Institutions and Empire

As a maths nerd with an interest in history I find attempts to actually quantify various historical effects extremely interesting, even if they are ultimately often flawed. This article in The Economist shows how economists, or really more accurately statisticians, are trying to sort through various historical outcomes to measure the value of different institutions as an explanation for wealth and poverty.

Of the many proposed solutions to that riddle (technology, geography, the Protestant ethic) the current favourite is rather bland in the abstract: “institutions”. In rich economies institutions—meaning the formal laws and unwritten rules that govern society—function rather well on the whole. In poor ones they don’t. That much is indisputable.

What is tricky is showing that good institutions are a cause of economic progress rather than a by-product of it. You cannot run controlled experiments in which a particular institution is randomly imposed on some countries, but not on others, in order to compare how they fare. Or at least economists can’t. But perhaps imperialists can. Maybe the colonial adventures of the past provide the natural experiments economists need to put their theories to the test.

What is ingenious about the recent economic studies of empire is how they overcome this problem. Imperial institutions may determine prosperity, but the reverse may also be true. The trick is to find some third factor that is securely linked to institutions, but entirely unconnected to economic success. Such factors are called “instrumental variables”, because the economist is interested in them not for themselves, but for what they tell him about something else.

That name, however, now seems quite ironic. Because all of the fun in the recent spate of papers is in the instruments themselves. Economists are outdoing each other with ever more curious instruments, ranging from lethal mosquitoes to heirless maharajahs, or, most recently, wind speeds and sea currents.

It has often been said that you were better off being colonised by the British than say the Spanish and Portugese and in general the studies bear this out. Although also pointing out that it wasn’t necessarily a positive.

The study paints the British as relatively benign rulers compared with the Iberians. But instruments can cut both ways. Lakshmi Iyer of Harvard has used the technique to reveal some unhappy consequences of the Raj… The British, she points out, did not wrest direct control of India all at once. From 1848 to 1856, for example, the governor-general pursued a “doctrine of lapse”, taking charge of states whenever the native ruler died without an heir. These states, then, came under British rule as a result of patrilineal misfortune, not economic potential. Ms Iyer shows that such areas had fewer schools, clinics and roads as a result of British rule. The effects lingered into the 1980s.

The studies of course are fraught with difficulties and scope for error, and I think it always pays to be wary of these kinds of results. Still they do provide more meat to historical debate and add something to more traditional qualitative studies.


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