The Problem with Economics
I came across a study this week that reminded me why I focused on history and not economics.
Carl-Johan Daigaard and Ola Olsson, economists at the University of Copenhagen, published results of a study called Why are Rich Countries More Politically Cohesive?. They conclude that there is a correlation between market integration, wealth, and politically cohesiveness.
Basically, as people specialize and trade with each other they become interdependent. That interdependence brings on a meeting of the minds. This turns into an upward spiral of wealth and political cohesiveness. That’s the theory.
In order to test their theory, they needed to compare political cohesion. They use the World Value Survey. On the survey, respondents rate themselves from one to ten on a left to right political scale. Daigaard and Olsson looked at the number of respondents who rated themselves at the extreme ends of the scale. They argue that countries with fewer people self identifying at the extremes have higher degrees of political cohesion.
They admit that this is only a proxy for political cohesion and that people in different countries hold different ideas about what is extreme left or extreme right. But they claim “it is clear that individuals who answer ‘one’ or ‘ten’ are deliberately signaling extreme political views in the context of their political landscape.
Off the top of my head I see two major problems with this measure. First, they are assuming that all people are equally comfortable claiming their political views. That is a big assumption. Let’s take Guatemala for example. In the handy chart below, you will see that Guatemala scores about the same as France on political cohesion.
Chart showing degree of political cohesion
I’m not an expert on France, but I have spent considerable time in Guatemala and studying Guatemala. I can’t think of a person I encountered who would have admitted to extreme left or extreme right views (although I would bet that some people had them).
This is not because of political cohesiveness. It is because of a 36 year civil war, during which hundreds of supposedly leftest villages were burned to the ground and an estimated 200,000 Guatemalans were killed or disappeared. And while the Guatemalan far right still enjoys prestige and power, their traditional political impunity may be beginning to erode. All of which is to say that the accuracy of any self-identification is problematic at best.
And then there is the issue of trying to compare one country to another. Is it really surprising to find that countries scoring low on the political cohesiveness scale are also countries who had their national borders imposed on them by colonialist powers? It isn’t exactly shocking that Vietnam and India would fall at the bottom of the scale, given their colonial histories. Or, to put it another way, if national borders weren’t so nonsensical, political cohesiveness proxies would look much different. (ie. Imagine looking at just Iraqi Kurdistan and not Iraq as a whole.)
Then there is the measure of wealth that they used, GDP per capita. Gross Domestic Product per capita doesn’t measure actual wealth distribution. Wouldn’t it make sense that wealth distribution would have an effect on stability and political cohesion? Let’s go back to our example of Guatemala and France. According to the UN, France has a per capita GDP of $40,090. Guatemala has a GDP per capita of $2,504. Why?
By their theory, it would have something to do with trade interdependence within their national boundaries. By their theory, it might be the relative self-sufficiency of the Guatemalan highland indigenous that correlates to any lack of political cohesion. This ignores Guatemala’s colonial history and imposed borders. It also ignores the very different results of their two revolutions.
France’s revolution successfully overthrew the ruling classes and brought about lasting land reform. Guatemala’s attempts at land reform, on the other hand, were violently prevented. Seventy percent of the land in Guatemala is possessed by 0.2% of the producers. Is any lack of political cohesiveness due to lack of interdependence or to land scarcity (a topic not discussed in their paper)?
They aren’t the first people to suggest that trade brings about interdependence and cohesion. As they mention, there is a whole sect of political science devoted to ideas of “the liberal peace” that arises when nations trade with each other. What Daigaard and Olsson don’t mention is that the results of studies on the subject are ambiguous. In fact, some types of trade (oil, for instance) are correlated with increased conflict.
There are other issues with their theory, some peripherally addressed (power imbalances, ethnic tensions, greed) and some not (risks of specialization, colonialism, and dependency). And they base everything on the underlying principal that “without market exchange, the welfare of inherently selfish individuals will be mutually independent (and)…political negotiations..dog-eat-dog in nature.” That is also debatable.
There’s more, but this post is too long already, so let me go back to where I started. The problem with economics is that, all too often, economists try to simplify human actions to such a degree that it renders their conclusions virtually meaningless. They make a pretty equation and then try to fit people into it. Which brings me to my personal favorite assumption:
As usual, we assume rational and forward-looking individuals who can perfectly assess the effects of choices in each stage.
Good luck with that.
