Saturday, February 23, 2008

If it's really just a good leader, we're in trouble

What explains variations in investment climate at local levels? We presumed either subnational competition, interest group pressure, or leadership -- or combination of the two or three. As for leadership, we thought of three natures: rent-seeking (as opposed to developmental), inclusive (vs. exclusive), or planned (vs. unplanned). We are yet to get confirmation to all this -- but we're getting there.

But I'm wary. Evidence so far is skewed toward ... leadership. If it is finally proven so, that is discouraging. Even though Ari Perdana rightly said that such "non-standard" variable might explain regional performance, I am afraid we can't go very far as to offer any policy recommendation: because that means it's the person, after all, not the system that matters.

Here, too. Everywhere we go, we can hear praises for the mayor. But when asked if this situation can be sustainable, people don't seem to expect so. On the contrary, they are worried that once the great leader leaves, things can go back into the lousy system. As a matter of fact, one of us, von Luebke confirmed similar negative conclusion in his previous work.


Arya Gaduh said...

What about good institutions? Leadership and institutions are substitutes, and I imagine (per Hayek), decentralized pressure works better when the latter, not the former, dominates.

Aco said...

Arya, we are thinking to do that. Turns out, this can grown into another whole paper about institution. These real stuff are amazing.

Anonymous said...

Sukardo Ronaldo berkata:

Ini akan ajdi bagian tulisanku diKompas nanti. Tunggu saja.

a.p. said...

"I am afraid we can't go very far as to offer any policy recommendation."

True, especially if we do cross-region econometrics. I haven't looked your research into more detail. But I assume you are doing more in-depth comparison of regions, right? If yes, and the conclusion is still "person matters" then we can't offer any reasonable policy recommendation apart from creating clones of good leaders.

But I'll remain hopeful for the further researches on institutions (whatever it means and we measure them), or a Hausmann-Rodrik type of growth diagnostics.

Arya Gaduh said...

Is not being able to give recommendations a bad thing? Even economists worldwide have not been able to give unequivocal recommendations about growth recipes.

It may well be that no such general prescriptions exist. The best recommendation may simply be "try things out, see what works in your region and what doesn't. Then, do more of the former!"

Aco said...

Arya and a.p., I share your hope with growth-diagnostic approach and yes, conclusion can be on the negative as as far as policy is concerned.

But for all Rodrik's one-econ-many-recipes' worth, I have a mixed feeling. If we really rely on the many-recipes econ, we might as well throw out everything we have learned about how to predict things, don't you think?

I sometimes think about this analogy: cancer and a best doctor. This doctor knows all too well about cancer. Yes, he prescribes recipes that may vary across patients. But I would imagine there can't be many recipes -- a couple maybe, a handful maybe. But not many. Diagnostics can be very costly if he allows too many possible explanations. Such costs can include time of course: while he is busy prescribing many recipes, the patient passes out.

Arya Gaduh said...

I think the analogy of a knowledgeable doctor doesn't fit very well. What we have learned from Easterly (2001) is that we really don't know very much about the determinants of growth.

We should continue searching, but given our present knowledge, we should be careful about policy prescriptions.

Daniel Suryadarma said...

The following may just show how little I know about political economy and history, but is there an example of a country/region that is still able to grow with a bad leader at the helm?

I have no problems accepting the fact that leaders are the most/the only crucial factor for a country/region.

Christian said...

Aco - and afterall there may well be a way to "institutionalize" incentive schemes that motivate more calon bupati/walikota to pursue better (as in ultimately pro-poor) policies... I am thinking about good-governance rankings, media awards, increasingly transparent pilkada elections, or even direct fiscal incentives for anti-corruption efforts (from the central government.

Aco said...

Arya, I agree with you and Easterly: we don't know much about that. But I just don't feel very comfortable giving too high degree of freedom to our analytical framework. I may be wrong.

Daniel, good point. But it really depends on how we define "bad" leaders. Is Lee Kuan Yew "good"? I don't think so. But I can't say Singapore's economy is bad. Same as Soeharto.

Christian, yes let's do that. But as I said the other day, this might be a different paper?

Anonymous said...

Bung Aco:

Gimana pendapat anda dengan tulisan Sukardi Rinakit hari ini? Sepertinya dia GR sekali ya...