Arnold Kling  

Economics of Reconstruction

Comment of the Week, 2003-09-1... Intellectual Property...

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 The authors do not cite enough cases to provide meaningful evidence.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?

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COMMENTS (9 to date)
Eric Krieg writes:

Good question.

My question is, why don't economists have an answer?

How long have economists been leading the foreign aid game (racket, really)? And they don't have any metrics? That's scandalous.

I think that we can take one thing away from the news in Iraq. While there is chaos in the Sunni Triangle, MOST of the country is not in the news. That in and of itself must mean something. The Shiite and Kurd areas don't seem to be generating any news. To me, that means something.

Patrick R. Sullivan writes:

...we have two models for how to occupy a country after a war. Getting "the allies" involved is not the winning model.

After World War II, the United States ran the Japanese occupation unilaterally. Without the meddling of other nations, the Japanese occupation went off without a hitch. Within five years, Gen. Douglas MacArthur had imposed a constitutional democracy on Japan with a bicameral legislature, a bill of rights and an independent judiciary. Now the only trouble Japan causes is its insistence on selling good products to Americans at cheap prices.

By contrast, the German occupation was run as liberals would like to run postwar Iraq – a joint affair among "the Allies," the United States, Britain, France and the Soviet Union. It took 45 years to clean up the mess that created.


the U.S. was required to spend the equivalent of about $200 billion annually in today's dollars to bail out Western Europe under the Marshall Plan. I note that there was no need for a Marshall Plan in Japan.

And the disastrous German occupation is the best-case scenario for "international peacekeeping." The less rosy picture involves the defaced corpses of American servicemen being dragged through the streets by dancing, cheering savages, as happened under "international peacekeeping" forces in Somalia in 1993.

David Thomson writes:

I am going to risk the possibility that a number of people will consider me to be childishly simplistic. Do you really want to encourage the Iraqis to embrace free market doctrines? If so, we must keep the French and other Old European socialist nations out of Iraq. Ideas have consequences. The Iraqis don’t need to be confused by silly socialist nostrums. The tipping point that Arnold Kling talks about should come about very quickly. Can the Cato Institute send their materials to the Iraqis in the latter’s own language?

Patrick Sullivan inadvertently forgot to cite Ann Coulter. These particular quotes of hers are right on target. Sometimes Coulter is guilty of exaggerated rhetoric and goofy theories (like her conclusions regarding the McCarthy era). Still, there are times when she has much to offer.

David Thomson writes:

“Patrick Sullivan inadvertently forgot to cite Ann Coulter”

Gulp, I’m sorry. I just saw the link to Coulter’s website. I originally read this particular piece on David Horowitz’s fantastic

Eric Krieg writes:

David, the correct term is "D'oh!"

David Thomson writes:

“David, the correct term is "D'oh!"”

Oh wow, I guess there is little hope for me. I should add that the United States must also be very careful regarding those Americans sent to influence the Iraqis in their transition to Democracy and a free market economy. Have you ever wondered how much damage the JFK administration caused India by appointing John Kenneth Galbraith to the post of ambassador? Let us hope that we can marginalize the silly people associated with Harvard’s School of Government:

We should never forget that many of the radical Muslims attended very liberal Western universities. Much of the self pitying victim rhetoric concerning the so-called exploitation of Western capitalism (see Edward Said’s pernicious “Orientalism”) of Muslim lands is laid at their doorsteps. Also, why do we rarely mention that both Yasar Arafat and Saddam Hussein are products of extremist socialist doctrines?

Matt Young writes:

Social Capital - murder and crime rate
Expectations - External private investment

As an aside, remember that we have been working on Turkey for 80 years and it still does not qualify for EU membership. Also, remember that the South wasn't really integrated fully into the Union until 1975, or roughly 125 years after the onset of civil war. And do not forget that Iraq has been in conflict with Western values for 1300 years.

To get the result that Ann Coulter implies we may be at this for three times longer than we have been a nation, at a cost of $60 trillion dollars, not including interest. Perhaps we should lower our sights.

Tim Swanson writes:

"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."

Totally destroy the enemy... or make them love you. I've heard that somewhere before:

Randall Parker writes:

Social capital: the fact that we can't even define it in a measureable way ought to be a cautionary warning that reshaping Iraq is going to be very difficult indeed. In my view the changes needed will take generations because it requires successive generations to grow up with gradually improving attitudes about civil society and government.

How to encourage this transformation? The top of my list would be secular schools that train an elite in clasically liberal ideas and classical literature and thought. This, of course, means that the teachers that come from the United States to help form these schools can't be from our P.C. academia.

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