http://danvillesanramon.com/blogs/p/print/2012/03/16/inclusion-or-extraction


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By Tom Cushing

Inclusion or Extraction?

Uploaded: Mar 16, 2012

This week's column is late – for several reasons. (On) first, baseball intervened, and I spent four glorious days in the Arizona sun with my daughter. As we watched our beloved A's unexpectedly sack the Cactus League, the world of petty political squabbles seemed far away. I pondered summoning the muse Annie Savoy to help me extol the virtues of Spring Training, when everyone's a contender -- but she and Walt Whitman already did it better than I can (you could look it up). She's also Susan Sarandon, which is fine with me, but not so much to some of the RC's readers.

What else – the GOP puppets continue to blunder, stage-right, and the ongoing plundering of the Goldman Sachs muppets I've already covered in a previous epistle on the venality of businesses whose goal is not to serve human needs, but to maximize short-term profit at the expense of their clients. The multiple tragedies of wars in Syria and Afghanistan just continue apace.

Then I ran headlong into a thoughtful book – "Why Nations Fail: the Origins of Power, Prosperity and Poverty," by two economists from MIT and Harvard. There have been others who've attempted that issue, including Jared Diamond's legendary Guns and Germs and Steel (and to a much lesser extent Collapse). Authors will often claim that some combination of geography, climate, resources and innovation account for why some societies get ahead, and others languish.

In Why Nations Fail, the authors contend that success or failure of nations is best described and predicted by the interaction of two sets of forces, economic and political. Each system can be characterized as either Inclusive or Extractive, depending on whether the return on effort is shared broadly, or reserved to a privileged elite. A feudal system would be characterized as Extractive, with the benefits of most effort redounding to the Lord of the manor.

Similarly, a Haitian mango grower won't choose to expand his orchard, because he knows that others will usurp the fruits of his labors. The laws of property are flexible enough, and corruption is sufficiently endemic, that he confidently assumes that it is better for him to under-produce his potential. Multiply that effect by lots of Haitians, and you produce a stagnant economy.

What creates the economic environment within which trades are plied is a political system that is also Inclusive or Extractive. In this sense, Inclusive implies broad participation and representation of viewpoints, in a government strong enough to enforce the rule of law. Governments less broadly representative of the people are more Extractive, in their terms. The two systems – political and economic are self-reinforcing in either direction, to the benefit or detriment of their peoples' prospects. If fewer people control the apparatus of government, the economic system will also tend to serve their narrow (Extractive) interests.

The authors suggest that this explains why foreign aid can have vastly different consequences in various political/economic contexts. Aid that's applied to Extractive polities quickly finds its way to the elites, leaving behind those many whom it was intended to assist out of poverty. The authors also believe that China will need to broadly reform its Extractive political institutions if it is to achieve its potential – they anticipate that it will be slow to do so, and that its ascendancy in world affairs will be curtailed thereby.

The implications for policy are enormous, suggesting that America's foreign policies ought to focus on factors that encourage Inclusiveness – such as education, women's condition and direct promotion of the rule of law. In the past, it can be argued, the US focused more on stability, as an end in itself. I think it's possible to consider the Arab Spring to be a massive exercise in expanding Inclusion by broadening participation and benefit.

If the authors are right, they may also be offering a cautionary tale for US domestic health. As noted elsewhere, there has been a massive migration of wealth from the middle class to the upper reaches of American society. Put another way, the benefits of this economy have been trending toward the economic elites – the US, the shining example of Inclusiveness in an Extractive world, has become a more Extractive economy in the past two generations. That flow of wealth, augmented by the concurrent removal of political campaign finance limits, potentially sets up the conditions of an Extractive feedback loop.

Now, America has historically stepped back away from plutocracy, and our political graveyards are littered with exceptionally wealthy individuals who sought to buy their way to power. And the Occupy and TeaParty movements on both ends of the spectrum suggest a continuing passion for participation. But there's strength in the authors' thesis that Inclusion breeds Inclusion breeds success as a nation and an economy. And vice versa. We cannot afford to come to a broadly held perception that the economic game is rigged, and we would be wise to govern in ways that encourage breadth of the flow of the benefits of effort.

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