Policy Memo#2

PolicyMemo 2
In his essay, Root Causes, theMIT economist Darren Acemoglu differentiates between “good” and “bad”institutions (27). “Good” institutionsencourage investment and lead to economic prosperity, setting in motion of avirtuous circle of equitable development and inclusive politicalinstitutions. “Bad” institutionsconcentrate wealth and political power in the hands of a small elite, settingin motion of a vicious circle of chronic underdevelopment and widespreadpoverty.
One of Acemoglu’s keycontributions is his insistence that these institutions are not natural orinevitable – they have a history. Andthat history is often the by-product of the colonial adventures of powerfulEuropean states: where the Europeans left behind a “good” institutionalinfrastructure – in the United States, Canada, Australia and New Zealand –today we find prosperity and democracy.By contrast, where the Europeans left behind a “bad institutionalinfrastructure – in Sub-Saharan Africa, Latin America and Southeast Asia –today we find poverty and authoritarianism.
The purpose of your second policymemo assignment is to consider the economic and political path whereby a set of“bad” institutions can be effectively converted into a set of “good” institutions. In Part I of your memo, please describe thevarious laws, policies and institutions of “good” regimes. What are the characteristic features of theseregimes, and why are they conducive to growth, prosperity and democracy? In Part II, please describe why the absenceof these “good” institutions is so destructive of economic prosperity,individual well-being and political stability.Finally, in Part III, please describe how an extractive regime beconverted into an inclusive one: What are the main impediments, both internaland external, for effective economic and political reform? What are the necessary preconditions, bothinternal and external, for effective economic and political reform?
Please make extensive use ofassigned course material throughout your policy memo and be sure to providepractical examples whenever possible.You will also find a dossier of helpful supplementary resources postedto the Assignments section of Blackboard.Please pay close attention to the journal articles by Darren Acemoglu(with various co-authors), whichdiscuss all of the key ideas and concepts of the course: the need tohistoricize institutions, the lingering impact of European colonialism (goodand bad), the necessary ingredients for prosperity and democracy, and the pathto effective economic and political reform in developing contexts. Regarding the final theme – the path toprosperity – please pay careful attention to Chapter 14 of Acemoglu andRobinson’s Why Nations Fail, which describes the path to inclusive institutionsin Botswana, the United States and China, and to Joseph Stiglitz’s “Is there aPost-Washington Consensus Consensus?,” which describes the internationaleconomic strategies conducive to the sustainable, equitable development of theworld’s poorest countries.