Which Incentives are Needed by the Bureaucracy and Elites to Promote Economic Growth?

The fourth annual conference of the HSE International Centre for the Study of Institutions and Development recently concluded. Leading researchers from Russia and abroad discussed the effect that institutions, elites and collective action all have on the economies of countries, especially developing economies.

‘We’ve picked this topic because it's an area in political economy where some of the most interesting work has been done’, said Timothy Frye, Academic Supervisor at the HSE International Centre for the Study of Institutions and Development and Professor at Columbia University. ‘Collective action problems are a fundamental problem in societies, not just in terms of producing public goods, but also in terms of allowing people to express preferences. We are interested in how institutions affect the ability of groups to engage in collective action, also in helping governments and societies produce public goods. Freedom, justice and property rights – these are all areas of research that are at the forefront of economic development’.

Leading international researchers were recruited to take part in the conference, including, Arturas Rozenas of New York University, whose report entitled ‘Persuasion and dissuasion with biased media: Evidence from Russian television in Ukraine’ was devoted to the influence of Russian television on the electoral behaviour and outcome of elections in Ukrainian border territories.

Edmund Malesky of Duke University, who studies South-East Asia, presented a report entitled ‘Do Governance Rankings Improve Subnational Economic Performance? Evidence from Randomized Field Experiment in Vietnam’. His research shows that the local bureaucracy is viewed more favourably by the population in the regions involved in this monitoring, but it has little effect on the level of social welfare’.

Russia is a great case to study because you have many different subjects of federation and you can explore how different types of bureaucratic incentives impact economic growth across regions in Russia and over time

Timothy Michael Frye
Academic Supervisor at the International Center for the Study of Institutions and Development

A separate research project that is led at HSE is devoted to researching bureaucracy, or rather the incentives for bureaucrats that either cause them to promote or hinder economic development. ‘Russia is a great case to study because you have many different subjects of federation and you can explore how different types of bureaucratic incentives impact economic growth across regions in Russia and over time’, said Frye.

At the conference, participants spent considerable time discussing the work of the bureaucracy under authoritarian regimes, which provide a rich ground for comparative studies. The classic comparison is between Russia and China. In China, the bureaucrats are promoted if the regions ‘entrusted’ to them show high rates of economic growth. ‘We don’t see the same pattern in Russia’, says Frye. ‘One question is why we don’t see such patterns. A number of researchers are trying to figure that out, ultimately with the goal of trying to create incentives within Russia that would then allow for greater economic development.’

The Chinese model has a number of costs to it, says Frye. Since bureaucrats are often promoted based on economic growth, they tend to pursue economic growth at all costs, without taking into account the cost to the environment or the efficiency of that economic growth. It is important to determine what bureaucratic incentives lead to on a countrywide level.

Russia and other countries with partial rule of law can learn a lot from the experience of the Ottoman Empire. Professor Timur Kuran of Duke University presented an interesting study of the activities of the Istanbul courts XVII-XVIII centuries. Having analyzed court records, he came to the unexpected conclusion that the legal system was not biased toward ‘no rights’, as one might expect, but toward the elites, that is, the elites were interested in creating independent commercial courts (arbitrage). Meanwhile, the extent to which their interests were protected by the courts, i.e., the interests of the financial elite, was largely determined by the efficiency of investment schemes and credit mechanisms, which greatly affected economic development.

But are modern politicians, legislators and administrators prepared to learn from the past and to listen to the opinion of researchers? And can academics themselves have an effect on the bureaucracy? ‘There are other scholars who can do that and it’s very difficult and time-consuming to try to push a particular policy agenda’, says Professor Frye. ‘Our main goal is to conduct basic research. We hope that there are policy lessons that practitioners can use from our research’.