Economics of Reconstruction
Given the situation in Iraq, an economic analysis of the problem of developing political institutions would seem timely. Tyler Cowen and Christopher J. Coyne have drafted a paper on the topic. They write,
Our core thesis is the following: reconstructions go well when they succeed at turning potential games of conflict into games of coordination.
I interpret them as saying is that reconstruction will either work very well or not at all. It is as if there is a “tipping point,” where on one side the various factions or interest groups will engage in ever-increasing conflict, while on the other side the behavior will be more co-operative.
Some of their ideas about how to push a reconstruction toward the healthy side of the tipping point:
the fundamental question is whether the reconstructed country will have the cohesion, social capital and know how (i.e., mētis) of how to get things done and maintain its investments. While large-scale public works may be necessary in some cases, they should not be taken as a sign of a successful reconstruction…
Before elections take place social order, a market structure and the underlying cooperative conjectures must be in place…
If the inhabitants of the occupied country hold the occupier as their benefactor they will hold every mistake against them. An image of firmness with a commitment to public order must be put forth.
I think that the hypothesis of a tipping point (as I call it) is testable. If it is true, then we should observe a bimodal distribution of outcomes for reconstruction: many clear successes, many clear failures, and relatively few in-between examples.
On the other hand, their hypotheses about how best to achieve a good result seem to me to be difficult to test. The authors do not cite enough cases to provide meaningful evidence.
This is a difficult field for economists, as I pointed out in What Causes Prosperity? My own instinct about Iraq is that the challenge is to create a work ethic. I do not see any real conflict between that essay and the Cowen-Coyne paper.
For Discussion. How can one measure concepts like “social capital” or “expectations” in a way that can be used to test the hypothesis that that they matter for reconstruction?