Reflection Paper

He, Adel John P.

CHAPTER 1: WHY NATIONS FAIL

Through the simple comparison of the economic disparity between Nogales, Arizona, and

Nogales, Mexico, the author has chronologically demonstrated the reason that there is such a difference

between the quality of life and the political institution at which the two different citizens were based at.

Despite the relatively few differences between the two geographical locations, plagues and diseases

plagued neither area. The question could be answered by tracing how the political institution and the

economic implication of such have originated in these two regions.

Mexico had a rich pre-colonial history. However, this was suddenly cut short through the initial

conquests of South America with Juan de Ayolas. The Spaniards realized they could easily conquer the

natives by capturing the leaders. This proved to work, and the indigenous people were more subservient

to them. The conquistadors, however, did not stop just there yet. They pillared King Moctezuma's riches

despite having been offered a friendly welcome. Fear and terror were the strategies of the conquistadors.

The success of the conquistadors led to one of the very first econmienda. The econmenienda was the

primary institution that abused the rights of the indigenous people, where they were forced to offer tribute

and labor services. Due to the prospect of more wealth, more rigorous systems of abuse of power were

set up as an alternative to the econmienda. These were the reducciones and mita. The reducciones were

the town in which most of the slave laborers lived. These slave laborers worked under forced labor in

Potosí mitas. The influence of this system is still seen today with the difference in the towns of Calca and

Acomayo. Despite being relatively close to each other, the quality of life in Calca is significantly better

compared to the citizens of Acomayo. This is due to the poorer road conditions for which the Acomayo

suffered. For example, the poorer road condition meant that the citizens of Acomayo could only produce

for self-sustenance. In contrast, the citizens of Calca could sell their produce in the market.

The birth of the United States and its political institutions tell a different story as it was forged in

incentives and freedom. The Virginia Company realized that whatever worked in South America would not

work in the “American” context. The settlers in the colony were given lands and titles as an incentive for
them to stay. It was clear that power and control wouldn’t work as there were more reasons to stray away

from the Virginia Company than to remain in it. In a simpler sense, power and rights were distributed

more broadly in the United States than in the colonies under the conquistador.

The difference became more apparent during the Industrial Revolution. The rapid innovation and

globalization in the United States brought about more economic progress, with the elites of Mexico fueling

all the natural resources to the United States. However, the elites (who are also Mexican) were the only

ones benefiting from it. At the same time, there were more banks in the United States than in Mexico,

leading to higher competition and lower interest rates, meaning that more businesses could lend

themselves capital. However, the same could not be said of Mexico as they had fewer banks and higher

interest rates.

In short, because of the very institution, these two areas were in, the citizens had vastly different

living qualities. They also operated under different incentives as different political and economic

institutions could result in changes in the incentives of the people, businessmen, and politicians. However,

at the end of the day, apolitical institutions shape people's lives as it is how economic institutions are

shaped. A democratic institution has allowed the people to be opportunistic and innovative; however, a

dictatorial institution has led to poverty and control.

CHAPTER 1: UNINTENDED CONSEQUENCES: THE FOLLY OF UNCRITICAL THINKING

This is the 10 case study of economic policies that, even though they had good intentions, due to

poor economic thinking, could lead to dire consequences. The article first discussed economic policies on

employment, income, and poverty. One of the first ones is the increase in the minimum wage. Despite the

advocacies to increase wages, the increase in the minimum wage, according to microeconomic theory,

could increase the poverty incidence rates in regions. The increase in minimum wage will also increase

the disadvantage for small to medium enterprises. The lesson for this, then, is to carefully scan the policy

environments and how incentives are built around it. Next would be the prohibitions of all temporary

contractual employment. What most people do not realize is that the Philippines is low in labor

productivity, however, high in labor cost (relative to productivity). Hence, the prohibition would imply that

this would further lower the employment rate and GDP due to lower employment opportunities, more
barriers to entry for workers from the informal sector to the formal sector, and a reduced chance for

workers with lower credentials to become regular ones. But, employment contracts are essential when

there are random fluctuations in the market and economic shocks.

As for natural resources, the partial log ban in the remaining natural forests and the closure of the

Zamboanga sardine factors all have adverse effects. The logging ban raised the cost of legitimate tree

farming, spawning numerous illegal farming and informal settlers. This could be widely attributed to the

unwillingness of the national government to work and encourage the participation of the wood industry. As

for the closure of the Zamboanga sardine factory, due to the open access nature of the country’s fishing

grounds and adequate means to control the fishing industry, this led to the overfishing of the Zamboanga

sardines. The lesson for this is to collaborate to keep the industry profitable and sustainable. Self-interest

could be a factor that could bring the natural resource industry down. Hence, it's important that through

education, consultation, and government facilitation, a stakeholder would be more aware of the long-term

implication of their action.

The truck ban, although it is a wish that most would have as it is to be believed that it could

lessen traffic congestion, could lead to adverse effects. It was temporarily implemented to address

congestion; however, it was lifted due to massive losses following its implementation. This is because the

banning led to economic losses, which could be traced to the long delays in transportation. The lesson

here would be to invest in a more proper cost-benefit evaluation of the policies in the future before it is

implemented. Controlling rent for housing for lower-income families is also quite unwise, leading to poorly

maintained houses that lack essential utilities such as toilets and bathrooms. Hence, this lesson is to

develop a more practical housing strategy.

Why are there such things as “unintended consequences”? One of the reasons for it is ignorance.

To not utilize enough information that could have been obtained before making a decision. As for errors,

these are brought about by the habits that lead to success. Sometimes, self-interest also comes into play.

Sometimes, the consequence could be known, however, due to the self-interest of the stakeholders, it

could be ignored. The key to this is to seek more information and listen to the opinions of others. Listening

to people who are more independent thinkers could help in avoiding confirmation biases and or

encountering missed opportunities for different thinking.

Reflection

Development is never an easy thing. The classical theory failed to understand that the markets and

society are more nuanced than just the typical notion of growth, which is the growth in domestic income.

In short, the key is to look into minute details to achieve growth that brings happiness and satisfaction to

the majority. It is not a cliche phrase when they say that the devil is in the detail.

As demonstrated in the first chapter of Why Nations Fail, the difference between living standards in two

similar regions could be traced back to the colonial periods. However, most people would disregard its

influences and focus mainly on present factors. That is not to say that Mexico has the right to demand

recuperation from Spain for what they have done. But the case is that Mexico’s impoverished state could

be fixed have they studied how other countries have achieved their growth, albeit in a more Mexican

context. It is essential that growth is dependent on the country you are based in, as the limits of your

political institutions constrain you. Despite having good intentions, the general approach of just “donating”

funds and assets to another country could lead to negative consequences. Most of these negative

consequences could stem from a self-moralizing belief that help could only be beneficial. However, not

researching and gathering enough information could lead to adverse effects. For example, a country that

constantly receives aid from a developed country could lead to inefficient use of finance and human

resources due to limited knowledge of utilizing these funds. It’s not precisely the funds that hurt the

economy, it is ignorance and the political institution these trustees were in. One also has to ask what a

reliable measurement standard for development is. In the Philippine context, development and progress

might as well be different from Swedish progress. Recognizing that heterogeneity exists in development is

also one of the keys to achieving development. Different people would have different needs. To be

homogenous in achieving progress is easy, however, wrong and erroneous.

In conclusion, development was never an easy task. To help developed countries reach a

steadier state of progress, one has to peer into the political institutions that they are in as they heavily

influence the incentives that the agents act. By subjecting these agents to similar standards, no growth

could be achieved in such a way that you could be missing all the targets yet to be hit. The answer to the
question is through slow and careful analysis and work, while avoiding unintended consequences, could

one achieve growth.