that they won't ever get as rich as us if they don't get that. But we'll see.

Stitzel: So, is there a chicken or the egg sort of problem here? You get economic growth, then you get better governance; then you get more economic growth, do you get better governance; and then you get economic growth and then you get better governance? What do we even have a sense of how to tackle that problem?

Grier: So, I think in some sense it's a virtuous cycle. If you get one thing going, then it's easier to get something else. You know, this is working really well, [then] it's easier for elites to agree: well, it's expanded a little bit more and that works really well. And so, you just slowly --- what is the expression --- if you put a frog in a, you know, pot of water at room temperature and then you just slowly turn the temperature up, [then] he doesn't realize he's being cooked. Something like that, right? We could try to boil the frog that way. Degree by degree is possible. On the chicken and egg part though, I do think that’s a real concern. And that is, you know, once a country gets rich and innovative and interconnected then violence is like unthinkably costly for everybody, because everything is linked. And violence in one place affects everywhere else, you know. So, if we could put these in a super-connected super-innovative world, they wouldn't resort to violence to protect their rents, because it wouldn't be self-interested of them to do so. But we got to get there for them not to want to use violence. And that's tough, right? That's what North and Wallace called the violence trap.

Stitzel: So, we've got a violence trap. You mentioned earlier also corruption and how many states nominally agreed to this kind of thing. But then, there were so little reform on that front, and you were alluding to the benefits of corruption reform. Can you talk a little bit about what those benefits are? And then maybe turn to if there's so much benefit there, [then] why is corruption reform so rare?

Grier: Sure. So, it just it's just forthcoming now for publication of paper by myself, Robin Grier my partner, and a colleague of ours at Texas Tech, Jamie Pavlik. And we were able to show using the best statistical techniques we can --- given that, you know, it's not a random experiment [because] we use matching and we use difference indifferences, --- we're able to show that countries that have discrete noticeable increases in their anti-corruption indexes, that are sustained for at least 10 years, that those countries experience a really big economic benefit, like surprisingly big, like 20% increase in GDP after a decade.

Stitzel: Yeah.

Grier: And that's massive. That's huge. That’s bigger than any kind of development policy we could think of for the country to do, right, is it's amazing. But we only found 27 cases of this in 35 years. So, the natural question would be if this is so great why doesn't everybody do it? And this is where, like, when the referee asked me that like a light bulb went off of my head and I started writing this whole section of the paper about North, Wallis, and Weingast and the violence trap, and how that society set up to protect elite rents, and this might be threatening elite rents, you know. And when we actually brought in something we just thrown away, you know, there's another 27 cases of countries that started reform and just ended up reversing it very quickly. Again, we would say because it couldn't they couldn't the elites wouldn’t stand for it, right? They had to give it up. So, telling everybody don't be corrupt, you know, you're not really giving anyone any information. They already know that, right? People in poor, corrupt countries know. Things would be so much better if we weren’t corrupt. And they're heads of state --- they're totally corrupt heads of state --- are totally happy to sign a United Nations anti-corruption treaty. They're just not going to do anything about it by and large, right? We see some of these, and what's to me, it's not surprising that there are so many countries that stay corrupt after signing the agreement. What to me is surprising is we found 27 that actually sustained anti-corruption and got benefits from it.

Stitzel: So, there's an idea. GK Chesterton has this Chestertonian fence if you will, all right? So, somebody walks up to a fence, and they say: well, I don't see any reason for this fence. Let me remove it. And then, other people come up to the fence and say: somebody built it. It’s here for a reason. Let me find out why before I get rid of it. And his paradigm, right, he's talking about conservatives and conservatism as part of the distributism movement. It occurs to me that this might be an application of that, right? It might be that we went through corruption reform, and then we could be circled all the way back to your natural state and your violence trap idea, of people go along, right? If I want to say both the people who kept the reform and the people who started the reform, and then got rid of it, [then] both of these groups could be rational. The answer to that might be [that] there might have been something about that corruption reform, that in some states proved the benefits that we're getting from that are very large, and they outweigh, and we find this path forward away from corruption towards a better…

Grier: Hmm mmm.

Stitzel:…order. And then, there are other situations where we started removing that, and then realized (and not necessarily good reasons), but there have been reasons that was there. And this might be those elites and that rent seeking and the violence that you're talking about. And so, we went backwards on that. What's your impression of the likelihood that I'm right about that?

Grier: O.K., so first of all, I would say, right, that what you're pointing out is the biggest problem with doing observational research and trying to say it's causal, right, --- is that we don't randomly--- [but] that would be beautiful, right? If I had somehow the power. There are 180 countries. Say, there's 100 corrupt countries, and I had the power to make 50 of them actually do anti-corruption with teeth, and the other's not, and then come back 10 years and look at the differences, [then] it’ll be great, right. I would know this caused this. But I don't get to do that. I only get to see countries that voluntarily did this and voluntarily sustained it, and then we call that selection, right? That they're not a random sample of corrupt countries that did this. So, we try to deal with that by using difference and differences and not comparing them to levels, but just the change in the gaps. We try to do this by matching on observable characteristics, matching the control, so they look like the treated units. We choose controls that are (have) a high probability of having had the treatment. We give them more weight. So, we try to deal with that. But I don't know if you can say this, like, selection bias is a %#&%#, right? It’s really, really --- if you're not running experiments, [then] it's really your biggest problem if you want to say your results are causal, which you kind of have to say now to get them published, and being someone convincing about it, right? That’s a really, really hard problem. So, I agree with what you're saying that it could be, you know, circumstances on the ground causing it to work one way or not the other. It could just be, you know, the elites in one country don't rely so much on corruption to keep their rents. They have, say, some, like, export deal. Like, they're the only export, or some product, or the only importers of some product. And they're not so worried about petty corruption and things like that. And in other places they are worried about it, and they do see it as a threat. One anecdotal thing that we noticed was of the 27 cases, I think nine or ten of them were cases where there had been a very long-lasting dictatorship that ended. The case that you were mentioning at lunch of Paraguay and Stroessner --- that's one of the cases, right, where they had a big jump in a big, sustained jump in their anti-corruption index after the Stroessner regime came down.

Stitzel: So, you've been very generous with your time. We're coming up on an hour. So, I want to bring this in for a landing. So, right, you've painted a very rich picture of, kind of, what are natural states what the open access order. What do these things look like a lot of the challenges here. And you ---- you've, kind of, along the way mentioned different policies things that you might, like, see change. Can you give us a quick synopsis to play us out here? What types of things would you like to see us to the extent that those of us in developed countries in the U.S., World Bank, [and] stuff like this can do? And what things would you like to see us stop doing that are going to give these developing nations the best chance to get to good governance?

Grier: Sure. So, it's kind of politically tough, but I’d like to see us stop using our aid as a way to try to win votes or influence inside the U.S. So, for example the U.S. aid is notorious for having, like, we're going to distribute food, but can only be bought from American farmers, right? I wanted to put this in my earlier presentation. I didn't get a chance to. Kamala Harris --- Kamala Harris, excuse me, has just announced, like, a new U.S. aid package for Ghana. And it's like, it's, like, musician exchange. It's --- we're sending them a debt advisor. This is unbelievable to me. Our debt is way higher than Ghana’s debt. So, I think we're sending them an advisor to tell them how to get in in greater debt. And I mean, one reason why the U.S. is losing influence, I believe, in Africa, and China is gaining influence, is China's not trying to put the functional forms of U.S. liberalism and government and political correctness onto their aid packages, right? China's dredging out harbors and building roads and building bridges. And now, I don't think it's a good deal for those countries, because they're not going to control it, and they're not going to control the revenues --- China is. But I can see the appeal, right? I teach at Texas Tech is mostly kids from Texas, but we have a fair amount of international grad students. And the African students I've had in political science and in economics are much more pro-China in terms of development aid. And this is what they say: you know, the U.S. is all about rhetoric and form and rules and regulations, and China gets things done, right? So, I think we should be less worried about, like, the internal reaction to what we do for aid, and more worried about the reaction in the countries where we're trying to help. And we have to realize that those countries aren't exactly like us. They’re at a different stage of development. They're at a different stage of what they need. There are different states. Like for us, we can indulge stuff, you know. We can say: oh no, any government project has to pay prevailing wages or has to have union wages. They have to use American parts, you know. They have to have certain representation among their subcontractors. We're super rich. We can do that, right? We have to not take and impose all of our values, and all of what comes the luxuries that we're able to afford from being so rich onto these developing countries when we try to help them. I think that's really important. I think we're really, kind of, arrogant to do that and, kind of, like, not thinking about what this country actually needs. Where are they? What do they need? I think in some sense Bono knows it better now than a lot of our development professionals.

Stitzel: My guest today has been Kevin Grier. Kevin, thanks for joining us on the EconBuff.

Grier: Thanks Lee. This was fun.

Stitzel: Thank you for listening to this episode of the EconBuff. You can find all previous episodes on YouTube at Econbuff Podcast. You can check out our website at econbuffpodcast.wixite.com. That's w-i-x-s-i-t-e.com. You can contact us at econbuffpodcast@yahoo.com