Volume 44, Number 174,
July-September 2013
Why is History Important?
A Debate on Economic Development Policy
Pablo Andrade

A neutral evaluation of the new theory of political economy would reveal that these theoretical pillars and empirical procedures trace their origin back to the beginnings of the discipline, with authors such as Smith, Ricardo, Mills and Marx, perhaps the last of the classical political economists. For example, both the third and fourth book of An Inquiry into the Nature and Causes of the Wealth of Nations (Smith, 2000 [1776]) are dedicated to demonstrating, through a historical comparison, how European governments fostered development of “economic activities in cities” to benefit “private interests or [...] determined social segments, without taking into account or foreseeing the consequences for the overall welfare of society” (Smith, 2000: 5). This quote also allows readers to understand another component of the legacy and contemporary practice of the political economy: a concern — perhaps an ethical bias — for the consequences of economic decisions on the rest of society.

If a comparative historical inquiry is the conceptual and methodological core of the political economy, then on what does López Castellano base his criticism? He bases it on presenting that history in a narrative format, or more concretely, a supposedly linear narrative of the evolution that ideally would have occurred in Western Europe between 1500 and 1800 to lead to the discovery of the “good institutions” of the modern State — and of capitalism. However, this is problematic. The issue resides not so much in the arguments of political economists, but rather in López Castellano`s arguments. Those he cites as creators of this narrative (Levi, Tilly, see López Castellano, 2012: 30-32) are not political economists, but rather sociologists seeking historical arguments to prove their beliefs regarding the development of the modern State in Europe.

A political economist would set forth a different argument, starting by assigning a more prominent role to chance and slow development processes. Concretely, the argument states that starting with the devastating effects of the black plague in Western Europe, there was a place — but apparently not so favorable — in which political and economic institutions developed that would begin the long process of destabilization, destruction and equilibrium that we know as economic development (or, to leave aside the euphemisms that fog up the discussion, simply “capitalism”). That place was England. In the rest of Europe, the strength of the land-owning aristocracy and their dominance over the common person impeded the development of simultaneously centralized and plural institutions (inclusive) until the beginning of the twentieth century, in extreme cases such as Germany and Austria. These processes are just beginning in other nations, such as Russia and Belarus (Acemoglu and Robinson, 2012: 92-96). In fact, in the majority of what we call Europe, political centralization is incomplete. This is also true for much of the developing world and especially in Latin America. More frequently, this is manifest in the weakness or deliberate destruction of institutions that allow political pluralism, which promotes the survival of extractive policy institutions. This has not been an obstacle to the economic growth of these countries, as it has been for African and Latin American nations.

The argument therefore does not state that a set of institutions understood in a simplistic manner — and at the absurd extreme, British institutions, or their offshoots around the world that were once part of the British empire — is the correct and universally recommendable set. The argument merely indicates that it is not possible for the benefits of economic growth to reach those outside of the governing elite and the social groups that maintain the elite, unless there is a certain centralized power and the opportunity for citizens to regularly challenge it (pluralism). It is clear that both historical and contemporary evidence effectively supports these statements, but not in a linear narrative. The peculiarities of each situation must be taken into account. The development that Germany has experienced since the end of the Second World War cannot be compared with, say, Namibia.

Without going too far into detail, this work will briefly provide a historical analysis of the political economy of development in Germany and Namibia. Although both cases saw significant economic growth in comparable historical periods — between 1840 and modern times — the differences in poverty and the standard of living can be explained by the presence or lack of a set of inclusive economic and political institutions. In the first case, Germany, these institutions only emerged following the complete destruction of the prior order in the context of a long historical process that began with the fall of the German empire in 1918, continued with the failed attempt to established pluralistic political institutions in the Weimar Republic and the coup d’état led by the Junkers, which led the Nazi party to power, culminating with the defeat of Germany at the end of the Second World War. This resulted in the definitive destruction of the anti-democratic Junker class and the rise of new pluralist institutions starting in 1948. In Namibia, on the other hand, prolonged colonial dominance, first by Germany (until 1918) and then by South Africa, following the First World War, only served to install and consolidate institutions that further concentrated power in a small elite. This same elite converted an essentially agricultural economy into an economy based on mineral extraction and the destructive exploitation of the population and their natural resources. This situation remained largely the same following independence (in 1989), and even up to the present. Following independence, the elite, organized into the SWAPO party, developed centralized political institutions based on those that existed in colonial times. However, these institutions were not pluralist and failed to correct economic distortions. Economic growth based on plundering the resources of the country continues even now.

A political economist would say that the fact that the average life expectancy in Germany is one of the highest in the world, while the life expectancy for a Namibian citizen is only 43 years (and 21% of the population is infected with aids) can and must be explained by the history of development in these two nations. More specifically, this analysis would have to take into account the following fundamental notion: both cases have started out more or less similar, in terms of social conflict, death and poverty, while select groups have managed to resist the installation of inclusive institutions. Bu these results were significantly different in Germany, where the elite was defeated and the institutional framework was altered, while in Namibia, the fall of the elite only meant that it was replaced by another group that maintained the same exclusive institutional framework. Progress in the area of the political economy of development has consisted in spreading this discovery, making use of a set of similar comparative exercises like the one briefly described here, but with sufficient description of the details of the elite groups, the rise of institutional frameworks, sequence, etc. The conclusion may seem obvious, but it is no less important for being so. History is revealing, and it must be told, not only to establish a narrative, but also to identify the causal relationships and sequences that allow researchers to correct or eliminate the simplistic generalizations of economic science without a historical perspective.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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