What part of this governance equation fails to add up?

I’ve been having some fun at economists’ expense as of late, but it’s mostly been a form of friendly teasing.  The neoclassical economic framework provides some serious leverage to understanding how the world works.  It remains an incomplete approach to political analysis, however. 

Take, for example, Daron Acemoglu’s Esquire essay on the importance of governance to economic development, which is abstracted from his latest project with Jim Robinson.  Acemoglu is a top-flight political economist — which is why I found the following passages so strange:

Nations are not like children — they are not born rich or poor. Their governments make them that way….

Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments….

If we know why nations are poor, the resulting question is what can we do to help them. Our ability to impose institutions from the outside is limited, as the recent U. S. experiences in Afghanistan and Iraq demonstrate. But we are not helpless, and in many instances, there is a lot to be done. Even the most repressed citizens of the world will stand up to tyrants when given the opportunity. We saw this recently in Iran and a few years ago in Ukraine during the Orange Revolution.

The U. S. must not take a passive role in encouraging these types of movements. Our foreign policy should encourage them by punishing repressive regimes through trade embargoes and diplomacy. The days of supporting dictators because they bolster America’s short-term foreign-policy goals, like our implicit support of Muhammad Zia-ul-Haq in Pakistan starting in the 1970s, and our illicit deals with Mobutu’s kleptocratic regime in the Congo from 1965 to 1997, must end. Because the long-term consequences — entire nations of impoverished citizens, malnourished and hungry children, restive, discontented youngsters ripe to be drawn toward terrorism — are too costly. Today that means pushing countries such as Pakistan, Georgia, Saudi Arabia, Nigeria, and countless others in Africa toward greater transparency, more openness, and greater democracy, regardless of whether they are our short-term allies in the war on terror (emphasis added).

Look, I’m a relative optimist when it comes to sanctioning Iran, and maybe I’m reacting to one sentence of lazy prose, but this kind of policy prescription is… er…. how to put this delicately… not the brightest idea. 

First, Acemoglu might have noticed that the use of material incentives for democracy promotion has has been a pretty important component of U.S. foreign policy for, oh, the past 15 years or so.  It pretty much hit its apotheosis with George W. Bush’s second inaugual Address.  Last I checked, the results of this effort have been somewhat meager.

Second, doubling down on sanctions poses two serious problems.  There’s a "black knight" problem.  China will be delighted to expand their trade and investment links with countries like Saudi Arabia if we choose to place democracy promotion uber alles.  Unilateral or even Western economic pressure will be imited.  Unless the targeted country already has a vibrant democratic opposition, sanctions will not create one.  Oh, and one other thing — sanctions also create incentives for massive amounts of black market activity.  Those are usually the incentives that the elites in targeted regimes respond to — not the pressure of sanctions. 

Third, the policy externalities of sanctions aren’t limited to corrupting the targeted regime — the effects spill over into neighboring governments.  So, consider the Democratic Republic of Congo again.  If comprehensive sanctions are in place, how many sanctions-busters would emerge in the nine bordering states?  How would government performance in those countries be affected? 

I’m not against democracy promotion by any stretch of the imagination, and I agree that institutions are really important for development.  That said, Acemoglu hasn’t really thought through this  policy proposal.