Thursday, March 13, 2008

Not Institutions???

I was baffled last week when it was suggested that incentives and institutions mean very little in struggling economies because of some sort of genetic selection bias. How bout this from the WB, posted on the economist:

Institutions don't make the difference? Perhaps a handful of ability bias (maybe harsher conditions in Britain stirred innovation and made it more difficult to produce surviving progeny for low-ability low-income types – that would be somewhat consistent with the story). But, it's no secret that ability, reward for merit, and success can generate a virtuous cycle – successful entrepreneurs and a growing upwardly-mobile middle class creates demand for better institutions which fosters growth.

Incentives don't matter? I'll ask the question I posed over lunch: Why does corruption WORK then. Why would a bribe in these countries (which are just genetically predisposed to value leisure and be less patient) WORK in greasing the wheels to accomplish anything? You could MAYBE make the argument that you're paying for people NOT to work, but really? People DON'T work on a constant basis; that's why stuff doesn't get done to certify business licenses, zone, approve loans, enforce contracts, etc. That's why it fails.