Some Reviews of Book 1
The development question is not merely a matter of distributing recipes and watching prosperity develop. Recipes often come with buried cultural assumptions that we take for granted, because they are so ingrained for us. These things could include very basic cultural attitudes about the importance of work, the attitudes about the proper role of the two genders, the religious attitudes about older values and change, attitudes about money and trust, as well as more technical attributes like the available skills, the physical infrastructure, the financial infrastructure, etc.
Gardner sees a conflict between Paul Romer, who seems to think that the problem of poverty can easily be alleviated with better institutions, and others who see culture as more difficult to change. Gardner cites Bill Easterly and Joel Mokyr as seeing a larger role for culture, and he could have added Douglass North as well.
I go back and forth on this issue. Generally, I side with those who say that culture is difficult to change. What Romer has going for him are examples like North and South Korea, where you cannot blame the divergence in economic development on cultural factors. He would also use Hong Kong in contrast to Communist China.
However, Communism might be an exceptional example of a set of institutions that overcame a culture. That is, you can take a culture that might otherwise be conducive to economic development and ruin it for a long time with Communism. So after the fall of the Berlin wall, what had once been East Germany remained so underdeveloped that people from there had to migrate to what had been West Germany if they wanted to improve their standard of living. The culture in East Germany was still holding it back, even though the institutional differences were gone.
Attempts at Westernizing the institutions of underdeveloped countries have not been as dramatically beneficial as Communism has been harmful. This suggests to me that Western institutions are not as powerful as Communism at stamping out indigenous culture. Which is not necessarily a bad thing, of course, but it means that achieving success in underdeveloped countries with Western institutions is less straightforward than the North Korea, South Korea example suggests.
In any event, I found Gardner’s review very gratifying. If a thoughtful review is a sign of a good book, then this review suggests that we wrote a good book.
Eric Falkenstein is still reading. Eric hits Paul Romer with some criticisms, many of which are based on Falkenstein’s familiarity with Romer’s work in general and are less pertinent to our book. Nick replies here.
Romer’s asking the right questions, but as Michele Boldrin noted in Against Intellectual Monopoly, the question about the value of various forms of patents is an empirical one, not deducible from theory. Clearly Romer’s work motivated Kling and Schultz’s chapter 2, which highlights the nature of our industrial revolution, which is truly remarkable. But to think that Romer’s ‘economic growth theory’ has anything really to add, I haven’t seen it.
Sometimes, you arrive at an insight by route A, and in retrospect the point is obvious if you take route B. But the fact is, nobody ever took route B before, so the insight is new to people. In retrospect, do we say that the person who took route A “has nothing really to add,” or do we give the person credit for providing the insight in the first place? If one leans toward the latter, then I think one has to say that Romer deserves the accolades he has received. Note that if you read David Warsh’s book, Knowledge and the Wealth of Nations, you will see that Robert Solow was not a big fan of Romer’s, either. On the issue of Route A and Route B, see Perry Mehrling’s biography of Fischer Black and the various routes to the Black-Scholes option pricing model.