Extractive Institutions Sometimes Work: But Why?

Mysteries of Growth Under Extractive Institutions

Mysteries of Growth Under Extractive Institutions

Moneybox
A blog about business and economics.
April 10 2012 4:45 PM

Mysteries of Growth Under Extractive Institutions

Daron Acemoglu and James Robinson have a very thoughtful reply to my post questioning why "bad" political institutions work so much better in some places than others that goes through a lot of the nuance of their big master argument. In fact it's so thoughtful that it ends up conceding that there's something of a real mystery here:

That being said, we do not want to imply that we have a full understanding of when a country is able to embark upon a course of extractive growth. Why is it that, for example, China and Vietnam have been able to do so, while North Korea has not even tried? Part of the answer may lie in the fact that in North Korea, the dictatorship is identified with the Kim family, and an about-face, like the one that Deng Xiaoping engineered after Mao’s death, is not possible. But still, there are as many unanswered questions here.

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To me the most pointed contrast is between the Soviet Bloc and pre-reform China. Why was East Germany so much poorer than West Germany? That's easy—Communism! And that's why North Korea is poorer than South Korea. It's also why Taiwan is richer than China. But Communism hardly explains why the Soviet Union was always much richer than China. But it was a lot richer despite broadly similar political systems and ideological commitments, and the human suffering involved in the PRC's failure to implement Communism as successfully as the USSR was enormous.