Chrystia Freeland

To understand the significance of the presidential election this weekend in Russia, read a book by two U.S.-based academics that is being published this month. Why Nations Fail by Daron Acemoglu and James Robinson, of the Massachusetts Institute of Technology and Harvard University, respectively, is a wildly ambitious work that hopscotches through history and around the world to answer the very big question of why some countries get rich and others don’t.

Their one-word answer, as Acemoglu summed it up for me, is ‘‘politics.’’ Acemoglu and Robinson divide the world into countries governed by ‘‘inclusive’’ institutions and those ruled by ‘‘extractive’’ ones. Inclusive societies, with England and its Glorious Revolution of 1688 in the vanguard, deliver sustainable growth and technological innovation. Extractive ones can have spurts of prosperity, but because they are ruled by a narrow elite guided by its own self-interest, their economic vigor eventually fades.

‘‘It is really about societies that have a more equitable distribution of political power versus those that don’t,’’ Acemoglu told me. ‘‘It is about societies where the elite, the rich, can do what they want and those where they cannot.’’

For many of us, that is a welcome conclusion. It may also seem to be an obvious one. But Acemoglu pointed out that academics, policymakers and business leaders have often advanced quite different views. One perspective is that all that matters is economic growth and the right technocratic mix of policies necessary to deliver it. This approach, implicit in the prescriptions of so many International Monetary Fund missions, is that if countries can get richer, everything else will fall into place.

A version of this view, which has gained particular currency since the collapse of the Soviet Union, is that the key is private property. Establish property rights, the reformers in Warsaw, Moscow and Beijing believed, and economic and social success will inevitably follow.

But Acemoglu and Robinson argue that if an extractive regime is in charge, neither wealth nor private property can save a country from eventual decline. The Russia of today, they believe, is a textbook extractive regime, and that is what makes the vote this weekend, and the unexpected protests that preceded it, so significant.

‘‘Russia is ruled by a narrow clique,’’ Acemoglu said. ‘‘The only thing that is keeping it going is a big boom in natural resources and a clever handling of the media.’’

The point, Acemoglu argues, is that wealth in and of itself doesn’t lead to sustained growth: ‘‘Saudi Arabia can get a lot of growth, but that is not the right growth. Take away the oil and Saudi Arabia would be like a poor African country.’’

A crucial argument Acemoglu and Robinson make — and one foreign aid donors and policy advisers too often miss — is that the leaders of extractive regimes don’t implement policies that stifle sustainable growth out of ignorance. They aren’t stupid; they are merely and rationally pursuing their own self-interest. The real ignorance is that of outsiders who fail to appreciate that in an extractive regime, the interests of the rulers and the ruled do not coincide.

‘‘When you think of somebody like Chávez, you will see that his objective is not to enrich Venezuela,’’ Acemoglu said, referring to President Hugo Chávez. ‘‘He is not letting markets work because his goal is something else.’’

Acemoglu and Robinson’s analytical framework helps to make sense of one of the seeming paradoxes of the past 12 months — the prosperous middle-class people who have taken to the streets in the Arab world, in India and in Russia to protest crony capitalism. If you believe that economic growth today is a sufficient condition for long-term prosperity, these affluent agitators are puzzling. That leads observers to search for softer grievances, like the quest for dignity.

But Acemoglu and Robinson believe that dignity and long-term prosperity are intimately connected. The protesters, who put the demand for political rights ahead of everything else, are right; the academic consensus that argues they should simply focus on the correct economic policies is wrong.

In the early Putin era, the Acemoglu and Robinson approach was very much a minority view. As recently as 2008, an essay in Foreign Affairs by another pair of influential Western scholars laid out the ‘‘conventional explanation for Vladimir Putin’s popularity’’ thus: ‘‘Since 2000, under Putin, order has returned, the economy has flourished, and the average Russian is living better than ever before. As political freedom has decreased, economic growth has increased. Putin may have rolled back democratic gains, the story goes, but these were necessary sacrifices on the altar of stability and growth.’’

But in their Foreign Affairs essay those scholars strongly disagreed: ‘‘This conventional narrative is wrong, based almost entirely on a spurious correlation between autocracy and growth. The emergence of Russian democracy in the 1990s did indeed coincide with state breakdown and economic decline, but it did not cause either. The reemergence of Russian autocracy under Putin, conversely, has coincided with economic growth but not caused it (high oil prices and recovery from the transition away from communism deserve most of the credit).’’

The essay’s authors concluded with a prediction about Russia’s future that fits neatly within the framework of extractive versus inclusive institutions and labels Putin’s Russia the former: ‘‘The Kremlin talks about creating the next China, but Russia’s path is more likely to be something like that of Angola — an oil-dependent state that is growing now because of high oil prices but has floundered in the past when oil prices were low and whose leaders seem more intent on maintaining themselves in office to control oil revenues and other rents than on providing public goods and services to a beleaguered population.’’

Acemoglu and Robinson are pretty tough on Western experts, officials and business people who, they believe, are too easily seduced by the leaders of extractive regimes, particularly ones enjoying temporary bursts of prosperity.

But the 2008 Foreign Affairs essay highlights a very important exception. One of the authors of that devastating critique of Putinism was Michael A. McFaul, the new U.S. ambassador to Moscow. That appointment, lauded by many inside and outside Russia for utilizing the skills of an acknowledged Russia expert, may be one reason to be hopeful about Russia today.

One casualty of the uprisings in the Middle East has been the professionals who didn’t see them coming. The International Monetary Fund has taken a hit for its April 2010 report on Egypt, which praised the country’s ‘‘sustained and wide-ranging reforms since 2004,’’ noting they had made the economy more durable and less vulnerable to external shocks. Ditto the C.I.A., whose director, Leon Panetta, endured the very personal ignominy of seeing his public predictions to Congress proven wrong within hours of making them.

For anyone who watched the collapse of the Soviet Union or the 2008 financial crisis, there is something very familiar about this failure of the experts. There seems to be something about swift, massive paradigm shifts — whether they are the bursting of a financial bubble that has been years in the making, or a popular revolt against a political regime that had been stable for decades — that we find hard to anticipate.

Research by behavioral economists like Dan Ariely of Duke University has suggested that part of the problem may be that when we have a vested interest in the status quo our brains are wired to view it as good and stable. Dr. Ariely’s work has focused on the cognitive blinders our financial self-interest imposes. But a similar bias may shape the views of political experts, who can end up developing a sense of ‘‘ownership’’ of the national elites they study that seems to be nearly as powerful as the proprietary feeling bankers had for the credit derivatives they created.

In a prescient book about democracy and authoritarianism written before he went to work at the White House, the political scientist Michael McFaul argued that assumptions of regime stability are always dominant, and that, when those regimes are authoritarian, these assumptions are always wrong. Dr. McFaul strenuously disagreed with that default view, arguing: ‘‘assuming that the current configuration of autocratic regimes in play today will persist 50 years from now is much more naïve than believing that some of these regimes might succeed in making the transition to democracy.’’

Dr. McFaul’s conviction is looking pretty good today. But even if we are able to overcome our psychological resistance to the very notion of regime change, anticipating precisely when dictators will be toppled may not be possible. ‘‘By their very nature, these tipping points are not predictable,’’ said Daron Acemoglu, an economics professor at the Massachusetts Institute of Technology.

A better way of thinking about whether regimes will endure, he suggested, might be to try to understand the potential for rebellion, given the right catalyst. ‘‘Most of the time it’s dormant and hence there is no predictability of uprisings,’’ he argued. ‘‘But once we enter into a critical period like the current one, this latent factor has some predictive power.’’

In that spirit, my colleague Peter Rudegeair and I have done a back-of- the-envelope calculation to identify countries with a high latent potential for uprisings. We considered four factors — political freedom (on the grounds that democracies don’t usually require popular rebellions to achieve regime change), corruption, vulnerability to food price shocks and Internet penetration. Our spreadsheet used publicly available measures of the four factors and came up with a list of 25 most vulnerable countries.* You can see the spreadsheet explaining the publicly available measures of the four factors we used and the top 25 countries we came up with here. Libya, Algeria and Egypt made it into the top 10. Perhaps more surprisingly, so did Russia, Uzbekistan, Azerbaijan and Venezuela.

According to Wired.com, the U.S. military and intelligence agencies have spent more than $125 million over the past three years on computer models that try to forecast unrest. Bearing that in humbly mind, this fast and dirty calculation is meant to provoke discussion, not to pinpoint the next hot spot.

Dr. Acemoglu suggested that one way to refine this sort of calculation would be to consider ways in which the different factors that make a regime vulnerable to revolution interact: ‘‘For example, a lot of corruption without any Internet penetration or a lot of Internet penetration without corruption may create no pressure for uprisings, but when both of them are present that might be a whole different ballgame.’’

Lucan Way, a professor of political science at the University of Toronto, said another contributor to regime fragility that it would be worth factoring in to a more sophisticated analysis (you can try this at home!) is whether the authoritarian government is itself the product of recent revolutionary struggle. Dictatorships run by an ideologically united revolutionary party — Iran, for instance, and to a lesser extent China — are, Dr. Way argued, more durable than those whose rulers rely purely on guns and patronage.

Food-price shocks are often the catalyst that tips a regime with a latent vulnerability to an uprising into one facing people in the streets: that was the case in Tunisia, and has been true as far back as the Bolshevik Revolution. Something else that can propel a society with a latent potential for rebellion into action is the demonstration effect, or what Dr. Acemoglu calls ‘‘contagion,’’ a phenomenon also familiar to anyone who was caught in the wildfire global spread of the financial crisis in 2008.

In both cases, the sudden belief that a previously stable status quo could change had the power to alter reality. This interplay between perception and fact is what George Soros, an expert in paradigm shifts in both markets and countries, calls reflexivity.

Even some of the world’s most powerful authoritarian regimes seem to be getting concerned about the danger of contagion and the power of perception. Hence China’s efforts to block electronic information and discussion of the uprisings in the Middle East. The Kremlin may have even more reason to worry: A Russian opinion poll found that one-third of respondents thought the ‘‘Egyptian scenario’’ of mass protests was possible in Russia. That is the kind of thinking that can tip a latent potential for rebellion into a revolution.

*Update: For ease and simplicity, we used Nomura’s Food Vulnerability Index to calculate how rising food prices would affect a country’s domestic economy.  Because Nomura limited their Food Vulnerability Index to 80 countries, our uprising  index is also limited to 80 countries.  This explains why some countries that seem like they would be prime candidates for having a high latent potential for rebellion — like Iran, Cuba, and Jordan — do not make our list.

They are being called the Facebook revolutions, but a better term for the uprisings sweeping through the Middle East might be the Groupon effect. That is because one of the most powerful consequences satellite television and the Internet have had for the protest movements is to help them overcome the problem of collective action, in the same way that Groupon has harnessed the Web for retailers.

“It is a question of co-ordinating people’s beliefs,” said Daron Acemoglu, a professor of economics at the Massachusetts Institute of Technology, who, with Matthew Jackson of Stanford University in California, is working on a paper about the effect of social networks on collective action problems.

Protesting against an authoritarian regime is a prime example of this issue, Mr. Acemoglu said, because opponents of a dictator need to know that their views are widely shared and that a sufficient number of their fellow citizens are willing to join them to make opposition worthwhile.

“I need to know if other people agree with me and are willing to act,” he said. “What really stops people who are oppressed by a regime from protesting is the fear that they will be part of an unsuccessful protest. When you are living in these regimes, you have to be extremely afraid of what happens if you participate and the regime doesn’t change.”

That makes publicly protesting an oppressive regime a classic collective action problem: If everyone who wants regime change takes to the streets, the group will achieve its shared goal. But if too few protest, they will fail and be punished. Even if an overwhelming majority wants change, it is smart for individuals to speak out only if enough compatriots do, too.

As protests have spread from Tunisia to Egypt and now to Bahrain, Libya and other parts of the Middle East, the power of television, particularly Al Jazeera, and the Internet to spread information and to help with the practicalities of organizing demonstrations has become readily apparent. Taken together, television, Facebook and Twitter may have been even more powerful in helping to solve the problem of collective action, by giving people unhappy with their governments the confidence that their views are widely shared.

This potential for technology to overcome collective action problems has been taken to the next level in the consumer space by Groupon. The swiftly growing electronic coupon company is built around the retailer’s version of the collective action problem: Offering deep discounts is worthwhile if it attracts enough extra customers so that the retailer can make up in the scale of his sales what he loses because of the lower price.

Groupon has solved that problem by creating sales that only occur if a sufficient number of people sign on. The Groupon technique is particularly powerful because once the tipping point is reached, all the interested shoppers are locked in to participating – your investment in the Groupon coupon is irrevocable from that moment on.

Political activists have not yet figured out an equivalent way of ensuring participation once a sufficient mass of supporters is identified: Even if we all watch television coverage of demonstrations together and express our enthusiasm for the movement online, we have no guarantee our neighbors will take the physical risk of going out in the streets until they actually do so.

Even so, the combination of satellite television and social networking has made it dramatically easier for the disaffected to overcome one of the central obstacles to organizing regime change – letting each individual know what views are shared by enough people to make protesting worthwhile, and relatively safe.

This new power is transformative. As Mr. Acemoglu said: “There have always been many regimes that are unpopular, but it has taken a well-organized civil society to allow that pent-up frustration to find a voice.” Technology is making it much easier for frustrated societies to express their collective anger.

Once that collective action problem is overcome, the act of physically coming together to express a deeply felt emotion can be – as we have seen in Egypt and Tunisia – very powerful. We are social animals who take pleasure in intense, mass experiences: Hence the continued popularity, in this digital age, of sports events and music concerts.

But even though the Groupon effect makes it easier to bring people together to oppose unpopular regimes, it may be harder for new technologies to overcome the “day after” problem.

Regime change is a classic matter of collective action and of a tipping point – if enough of us do not like the government, and if we can find a way to co-ordinate our protests (and, crucially, if the regime lacks the means or the will to fight back), we can topple our oppressive rulers.

Installing a new and better regime is a much tougher project, and one that may not be as easily facilitated by new technologies. Social networks are good ways to discover whether our beliefs are shared and even to lock us in to specific, self-contained acts.

We haven’t yet figured out how to use them to facilitate more complicated, longer-term collective actions that require significant commitment and negotiation.

That is the next challenge for activists: Using the Internet to facilitate social transformation that is more complicated than getting a sufficient mass of people to come out to the streets.

Daron Acemoglu of MIT is #88 on Foreign Policy‘s list of the 100 Top Global Thinkers of 2010.  Acemoglu tells Chrystia that his big ideas involve “the relationship between democracy and development” and “the historical roots of economic success and political success, and unfortunately also economic failure and political failure, across nations.”  Professor Acemoglu explains why he disagrees with modernization theory, which states that nations tend to democratize as they get richer. He also disagrees with the thesis of fellow FP Global Thinker Raghuram Rajan that income inequality was a root cause of the most recent financial crisis.  Acemoglu also discusses the prospects for democratization in China, and Russia’s project to replicate Silicon Valley outside Moscow.  His next big idea, he hinted, is exploring the relationship between individualism and society.

Here’s Foreign Policy‘s take on what makes him a top global thinker:

Some Nobel Prize selections are a genuine surprise. The same won’t be true if Daron Acemoglu, already at age 43 one of the world’s 20 most cited economists, eventually takes the award. Born in Turkey and educated at the London School of Economics, Acemoglu quickly made a name for himself with papers and monographs that examined how economic incentives align with political life. His specialty is the analysis of the political conditions under which markets thrive — namely, democracy. It’s a theme Acemoglu has explored in a steady stream of academic papers, textbooks, and op-eds — work that so impressed his peers that he won the John Bates Clark medal in 2005, given annually to an outstanding economist under age 40. Acemoglu’s next book, co-authored with Harvard University’s James Robinson, Why Do Nations Fail?, argues that a real “freedom agenda” will start with democratic rules rather than free markets. “You would not need armies to implement such a scheme,” Acemoglu said, “just a functioning bureaucracy.”

Head on over to Foreign Policy to find out what’s on Acemoglu’s reading list and what he considers are the best and worst ideas of 2010.

Posted by Peter Rudegeair.