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Reviews / Comptes Rendus

Hilton L. Root, Capital and Collusion: The Political Logic of Global Economic Development (Princeton and Oxford: Princeton University Press 2006)

THIS BOOK is an important addition to the now voluminous literature on global economic development. It draws upon economic, political, and organizational theory in an effort to identify and analyse those fundamental elements and structures which typify developing countries and which impair their developmental progress.

The somewhat surprising and unusual point of departure for Root's analysis is the distinction between risk and uncertainty. Throughout the 20th century, various economists, including Frank Knight and John Maynard Keynes, endeavoured to place considerable analytical weight on this distinction. Risk is deemed to be a tractable feature of world economies insofar as it is measurable and allows for the calculation of probability. This enables various social actors to weigh the costs and benefits of alternate courses of action with a view to selecting that which will prove the most rewarding. In such an environment, self-motivated agents can formulate and implement forward-looking plans, including investment and other risk-taking schemes, resulting in the mobilization of society's productive resources and the subsequent realization of a growing dynamic economy.

Root argues that what differentiates low-income developing countries from their developed counterparts is the absence in the former of institutions that effectively manage to transform uncertainty into risk. Faced with uncertainty, social actors adopt insular, conservative strategies, such as over-insuring; hoarding resources, information, and capital; and over-relying on a nexus of close family ties instead of the wider impersonal relations associated with larger institutions such as the market. The result is a lack of dynamism, an absence of risk-taking, poor and inefficient dissemination of information (much of which remains privately held), and a poor and incomplete mobilization of productive resources. Economic development therefore requires a sustained and ambitious program of institution-building and institutional change.

This is where the state and economic policy comes in, but Root argues that the formulation and implementation of the necessary policies in developing countries is problematic at best. Existing political and institutional arrangements tend to induce behaviour by governmental decision-makers and public sector workers that acts to preserve and protect the status quo. In particular, existing arrangements operate to the immediate material advantage of those in power and their relatively narrow clique of supporters. These favoured parties may in fact be increasing their wealth while the rest of the country confronts perennial economic hardship. Root notes that poor national economic performance may bind the ruling party and their support base ever more closely together. Developmental aid, in the form of material, financial, and/or intellectual support, can be accepted and appreciated by governments in developing countries, but, given the institutional arrangements and the existing incentive structures, this assistance cannot be expected to bring about much improvement in the economic conditions facing the majority of the population.

Much of the book is given to specific analysis of selected developing countries and regions, and Root uses his robust theoretical framework to illuminate the ways in which the logic of global development has manifested itself in various environments. Part of the strength of his approach is that it permits explicit recognition of the distinct cultural and institutional circumstances among developing countries. This produces a number of interesting insights. For example, Root claims that countries characterized by a highly polarized population will find it very difficult to create a broad social consensus around any set of transformative developmental policies. Without the requisite consensus, policy-makers will find that their best strategy for remaining in power will be to continue to deliver material benefits to their narrow coterie of supporters, thereby impeding any substantial developmental progress.

More generally, Root's approach can be viewed as indicative of recent work in the social sciences. Institutions and culture, as noted above, are not treated as an afterthought but are of prime importance in the analysis of existing material conditions and in the evaluation of policy options. The methodological precepts of mainstream social science, and of economics in particular, are consciously adhered to. In particular, a choice-theoretic framework is extensively used in which self-interested agents contemplate alternative courses of actions. The institutional framework operates to favour some choices over others. The prospects for and consequences of institutional reform or transformation are considered in light of the incentives and options that agents encounter. Actual policy choices are consequently conceptualized as endogenous outcomes of the decisions of self-interested public officials and policy-makers.

Root's work is an exemplary product of mainstream political economy. The mainstream approach, however, is not without its limitations, and these are also evident in the volume under review. The methodological individualism that marks mainstream economics and which is now increasingly evident in the other social sciences displaces structuralist alternatives. As a result, the challenge of economic development is analysed in a framework that offers no room for consideration of such phenomena as imperialism, or of any manifestation of the power of capital, either domestic or international. For political economists with a more radical or Marxist orientation, these structural manifestations of power are an essential component of the social reality of developing economies. They do not, however, receive any consideration here.

Root is not unaware of alternative Marxist and radical approaches. He explicitly asserts that the old dichotomy between capital and labour is anachronistic, that is, it is no longer applicable in a world replete with advanced global communication and information technology. In this context, Root argues that access to information is the road to wealth. The potential gains that accrue from this access are available to all agents, independent of class, although he acknowledges that there is no reason to expect such gains to be equally distributed. Consistent with mainstream methodology, the agents making economic decisions are assumed to be generic, representative individuals (or individual households). Implied here is a model where these representative agents have stocks of investable wealth and enjoy the ownership of various productive resources. In this context, it is their savings and investment decisions that come to the fore. The stark scenario confronting agents who have virtually nothing to sell but their capacity to work slips off the analytical screen. As a result, wealth creation is identified with the exploitation of market opportunities rather than the exploitation of a workforce. Readers seeking analysis and insight on issues directly involving labour, including labour organizations and the labour process, will find virtually nothing on those topics in the contents of this volume.

Root's critique of the institutional failings of developing countries carries a parallel albeit less explicit endorsement of the institutions of developed capitalist economies. In these countries, the institutions are understood to work well, transforming uncertainty into risk and allowing agents to assume the degree of risk that they are consciously willing and able to bear. A broad consensus holds with respect to the goals of economic policy. The incentives facing policy-makers and public servants facilitate the formulation and implementation of policy designed to enhance general economic well-being.

This somewhat sanguine view of advanced contemporary capitalist economies is an unsurprising outcome of mainstream analysis because that framework excludes the critical stance associated with alternative radical perspectives. However, many of the institutional and incentive problems that Root sees as plaguing developing countries are not necessarily unique to them. For example, a lack of transparency in the corporate structures of companies, and the significant misrepresentation of the financial positions of firms, both of which he considers to be important factors contributing to the poor economic performance of developing countries, also characterize much of the corporate sector in developed countries, as the events of the Enron era attest. A similar case can be made regarding the degree to which corporate money influences public policy and industry regulation and/or deregulation. This raises the question of whether or not these phenomena are systemic features (or tendencies) of capitalism, and thus not specific to developing economies. Extensive similarities between developed and developing countries with respect to both corporate managerial and financial opaqueness, and the political influence of vested corporate interests, will undermine some of the explanatory power of Root's take on the challenge of global development. These reservations should not detract from the importance of the issues raised by Root, nor of the insights provided. The book is a timely and welcome addition to the development literature, and is sure to be of interest to analysts, policy-makers, and students of economic development.


Fletcher Baragar University of Manitoba

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