How do economists study morality? What are the origins of secure and prosperous societies? Are political dynasties good or bad? Tune in to the latest episode of the Governance Podcast featuring Gabriel Leon (King’s College London) and Ernesto Dal Bo (Berkeley).

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The Guest

Ernesto Dal Bo is the Phillips Girgich Professor of Business at the University of California, Berkeley. He is a political economist interested in governance broadly understood. His research focuses on a range of topics: political influence, social conflict, corruption, morality and social norms, state formation, the development of state capabilities, and the qualities and behavior of politicians and public servants. Most of his teaching takes place in the MBA program at Haas, where he teaches ethics, and at the doctoral level where he teaches courses on political economy.

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0:50: What made you get interested in economics and specifically political economy?

3:16: In your earlier work, you argued that elites can influence political outcomes, partly by threatening politicians or public servants or by accusing them of corruption even if there is no merit for that. What motivated you to start looking at that particular issue?

5:34: There’s this view by a lot of people in academia but also a lot of people on the ground, that all politicians are bad and are trying to enrich themselves, and one of the points that you make is that that’s not necessarily true—some politicians are good. It raises the question, how do we go about designing institutions that can deliver those good politicians?

8:02: There does seem to be a lot of cross-country variation in the attractiveness of working for the bureaucracy. In France, the view is that you want to work for the public sector. In the UK, there are some nice public sector jobs, and then there’s other parts of the world like Latin America, where that’s what you do if you can’t find anything else.

9:57: You’ve done some work on political dynasties: you’ve got the Bushes in America and Justin Trudeau and his father, and Mitt Romney and his father. There are many examples. What does your research find about them? Are they generally a bad thing or not?

13:34: That seems to go against the idea of a fully democratic system. Is there anything we can do to try and change hereditary power transmission?

15:28: You’ve done some recent work on morals, a topic that economics doesn’t really deal with, and political economy does to some extent, but not terribly much. What motivated you to start thinking about that issue in the economic framework?

18:25: This work is very interesting because it combines the idea that individuals can either be good or bad, or corruptible and non-corruptible depending on the context in which they operate, and that motivates my next question, which is—a lot of your work focuses on individuals while a lot of the political economy literature focuses on institutions, and individuals to some extent play a very little role. Do you see your approach as complementary to the institutional view, or is it more of a substitute?

20:24: Your work has recently turned to issues of state development, and you’ve made reference to what you call the ‘puzzle of civilization’ – what is that argument about?

23:58: Let’s talk a bit more about Latin America. There’s a lot that’s been happening recently. The continent seems to be experiencing a resurgence of authoritarianism and the re-emergence of charismatic leadership. What can explain the rise of politicians like Chavez on the left and Bolsonaro on the right?

27:32: Would you agree that democracy is under threat in the US, Latin America and parts of Eastern Europe?

29:43: What’s the next stage in your research agenda?

Full Transcript

Gabriel Leon: Welcome to The Governance Podcast at the Centre for the Study of Governance and Society. I’m Gabriel Leon from the Department of Political Economy and today I will be talking to Ernesto Dal Boa. Ernesto is the Phillips Girgich Professor of Business at the University of California, Berkeley. He is a political economist interested in governance broadly understood. His research focuses on a range of topics: political influence, social conflict, corruption, morality and social norms, state formation, the development of state capabilities, and the qualities and behavior of politicians and public servants. Ernesto has published extensively in both economics and political science journals. Most of his teaching takes place in the MBA programme at Haas where he teaches ethics and and at the doctoral level where he teaches courses on political economy. Welcome, Ernesto. It’s great to have you here today. To begin, I thought it would be helpful to talk a little bit in terms of background. So what made you get interested in economics and more specifically political economy.

Ernesto Dal Bo: Gabriel, it’s great to be here. I’m delighted. Political economy, I think, insinuated itself into my life by growing up in Argentina where I think even if you would want to ignore political economy I don’t think you would be able to. I even remember having conversations at home being a child already asking about the government and how were things run and noticing that things like the building of Congress which is a very impressive building in one site. Know my parents would tell me that’s the place where the laws are written, so I would ask “Well, are they writing laws in there right now?” and they would say ‘“Well, no not quite right now because the place is shut down. We, well, we live under what is called a military dictatorship.” So I can think of lots of flashes like that were being, or really, being very young. These things would just be part of the landscape of conversation. So I always had an interest in these topics and then as I grew up, you know, we went through hyperinflation and debt crises and potential backlashes and attempts by the military to regain control after democracy has returned. And I guess that feeling that democracy was fragile was also something that made me interested in the form of government and in the economics behind it because I think it was clear to many of us people in my generation that the way the economy went had implications for what kind of government you got and what kind of liberties you would get to enjoy. So I think these two things, the economics and the politics, always went together in my mind.

Gabriel Leon: Thank you. That makes sense and that’s where the Governance Centre focuses on, that kind of interaction between economics and political science. So let’s turn to some of your work and in particular your earliest work focuses on this idea that elites can actually influence political outcomes partly by threatening politicians or public servants or by accusing them of corruption even if there’s no merit for that. So what motivated you to start basically by looking at that particular issue.

Ernesto Dal Bo: I think this is some of the earliest work I did when I was a student at Oxford then. The reason I got interested in that angle is that a lot of the literature on capture and political influence postulated politicians or people in office as being auctioneers. People who were selling policy to the highest bidder. But my experience looking at people in my circle of family and friends, especially people working in the new democratic government after the dictatorship, was that there were a lot of people who were reform-oriented or the reform-minded who wanted to use government for good. And they encountered very stubborn resistance. And typically this sequence would be that they will be offered some sort of inducement to be more accommodating to vested interests. And if the reform oriented official were to decline such offers then the attentions of these interests could get nastier. And this is something that’s very easy to do in environments that are politically volatile. It’s always easy to accuse you of something and paradoxically it’s the case that often an honest person could be accused of corruption because in fact the vested interests might control judges. So when you began to track these kind of experiences they didn’t quite match the simple mothers that we studied and they made for a pretty dizzying combination of facts and events and so I began trying to pass them out.

Gabriel Leon: So that’s very interesting because there’s this view held by a big fraction of academia but also a lot of people on the ground that all politicians are bad and all politicians are just trying to enrich themselves. One of the points that your work makes is that actually that’s not necessarily true, that some politicians are good and it kind of raises the question of how do we go about then designing institutions that can deliver those good politicians.

Ernesto Dal Bo: That’s I think, there are two different tasks for us. I think one is to determine what can we prove. Is it the case that there are good politicians beyond what our anecdotal personal experiences can tell us. Is that something we can see in the data. Is that something we can see in patterns of responses to shocks that theory would predict operate differently if you have good people in office. So that’s one task and the second one is exactly the one you stated. If those people exist out there how do we get them into government. How do we get them to be politicians running for office or how do we get them to be also bureaucrats, right.

So governments in order to do what they need to do they are in need of permanent structures of competent bureaucrats that carry out the government administration that they are. So that has been a topic I’ve been interested in as well all this time. And so I think we’re only beginning to scratch at the surface as to how do we design our institutions and procedures to attract these people. I think there are indications that compensation, better compensation helps. Which might be perhaps a bit obvious but it’s not entirely so, partly because there are reasons to believe the compensation, the compensation is very good. Then maybe you may attract greedy types who might be competent but not exactly individuals who think about the welfare of others. So there are some non-trivial challenges and interesting questions too.

Gabriel Leon: Yeah I mean there does seem to be a lot of cross-country variation in terms of attractiveness of working for the bureaucracy as it were. So France is always given as an example where actually what you want is you want to work for the public sector and the UK is kind of in between some very nice public sector jobs. And then there’s other parts of the world like Latin America where that’s basically what you do if you can’t. If you fail and everything else.

Ernesto Dal Bo: That’s right. So it’s interesting that in different countries you get different levels of prestige and compensation for working in government. In some places as you say it’s a distinct market that you’re a total loser if you work for a government, so that clearly indicates different societies resolve these trade-offs differently and they apportion resources to compensate these people in very different ways. Interestingly, I think it’s not all about the money, there are other forms of non-pecuniary compensation that are very important.

So prestige and a stable career are huge draws and so you have examples like the civil service in India for example with its very well regimented, very organised, highly selective at the time of entry and those people are compensated well for the standards of their society.

But I think it’s probably true that the perks and prestige are a huge component especially now with a more economy that has very high earning opportunities at the top of the income distribution. You still have talented people are going for the service because I think one eventual return is the prestige.

Gabriel Leon: So you’ve done some work on sort of another issue related to the quality of politicians and that’s the idea of political dynasties and some that some of them are quite well known. So you know the Bushes in the Americas, in the US. So Justin Trudeau and his father ,you know people like Mitt Romney and his father is seen as slightly l ess successful in sort of achieving higher office. But the world does seem to be full of examples of these political dynasties. So what does your research find about them? Are these generally a bad thing or is there something positive that can be said about having political dynasties?

Ernesto Dal Bo: It’s, so that, you know we wondered about that. One thing that caught our eye when we started working on this is that this is something that draws quite a bit of media attention. And journalists tend to have this tone when they write about these that there might be something sinister in play that the presence of political dynasties indicates that democracy is not an even playing field, that somehow some people are born with advantages and that doesn’t seem to rhyme well with the idea of democracy as an even playing field.

After all democracy is supposed to have eliminated the hereditary transmission of power that we have in monarchies. But to us it wasn’t obvious that the mere observation of all these dynasties is a bad thing. In principle one could rationalise it saying that some families have very competent people and those competence levels are inherited. Maybe they are genetically coded and there’s nothing wrong about seeing these dynasties, in fact they may reflect the fact that there’s some sort of meritocratic force in play. So to us the objective was first to find out whether there is something to this idea that by where power gets power, that some people are born with an advantage simply because someone in their family held political power before and then they will inherit some fraction of that without for reasons that are independent of their own merits. And you know we got to analyse the data for the history of legislators in the United States and you do find that it is the case that if some politician by a stroke of luck ends up enjoying a longer career – we do this by looking at people who are closely re-elected versus people who are closely not re-elected. People who are re-elected end up having longer careers, they accumulate more power. They become individuals with more leverage. Those people tend to have descendants coming into Congress later on by a wide margin. So there is something here that even accidental, additional power to you is going to have an effect on the prospects, the political prospects of your children. So there is even in an advanced modern democracy, we do see these kind of remnants of hereditary political power.

Gabriel Leon: So that seems to kind of go against the idea of sort of a fully democratic system. But is there anything that we can realistically do to try and change this?

Ernesto Dal Bo: I think so although I don’t claim to know or to have traced out how are policy levers may translate into this. What seems clear is that even in a society like the United States which is very open in many ways you do have these political transmission, intergenerational transmission of political inequality and it’s rather high. So the share of people in office who have previous relatives that have been in office before is really high. It’s very different from what you will get out of your chance. What seems to be, what seems true to me – and this is speculation-  is that the pool of competing candidates, the stronger that will be the more difficult it may be for dynasties to perpetrate themselves.

And that may have something to do with having broader segments of the population have access to many of the things that dynastic members have: high quality prestigious education for example, the ability to then come into contact with networks of influential individuals. A society that has more mobility in terms of those opportunities is one that may have lower dynastic prevalence

Gabriel Leon: So changing tack slightly and going back to against sort of kind of the quality of politicians. You’ve done some recent work on morals which is a topic that economics doesn’t really deal with and political economy I guess does to some extent but not very much. So what motivated you to start thinking about that issue using kind of a political economy economics framework.

Ernesto Dal Bo: Maybe I think the idea was suggested by contrast, right. So morality is everything we tend to live outside the models that we study and teach. Although you know by now with the development of behavioural economics there’s a lot that’s been done moving in this direction. But but it’s a literature that is relatively speaking in its early phases. I was always interested in where the values come from and what do they do. It seems clear that descriptively speaking the idea of the formal economy course is not a hundred percent right. Even if it’s convenient one for us to write models and come to some conclusions.

But I think we need to reach the picture. And so, I know, we began having discussions with some colleagues and one of my collaborators is my brother Pedro to the extent that a lot of the rhetoric that people use in organisational settings, in political settings appeals to values. Model discourse and moral suasion are important levers of influence. But if we see that they are in reality then why is it and can we demonstrate in a controlled environment that they do have power. And so one of the studies that we did was in that experiment where we expose people to different forms of discourse. And we tried to see whether that exposure affected their ability to resolve social dilemmas. And we found that it does although it tends to be short lived. What is interesting though is that the effects of moral suasion or exposure to a moral discourse that recommends being a cooperative person become more permanent when they are combined with the ability of agents to punish each other. So when you put together the ability of people to punish each other for deviations, which is a costly activity in itself, with a moral framework then that combination seems a powerful one that raises and maintains cooperation. So you know I think we there is a lot more that we would love to understand but this was the first step to show that these instruments do have influence.

Gabriel Leon: So this is very interesting because it combines that idea about individuals being potentially good or bad or corruptible and not corruptible with the context in which they operate and that kind of motivates my next question which is a lot of your work focuses on individuals while a lot of the literature in political economy in particular has focused on institutions and individuals to a large extent seem to play very little role. So we talk about groups, social groups, elites masses but not really individuals. And I wonder whether you view your approach as being complementary to the institutional view or being to some extent just kind of a different approach, almost like a substitute to that view.

Ernesto Dal Bo: I think it’s got to be complementary in the sense that I don’t think it would be… so let’s think for a moment: what will it take for an individual-based approach as you highlight, as you delineated it to be substitute. It will mean that then we will have a number of phenomena explain a way that’s completely institution free. But I doubt that that’s feasible. And the reason is individuals matter because they are heterogeneous, because they care about the number of things above and beyond the things of what economics does. But they do what they do when they care about these things given constraints and they pursue the goals that they pursue given constraints that are affected by institutions. So I think these two things necessarily interact to produce the outcomes that we typically study.

Gabriel Leon: So related actually to the question of institutions. Your work has very recently turned to the question of state development and in particular kind of very long run state development. You make reference to something you called the puzzle of civilization. So I wonder if you could tell us a little bit more about what the puzzle is and what your main argument is as it relates to sort of the emergence of civilization.

Ernesto Dal Bo: Yeah, these came about given my interest in state formation and I began teaching a class that covered the race of the earliest civilizations and also some aspects of pre-historical economics. And so working with students the idea developed that there is really attention at that time when the society forms state.

What is it? Well to have a civilization you need a society that’s producing surplus and economic surplus, right? So the visible marks of civilization are public architecture, infrastructure, a number of things have been required of the production of a surplus. But it also requires protecting that surplus. And interestingly the early civilizations tended to arise in an environment that was violent and highly predatory. So what you have is the emergence of a typically settled food producing population who generates a surplus and which defends it against the predatory pressures of surrounding populations often pastoralists. Now the one thing that historians have remarked is that the richer some of these proto-civilized centres became the harsher the predatory pressures became which generated in fact an incentive maybe not to develop a civilization at all. In fact to see this in his introduction to covering how Athens, Greeks and Greek populations flourish in the beginning he mentions that producing wealth out of working the land creates a tax by marauders and that therefore that creates a disincentive for that prosperity to emerge. And that’s the bustle. So if civilization entails the joint appointment of prosperity and some security. But as soon as you try to become prosperous your security declines, then you’re not getting any closer to the goal. So how did that happen that some societies managed to generate both prosperity and security that prosperity tends to undermine. So that’s the bustle. And so we’ve worked that model with a model to try to understand the conditions that allow that escape or the takeoff to happen.

Gabriel Leon: Ok, thank you. Very interesting work. I was thinking we could talk a little bit more about Latin  America. Sort of you know returning to the beginning as it were. There’s a lot that’s been happening recently and in particular the continent seems to be seeing a resurgence of authoritarianism and the return of charismatic leaders. And I wonder whether you have any ideas as to what can explain the rise of politicians like for example Chavez on the less left and also narrow on the right?

Ernesto Dal Bo: Latin America has a very rich history of populist charismatic leaders. This is not new to you or me for sure and I am not sure that we are seeing a resurgence in charismatic leadership. I think most Latin American leaders tend to be quite charismatic. I think certainly more entertaining than leaders in other regions, at least to my taste. Maybe that’s my home bias. What I think we may have seen is that some of them tend to come from slightly more extreme parts of the ideological arc. That I think is a concern. And this is something that’s going on not only in Latin America, it’s going on even in the Northern hemisphere.

So say this that you and I probably have admired for a long time as very civilized societies have seen plenty of extremism rising in the last few years and I don’t have a complete answer but I I think it’s clear that in several of these cases the economics matter. That the state of the economy, the cycle, crises, these things in both sectors of the population that switch their political origins as a result they decide that some of the previous perhaps more moderate options that they had supported have not done well by them. And then they turned to alternatives. Whether that ultimately lands on the left or the right, it varies from country to country. I don’t know exactly what determines whether people switch to the right or the left. Sometimes you may have to do with historical accident. It depends on how closely related to the dominant previous regime was the left or the right and then people will go to the ultimate.

We are seeing that in several countries in Europe and one that we have been looking at with collaborators in Sweden concerns Sweden where a radical right party is now the third largest party. And in that case it is discernible in the data that economic grievances play a role in making people who were negatively affected by the economy towards the radical right.

Gabriel Leon: So would you agree with the people who say that democracy is under threat in countries like the US, well many countries in Latin America and parts of Eastern Europe?

Ernesto Dal Bo:  I will agree. Yes. I don’t know to what extent you know. The question is now how worried should we be. That’s a different question. Is it under threat? Yes for sure. And sometimes if, you know, when we can point to lots of historical episodes where people exaggerated the threat, then were overly worried and then things didn’t get out of hand. And we can also point out situations where people minimised the dangers and then terrible things happened. Which one is it this time? I don’t know.

I think the one good reason to understand the drivers of these political fluctuations and to try to understand the economic causes whenever relevant in some cases the causes may not be economic but at least in one case I know they are and in many others I have a strong feeling that they are. The good thing about looking at those drivers is it may tell us something about maybe what will it take to reset the balance so that these drivers are suspended or eliminated. Things that depend on relatively mild changes in the economic cycle we may think may be reversible in relatively short order. But you know that’s to be determined. It may also be that sometimes small economic deviations create political realignments that are very hard to reverse, right. That’s one thing that we don’t know. How permanent are these changes in allegiance? That’s I think an important question that’s open for us researchers to get at.

Gabriel Leon: OK well that leads quite naturally to my next question which is what’s the next stage in your research agenda?

Ernesto Dal Bo: So I have an agenda on working with governments, trying to understand what works at creating state capabilities and this is an agenda I plan to continue working on. These are typically projects that take a long time to set up, it requires finding the right partners and governments who are willing to experiment, so that’s certainly something I maintain an active interest in.

I’m also interested in this area on state formation and so that’s something that’s also on my desk right now, doing further work on it, both on the theory and the empirical side.

One other topic we haven’t talked about but I have done some work on and hope to continue working on concerns the ability of voters to select policies or leaders.

We talked about institutions, we talked about state capabilities, we talked about politicians and in all the conversations about pathologies that we have had, it may seem that the fault always lies with any of those actors, but voters are never to be blamed.

But I think we need to turn our eyes to how voters make decisions. Of course, in political economy we have the dominant paradigm of voting models where voting seems to be a rather amazing way of aggregating preferences and information, a very robust one, but some work we have done with my brother Pedro, studying voters in the lab that need to choose not between two leaders or two clear options in terms of payoffs, but people who have to choose between games they’re going to play. That shows they are rather bad.

So if you have people playing the prisoner’s dilemma, which is basically a more concrete example of a social dilemma, and you offer them whether to continue playing the game or play a game that’s better for them, in equilibrium, but which profile by profile seems to have worse payoffs, people stick with the prisoner’s dilemma although that’s bad for them in equilibrium.

So people are very bad at judging games based purely on equilibrium considerations.

We think that that’s a reason to worry, because in real life, when politicians propose a platform or a policy, they don’t tell us exactly what we’re going to get. They propose a policy, that policy is going to change the incentives of many actors in society, people are going to adjust their actions as a result, and then equilibrium effects are going to take place.

If we are bad at predicting equilibrium effects, that means we are bad at judging political platforms.

So that’s I think an area which we desperately need more work because it may lead us to have a position on how exactly should policy discussions or platform discussions be framed or organised so that people get the right conclusions.

Gabriel Leon: Thank you. That’s very interesting and it’s a question people in the UK people have been asking themselves ever since the Brexit referendum three years ago.

Ernesto Dal Bo: That seems likely, yes.

Gabriel Leon: Well thank you very much, it’s been a fascinating conversation.

Ernesto Dal Bo: Thank you, it’s been a pleasure.