** We’ll be discussing this episode on Tuesday, January 13th (8 pm ET/5 pm PT) in our online gathering, Macro ‘n Chill. We’ve invited Erald Kolasi to join us. So bring your questions. Register here: https://us06web.zoom.us/meeting/register/aYopZXEIQ9SPN9gQL2ajXQ

Steve welcomes back Erald Kolasi, physicist-economist, author, and friend of the podcast. Erald is here to do a demolition job on “institutional” development fables like Acemoglu & Robinson’s Why Nations Fail. He argues that by treating good institutions as the master key (inclusive vs. extractive) they smuggle in a liberal moral scoreboard while dodging the real motors of history: power, class struggle, imperial systems, and material constraints like energy, trade dependence, war, and ecological shocks.

To “steelman” Acemoglu and Robinson’s position, Erald uses their favorite showcase case – North vs. South Korea. He lays out their comparison of the “tyrannical dictatorship” vs the “open” society and presents their explanation for these differences.

Erald then flips the script: the DPRK outperformed for decades, then crashed not because its “institutions got worse,” but because the USSR collapsed. Cheap, subsidized energy disappeared, wrecking agriculture and triggering famine.

The pattern repeats across history. Using examples like China and Venezuela, the episode explores how wars, sanctions, resource access, and global power structures shape economic outcomes far more than abstract institutional rules. Development is a struggle rooted in material conditions and geopolitical realities, not a neutral competition between better or worse policy designs.

Erald Kolasi is a writer and researcher focusing on the nexus between energy, technology, economics, complex systems, and ecological dynamics. His book, The Physics of Capitalism, came out from Monthly Review Press in February 2025. He received his PhD in Physics from George Mason University in 2016. You can find out more about Erald and his work at his website, www.eraldkolasi.com.

Subscribe to his Substack: https://substack.com/@technodynamics

STEVE GRUMBINE:

All right, folks, this is Steve with Macro N Cheese. Today's guest is a

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returning guest. He's my friend Erald Kolasi, who is a physicist and economist focusing

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on the nexus between energy, technology, economics, complex systems and ecological dynamics. His book,

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which we've covered here, The Physics of Capitalism, came out Monthly Review press back

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of my favorite guests here on the program. And today we're going to take

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a trip in a unique direction. It's going to tie together with some things

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you've heard on this podcast in recent weeks. In particular, the concept of why

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things happen in one country differently than in another. We talked with Vijay Prashad

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and we talked about Antonio Gramsci and understanding why the Russian Revolution went the

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way it went versus the way that it went in Italy, why they chose

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fascism, et cetera. Well, this is going to be a little bit different because

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we're going to be debunking the institutional theory of economic development, which, by the

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way, you can find an article about this on Erald's Substack, which I strongly

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recommend, which is Erald Kolasi. So if you look him up on Substack, you'll

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find a treasure trove of phenomenal writing. I mean, just absolutely must read writing.

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That said, what he talked about in here was the essence of why one

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country has good economic outcomes and another does not. And he takes on the

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concept that if we just have good institutions, everything will go just swimmingly. Based

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A.] Robinson. And he takes on specifically some of the points that Daron Acemoglu

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brings up in the book. And with that, I will go ahead and kind

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of set the stage with a question. What is it about institutionalists, in particular,

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that reduce things down to these kind of hierarchical structures as the reason for

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the winnings and losings of various countries? And I want you all to think

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about this in the current lens- as we're watching what is happening around the

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world with China, as we're watching what's happening currently with the US with Venezuela,

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as we watch what happened in the Global South with Africa. And you frequently

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hear these kind of, "why is Africa failing? Why are they always behind?" And

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stuff like that. And I can't wait to get to the root of all

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these. And Erald is here to do that. Erald, welcome to the show, sir.

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ERALD KOLASI:

Hey, Steve, thank you for having me back. I'm so glad to be here.

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STEVE GRUMBINE:

Absolutely. So this substack, this post, it's long, folks, it's not short. So break

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out your reading glasses, get comfortable and read it because it's worth your time.

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I promise you we wouldn't be talking about it here. My goal is to

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make this stuff interesting and also to provide you with the ability to put

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your feet up, get the fireplace going, and listen and contemplate these important subjects.

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And I think that you'll enjoy this. So, Erald, help me understand.

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ERALD KOLASI:

Yeah, absolutely. So, you know, there's a really broad intellectual effort out there, and it's

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been going on for a long time now, to explain why history took so many

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meandering twists and turns for different nations, right? Why are some countries rich while others

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are poor? Why are some countries strong while others are weak? Why did Europe end

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up colonizing the Americas instead of the opposite happening, right, and the Americas colonizing Europe?

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And so there's a long intellectual tradition and different people writing about this stuff. There's

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people like [Jared] Diamond in Guns, Germs and Steel, and there's cultural explanations. So, you

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know, Jared Diamond would argue, you know, a lot of the big changes that you

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see in history and a lot of the fundamental outcomes that you see over time,

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they come down to essentially geographical and ecological dynamics, right? So the distribution of flora

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and fauna, the orientation of the continents, rainfall patterns and soil quality and things like

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that, right? So that's what Diamond would argue. You have people on the cultural school

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who would argue, well, it comes down to cultural differences between different societies, right? The

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different cultures have different values and those values then translate into behavior, right? And then

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the behavior obviously leads to different outcomes- so this would be people like Max Weber

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and The Protestant Ethic [and the Spirit of Capitalism] that, hey, northern Europe is, you know,

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richer than Southern Europe because they have a better work ethic, right? And then you

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have an increasingly popular school of thought as well, institutional economics. And this is a

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very broad school that covers many different perspectives and even ideologies, right? I mean, there

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can be people on the left that are institutionalists and even people on the right

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that are institutionalists. But the substack post that you talked about specifically addresses the book

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Why Nations Fail, written by the economists Daron Acemoglu and James Robinson, both of whom

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actually one of the members of the cultural school, Joel Mokyr, who won it. And

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I'll criticize those ideas as well as part of the institutional school in this podcast.

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But last year it was, you know, Acemoglu and Robinson, and a major reason why

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they won it, in addition to all their academic work, their papers, their researches, is

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because of this book. So this was a very famous book. It's created a lot

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of discussions. And so what is their main thesis in this book? If I can

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just get to that. So they argue quite bluntly, that the reason countries end up

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with different economic and political outcomes is because they have different institutions. Right? So they've

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adopted different institutions, and then those institutions establish certain incentives for people to follow, and

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then those incentives guide people's behavior and lead to different outcomes. Right? Okay, so what

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do they mean by institutions? What they mean by institutions are they call it the

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rules of the game. They mean the formal and informal rules which establish incentives for

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people to follow in society. Right? And mostly in their book and in their research,

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they actually focus on the formal stuff instead of the informal ones. There is an

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older version of institutionalism by Thorstein Veblen. Veblen defined institutions as more like social habits

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and cultural customs which then again drive people's behavior in the real world. But the

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new institutionalists, they have a different idea in mind. They're more focused on formal structure.

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So things like the legal system, right- laws, tax policy, regulations, just political systems and

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political structures and how they interact with the economic system. That's what they mean by

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institution. So just a trivial example would be, you know, recently the electric vehicle tax

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credit was canceled. It ended in September of this year. And after that tax credit

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for electric vehicles ended, you had a plunge in electric vehicle sales by like 20%

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from September to October. Right? So obviously having that tax credit in place, it was

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about like $7,500 in most cases, encouraged a lot more people to buy and lease

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electric vehicles. Right? So that's an example of an institutional policy, in this case, tax

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policy, which is then incentivizing people to behave in certain ways, right- to go out

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there and buy more electric vehicles. In the Great Recession, Congress passed a first time

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home buyer tax credit. I think it was $8,500. There's some evidence to suggest that

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more people went out to buy homes after that. So these are the kinds of

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things they're talking about, right? Like, not just this, you know, I mostly focused on,

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like, tax policy, but just broadly formal structures, formal rules and structures in society which

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guide people's behavior. And they have a dichotomy between economic and political institutions. So economic

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institutions would be things like, you know, competitive markets, private property. And then political institutions

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would obviously be things like our governments and the regulations they're passing and implementing and

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how those interact with the economic institutions. One thing I do like about their theory

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is that they do bring politics into it, right? So they're happy to engage in

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political economy. That's something that has traditionally been lacking in neoclassical theory or mainstream economics

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more broadly. But the institutionalists are very happy to engage with that, right? To engage

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with politics and political economy and to see that economic outcomes, they're not just the

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mindless result of economic agents. They also involve political forces. Right? The institutions of any

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given society in any given age are fundamentally a reflection of the class dynamics of

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that society. Right? That's what I would argue. They probably wouldn't put it that way,

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but they do see this interplay, this interaction, right, between economic and political institutions. And

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so then, you know, after they talk about what institutions are, their basic thesis is

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that countries that pursue inclusive institutions, as they call them, will succeed economically and will

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have sustained economic growth. And countries that pursue extractive institutions, as they call it, they

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may succeed for a little bit, you know, so they bring up examples like the

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Soviet Union or even China now, which we're going to talk about later. But they

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say if you pursue extractive institutions, meaning that if you have a corrupt elite which

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is siphoning off wealth from an exploited population, that's basically how they define that, then

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those countries are going to stall economically. Right? They're not really going to go that

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far. They may have temporary growth, but they're not going to have sustained growth, like

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for example, they might say Britain had or the United States had.  And countries that

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have inclusive institution, their notion of inclusion is highly utilitarian, I would say. It's just

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basically setting up political and economic institutions that include as many people as possible from

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participating in those institutions. Right? So that's kind of the distinction they draw between inclusive

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and extractive institutions. And they say that once you understand these institutional dynamics, that's what

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explains the economic outcomes of history over the long run. Right? That's all you need

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to know. You don't really need to know much of anything else. They do argue

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that critical junctures which I would call, you know, things like exogenous or endogenous shocks-

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so wars, revolutions, pandemics, natural disasters. They do argue that these things can have a

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huge impact on institutional dynamics. The critical point in their book is that they seem

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to treat institutions as a fundamental unit of analysis. And critical junctures only come in

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to amplify preexisting differences among institutions. In other words, the institutional landscape is somehow magically

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set. We don't know why. That's one of the major flaws in their theory. They

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don't explain why certain institutions arise in the first place, but they kind of take

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them as a given. So there's this landscape of institutions across the world in different

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societies. And then there's critical junctures, right? Like I said, wars, revolution, natural disasters, ecological

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dynamics, things like that. And then these then amplify these preexisting institutional differences and, and

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then over time- it's almost kind of like an evolutionary theory- over time, institutions evolve to

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essentially what they are now. Right? Some countries end up with inclusive ones, some countries

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end up with extractive ones. So that is their theory in a nutshell. And I'll

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give one example, Steve, if I could steel man their theory, which I think is

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the strongest possible example you could give for the theory, and that's North and South

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Korea, Right? So Acemoglu and Robinson would say, "look at North and South Korea. They're

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on the same peninsula. So the geographical and the climatic and the ecological factors are

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very similar. Right? They're very similar. So you can't use those to explain the fundamental

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differences in economic prosperity between South and North Korea." Right? North Korea is a tyrannical

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dictatorship. Most of its people are poor. In recent history, it has struggled with famines.

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I'm going to come back to that and explain why that happened. Where South Korea

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is, you know, generally a prosperous nation, right? It's a liberal democracy, competitive multi-party elections,

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rule of law, an independent judiciary, free markets and competitive markets and you know, a

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lot of technological innovation. It's a technological powerhouse. Look how different they are even though

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they're right next to each other. Right? I mean, geographically, they're right there. Ecologically, it

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doesn't seem like there's much difference there. Right? So why would they be so different? 

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Same thing, when they attack the cultural school through this example, they would say, "how

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can cultural differences explain the fundamental political and economic differences between North and South Korea?

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I mean, they speak the same language, they have the same historical legacy." Right? Once

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upon a time they have the same cuisine. Right? Now, I'm sure they eat different

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things, but the point is they come from the same historical and cultural legacy. So

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how can that be an explanation for why they're so radically different? So I think

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that's the strongest possible example that they could give in support of their theory. And

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they would say, "well, the reason why they're different is because South Korea adopted inclusive

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economic and political institutions." And I mentioned some of them already, right, like competitive elections

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and multi-party liberal democracy and so on, you know, free press. Whereas North Korea is,

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you know, a cloistered tyrannical dictatorship where the education system just teaches you communist propaganda

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all day long. People don't really have any economic opportunity. You have to go join

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the army for 10 years after you finish school. You kind of have to do

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just what the government tells you. Right? You don't really have any opportunity. So they

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contrast the institutional frameworks between the two countries and they say, clearly the answer is

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South Korea has adopted different institutions. And so that is sort of like their grand

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explanation, not just for this example, but I think for the broader outcomes of human

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history. Right? It's that nations that adopted inclusive institutions succeeded. Those that adopt extractive institutions

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have failed. So I'm going to pause right there and get your take on it.

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And then I'm going to get into what I think are some of the main

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problems with our thesis. Right? Because I certainly don't agree with it and I think

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they leave out a lot of important things.

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STEVE GRUMBINE:

No, absolutely. I appreciate this. I think to myself, coming from an MMT perspective and

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also a socialist perspective, you know, I look at what is the definition of success.

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You know, I'm also a project manager. So when I start a project, I'm asking

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myself, what will make this project successful? And you have to have some idea of

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how to categorize success. And so when I think about how would you define any

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of them as successful or not successful, it comes down to whose class interests are

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being represented? It's not a 360 degree view of who's winning and losing. It seems

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to have a very distinct kind of we represent the ruling elite, we represent this

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group of people's interests, and this other group of people are kind of left in

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the background. And I think this is kind of universal. I think you can look

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at the United States and people, if you look in aggregate at outcomes and institutions

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and thought and the way rules are set up, you've got a handful of people

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that really, really do fantastic. In spite of having so many opportunities to choose different

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kinds of cheeses and have a different soda pop every other day. And they get

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to change what kind of car they drive, and they get to pick the colors.

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And my God, they got so much freedom. Right? That's a fake institution right there.

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But it's an institution the US claims is there, but in reality, it represents the

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ruling class. And you can see that very clearly. It's not in the Constitution. "The

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rich should be the richest and the poor be struggling so that they can provide

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services for the rich." You know, there's nowhere it says that, but that's the outcome.

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So how do you measure an institutional arrangement with an outcome? I mean, I hear

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people literally talking constantly about how "well this administration has failed." I'm like, "well, wait

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a minute, hold on. What was the grade you were giving them based on- what? 

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Are you talking about the people they're serving, which are the ruling elite. The ruling

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elite seem to like what's happening quite a bit." When you think of stratification and stuff

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like that... I guess my point is, is that when you look at outcomes and

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you're trying to tie them to institutions and you are imposing what you value, your

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values, to say, "oh, well, this is a failed institution." I think it's naive. I

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think that there is an element missing as to who is creating the institutions, who

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is creating the common sense, who is creating the hegemony of thought, and who is

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building out those quote, unquote "rules" and so forth. And they look to see who's

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winning and who's losing and whose interests are being served. You know what I mean?

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Like, to me, it seems like shotgun scatter with the way people see these things.

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They're judging it through their own personal lens as to whether or not these institutions

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have succeeded or not. I fundamentally find the lack of tying it together with power

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maddening, honestly.

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ERALD KOLASI:

Yeah, I mean, you're absolutely right. You're pointing to a fundamental issue of how do you

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want to define success for nations in the first place? Right? And there's no magically right

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answer there. And you could look at different metrics to evaluate sort of national success. Right?

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Most economists, like Acemoglu and Robinson, they're really focused on GDP per capita. And I'm going

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to play by their rules as I go back and analyze North and South Korea and

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show the reason why they turned out the way they did has virtually nothing to do

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with their different institutions. Not that the institutions don't matter, but they're not even like the

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top two or three factors that matter. So you're absolutely right. You can question what makes

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national success in the first place. For example, Cuba has like 6 or 7% of America's

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GDP per capita. But Cuba's life expectancy is roughly on par with that of the United

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States. It's only like slightly below it, right? I mean, but it's almost right there. So

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the point is, for me, and I think this is kind of a digression, but for

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me, a lot of biophysical metrics matter a lot more when you're trying to analyze the

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state and health of a society. Right? How long are people living? The literacy rate, health

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outcomes, how many people are living with chronic diseases? So it's not just how long are

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people living, but what is their quality of life while they're alive? Right? If you live

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for 80 years, but you live with chronic diseases for that whole 80 years, then you

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struggled a lot in your life. So to me, these biophysical indicators are more important than

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the financial indicators. But I will say, Steve, in my attempt to demolish this theory, I'm

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going to play by their rules. So I'm going to focus on GDP per capita and

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all the financial indicators they care about. I'm going to leave aside that other stuff for

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the most part. So I want to revisit North and South Korea and see through a

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concrete example, and then I'll delve into some other history why the institutional theory of economics

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is just fundamentally wrong. So if you look at North and South Korea and their historical

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development starting from around the middle of the 20th century, they were roughly on par just

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GDP, real GDP growth is about 6%. Now, South Korea's over those 30 years is about

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7, 8%.   So it's higher, so it's better. But clearly North Korea was doing pretty

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ERALD KOLASI:

well. I mean, an average 6% growth rate for 30 years, that's not bad. Again, it's

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ERALD KOLASI:

not phenomenal. You can find better examples, but it's pretty good. So clearly, when North Korea

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ERALD KOLASI:

was a tyrannical dictatorship, as it was throughout the Cold War, it had a fairly easy

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ERALD KOLASI:

time generating high growth rates. And so the question is, what happens in the '80s and

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ERALD KOLASI:

especially in the '90s, where North Korea's economy just completely collapses, and they have a famine

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ERALD KOLASI:

and roughly a million people die. Why do things go so badly? Is it because of

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ERALD KOLASI:

institutional changes? Did the institutions suddenly get worse? Well, no. I mean, North Korea in the

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ERALD KOLASI:

'90s still had the same corrupt dictators that it had in the '50s, right? The fundamental

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ERALD KOLASI:

system didn't really change. Right? The political system was still tyrannical. The economy was still controlled

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ERALD KOLASI:

by the government. Everything was nationalized. Nothing fundamentally changed there. So how come North Korea was

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ERALD KOLASI:

doing so well from the '50s to the '80s, and then it just crashes in the

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ERALD KOLASI:

'90s? And the reason, of course, if you know your history, is because the Soviet Union

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ERALD KOLASI:

collapsed and North Korea was heavily dependent on Soviet economic aid. Heavily dependent. The majority of

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its foreign trade volume was actually with the Soviet Union. It got a lot of its

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ERALD KOLASI:

oil from the Soviet Union. So in the '80s, when Gorbachev comes to power in the

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ERALD KOLASI:

late '80s, he basically pulls back a lot of foreign aid. So as he pulls back

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ERALD KOLASI:

the Soviet imperial project, he pulls back on the Brezhnev doctrine. He says he's not going

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ERALD KOLASI:

to intervene militarily in Eastern Europe. He starts pulling back a lot of financial aid, including

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ERALD KOLASI:

from North Korea. So North Korea used to receive a lot of heavily subsidized oil from

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ERALD KOLASI:

the Soviet Union, and obviously that was a huge boon to its economy. Right? That's one

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ERALD KOLASI:

of the fundamental things that powered its economic growth, was getting cheap energy from the Soviet

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ERALD KOLASI:

Union. So in the '90s, the Soviet Union collapses, all of that cheap energy goes away.

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ERALD KOLASI:

And oil and fossil fuels, they're critical inputs in the Haber Bosch process, right, which converts

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ERALD KOLASI:

nitrogen to ammonia. And ammonia is a fertilizer for crops. So that's how we get the

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ERALD KOLASI:

vast majority of the fertilizer in the world, which is so critical for agricultural productivity. You

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ERALD KOLASI:

get it by converting nitrogen and hydrogen and combining them into ammonia. And fossil fuels are

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ERALD KOLASI:

a critical input into that process because you need to generate high temperature. So you need

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ERALD KOLASI:

to burn a lot of fossil fuels. You need to get the hydrogen in the first

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ERALD KOLASI:

place. So methane and other hydrocarbons are a big source of that hydrogen. So think about

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ERALD KOLASI:

it. You know, North Korea's oil imports dry up because the Soviet Union collapses. So their

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ERALD KOLASI:

fertilizer production collapses. Industrial production also collapses. But the fertilizer collapse is what's important here. The

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ERALD KOLASI:

fertilizer production collapses, agricultural yields plummet, and that leads to a famine in the mid-90s. Right?

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ERALD KOLASI:

So that is what happened causally. It had nothing to do with the institution. It's North

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Korea had an exogenous shock to its economic system, which caused it to absolutely tumble economically.

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And then that led to a terrible famine, like I said, in which about a million

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ERALD KOLASI:

people died. And North Korea didn't have a lot of foreign currency, so it didn't have

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ERALD KOLASI:

dollars just stashed in its pocket. And it could go to Saudi Arabia and say, "give

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ERALD KOLASI:

me your oil." And so the result was that its oil consumption plummeted when the oil

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ERALD KOLASI:

imports plummeted, when the cheap energy ran out, the oil consumption plummeted, fertilizer production plummeted, industrial

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ERALD KOLASI:

production plummeted, the economy plummeted. And that is the fundamental reason why North Korea today is

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ERALD KOLASI:

poor and South Korea is rich. Now, institutions are important here in the sense that the

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ERALD KOLASI:

North Korean government could be choosing different developmental paths right now if it wanted to open

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ERALD KOLASI:

up its economy more and things like that, that probably would generate a little bit more

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ERALD KOLASI:

economic growth. There's no doubt about that. So no one is denying that institutions, in some

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sense, aren't important. But the point is, the fundamental difference between North and South Korea is

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ERALD KOLASI:

not because they have different institutions. It's because they were part of different imperial systems, and

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ERALD KOLASI:

those imperial systems guarded them in different ways. One imperial system collapsed, and so North Korea

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ERALD KOLASI:

ended up collapsing. The other imperial system, South Korea and the United States, did not. Right?

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ERALD KOLASI:

They were the immediate winners of the Cold War. And South Korea, as a result, has

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ERALD KOLASI:

done very well. So that's the reason why their strongest case study is wrong. I want

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ERALD KOLASI:

to take a broader historical look, though, and just explain what are some of the other

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ERALD KOLASI:

sort of long historical arcs, some other big issues with their theory. So a common line

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ERALD KOLASI:

of criticism against them has been that the dichotomy between inclusive and exclusive institutions is too

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ERALD KOLASI:

naive and simplistic. Think about all the thousands and tens of thousands of societies and tribes

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ERALD KOLASI:

and tribal confederations and nations and kingdoms and duchies and empires that have existed throughout human

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ERALD KOLASI:

history. Right? How can you classify all of that rich variety and all these different developmental

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ERALD KOLASI:

trajectories with two categories? It's kind of silly. I mean, Steve, it's as silly as if

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ERALD KOLASI:

I said, "take all of the colors that you see in the world and only describe

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ERALD KOLASI:

them with two words." Right? You know, warm and cold. So you can't use the words

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ERALD KOLASI:

red or blue anymore. Or green. I've taken those out. You can only say, if I

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ERALD KOLASI:

see red, and you ask me what color that is. Well, it's a warm color. Oh,

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ERALD KOLASI:

okay. You know, England in the 17th century had inclusive institutions, while the Glorious Revolution came

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ERALD KOLASI:

in just magically. So it's this highly naive binary distinction which completely ignores the incredible richness

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ERALD KOLASI:

and variety of people's actual experiences in history. That's been a common line of criticism. Another

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ERALD KOLASI:

common line of criticism is that inclusive and extractive institutions are often fundamentally entangled together, Steve.

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ERALD KOLASI:

So they bring up Venice in the Middle Ages and the Commenda contracts. Right? So these

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ERALD KOLASI:

were contracts where basically two people would establish a joint venture. One would be the traveling

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ERALD KOLASI:

partner, they would go on the ship and go on the voyage. One would be a

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ERALD KOLASI:

sedentary partner staying behind in Venice, but they would put the upfront capital for the venture.

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ERALD KOLASI:

Right? And they say this was a major reason for the upward social mobility in Venice

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ERALD KOLASI:

sort of in the High Middle Ages. Okay, so that's fine. But what were the Venetians

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ERALD KOLASI:

trading a lot of in the Middle Ages? Well, they were trading slaves. Venice was one

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ERALD KOLASI:

of the absolute central actors of the slave trade in the Mediterranean world during the Middle

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ERALD KOLASI:

Ages. So you can argue, well, the Commenda contract itself, or the Colleganza, as the Venetians

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ERALD KOLASI:

called it, that itself was really inclusive, sure, but it depended on a wider system of

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ERALD KOLASI:

extraction. So was it really inclusive? What do we mean by inclusive and extractive? The broader

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ERALD KOLASI:

criticism here, of course, is colonialism and imperialism. A lot of people have attacked this book

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for being apologetics, basically, for colonialism and imperialism, because so much of European economic growth, especially

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ERALD KOLASI:

in the second industrial revolution in the late 19th century, was heavily dependent on extracting raw

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ERALD KOLASI:

materials and commodities from the colonies. Right? Through imperialism.

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STEVE GRUMBINE:

Yes.

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ERALD KOLASI:

Think about rubber, right? Rubber was a critical early component in the auto industry. Most early tires

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ERALD KOLASI:

were made out of rubber. Well, where did the rubber come from? Well, it came from the

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ERALD KOLASI:

Congo and Southeast Asia, but predominantly from the Congo. And the Belgians ruthlessly exploited the Congolese people,

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ERALD KOLASI:

led to one of the worst genocides of modern history there actually, millions of people ended up

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ERALD KOLASI:

dying. And if your listeners are interested in finding out more about that, you can read the

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ERALD KOLASI:

book King Leopold's Ghost. Be warned, it's pretty rough. So the point is, all of these things,

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ERALD KOLASI:

you know, rubber and later oil and, you know, nickel and manganese and even copper. So many

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ERALD KOLASI:

of these critical inputs for industrial production, some of them came from Europe, at least up until

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ERALD KOLASI:

the middle of the 19th century. But by the late 19th, early 20th century, a lot of

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ERALD KOLASI:

this stuff is just coming from the colonies, right, and from the imperial system that the Europeans

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ERALD KOLASI:

have set up. Cotton is another great example. Right? Britain used to import a lot of cotton

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ERALD KOLASI:

from the southern United States. That was the slaves picking the cotton, right? Then after the Civil

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ERALD KOLASI:

War, transitioned to Egypt and India. Again, those were part of the British imperial system by the

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ERALD KOLASI:

late 19th century. So the point is that if you have a very myopic lens of history,

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ERALD KOLASI:

you can say what's happening over here is an inclusive institutions. But if that inclusion is based

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ERALD KOLASI:

on the suffering of hundreds of millions of people around the world, then are the institutions really

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ERALD KOLASI:

inclusive? That's what it calls into question. It's like, what do you mean actually by inclusive and

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ERALD KOLASI:

extractive? And so that gets back to the criticism of the first point is how different is

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ERALD KOLASI:

this dichotomy, kind of simplistic, naive and silly? And another major mistake that gets to me- I

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ERALD KOLASI:

really want to hone in on this because I think it's really important- so, the importance of

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ERALD KOLASI:

exogenous shocks and factors in not just amplifying preexisting institutional differences, but in creating- in creating institutions

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ERALD KOLASI:

in the first place. One of the examples they bring up in the book is the Magna

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ERALD KOLASI:

Carta. And they say the barons, the English barons, they stood up to King John and they

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ERALD KOLASI:

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ERALD KOLASI:

little bit about what was in the Magna Carta. And I was reading that and I was

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ERALD KOLASI:

laughing to myself and I was like, do you actually know why the Magna Carta was signed?

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ERALD KOLASI:

It was signed because King John had been at war with the French for over a decade.

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ERALD KOLASI:

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ERALD KOLASI:

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ERALD KOLASI:

France, as many historians call it. John himself was defeated in the western theater of the war.

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ERALD KOLASI:

So it just all collapsed. John limped back to England later in the year. The barons were

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ERALD KOLASI:

on the verge of revolt. Why? Because he had squandered their time and money on a losing

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ERALD KOLASI:

effort. He had been taxing them for the past decade, you know, relief taxes, which were taxes

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ERALD KOLASI:

on inheritance. So when somebody inherited property, the king would take a tax out of that. He

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ERALD KOLASI:

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ERALD KOLASI:

movable goods, right? So crops and livestock and things like that, just 8%. So people were really

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ERALD KOLASI:

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ERALD KOLASI:

lost the war in the end. So essentially he was in a position of weakness that's why

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ERALD KOLASI:

he was forced to sign the Magna Carta, otherwise they were just gonna dump him, basically. And

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ERALD KOLASI:

the funny thing is, after he signed it, he completely reneged on it and went back on

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ERALD KOLASI:

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Innocent III, one of the most powerful secular popes of the Middle Ages. He writes to Innocent

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saying, I did it under duress. I didn't mean to do it. They forced me to do

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ERALD KOLASI:

it. Please cancel this. And so the Pope writes back, yep, Magna Carta is cancelled. After that,

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ERALD KOLASI:

the barons revolt. So there's a full revolution against John and they actually invite the French to

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ERALD KOLASI:

come over. So Philip II's son, Louis, he comes over and invades England. So French army invades

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ERALD KOLASI:

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ERALD KOLASI:

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John does the single greatest thing he ever did in his life. He finally dies. He finally

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ERALD KOLASI:

dies and then the barons, they turn against the French. They support his son, Henry III, who

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goes on to reign for, like, most of the 13th century. So they support his son, the

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ERALD KOLASI:

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ERALD KOLASI:

was the immediate aftermath of the Magna Carta. Right? That's the sort of the historical context behind

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ERALD KOLASI:

it. And the overall point there is that even if you want to say, well, the Magna

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ERALD KOLASI:

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ERALD KOLASI:

well, sure, that's true, but why did Henry I pass that charter? Oh, it's because of the

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ERALD KOLASI:

Norman invasion and all of the political and economic problems that the invasion caused in the subsequent

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ERALD KOLASI:

decades. So even that, it's not an example of a preexisting difference being amplified. It's war and

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ERALD KOLASI:

exogenous shocks creating new institutions in the first place. Why? Because these exogenous shocks, whether you're talking

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ERALD KOLASI:

about pandemics like the Black Death or war or other natural disasters, they shuffle the deck. Right?

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ERALD KOLASI:

They change the ruling classes. And as the ruling classes are changed, when new ones come into

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ERALD KOLASI:

power, they have different priorities. They want to pursue different institutions. Right? Remember, institutions are fundamentally a

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reflection of the ruling classes.

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STEVE GRUMBINE:

Yes.

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ERALD KOLASI:

Those classes that have power will then establish the institutions that they want in society.

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ERALD KOLASI:

Right? That is how the Magna Carta should be seen, how the Charter of Liberties

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ERALD KOLASI:

should be seen, how anything should be seen. I'll give you another example that I

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like. Public education, right? Why do we have public education? Well, there was a point

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ERALD KOLASI:

in human history where we didn't. Governments in Europe for most of their history were

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ERALD KOLASI:

not involved in funding or organizing education. That was the role of the church. The

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ERALD KOLASI:

church, private individuals, patronized education a lot as well. But that's who did it. Governments

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ERALD KOLASI:

themselves mostly spend money on war. So then why do they do it? There's the

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ERALD KOLASI:

30 year war in Europe in the 17th century which leaves the German states devastated.

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ERALD KOLASI:

And after that war, a lot of German states start saying to themselves, hey, we

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ERALD KOLASI:

kind of need to inculcate certain standards in our population, in our public. We need

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ERALD KOLASI:

them to be more loyal to us and things like that. And so these are

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ERALD KOLASI:

the first embers of public education, right? But even then it wasn't really funded by

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ERALD KOLASI:

the state or organized in any coherent way by the state. It was still mostly

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ERALD KOLASI:

private, wealthy individuals and the Church. Prussia in the 18th century does put in some

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ERALD KOLASI:

compulsory schooling laws. So you know, kids five to like 13, they have to go

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ERALD KOLASI:

to school. But again, it's not really enforced and it doesn't, you know, make much

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ERALD KOLASI:

of a difference in most people's lives. What really changes the game for public education

400

ERALD KOLASI:

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ERALD KOLASI:

leads this rapid, you know, almost blitzkrieg like campaign against the Prussian army, defeats them

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ERALD KOLASI:

in a few weeks. The military maneuvers start in early October and by late October,

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ERALD KOLASI:

the French are marching through Berlin. In the following year, Napoleon defeats the Russians. And

404

ERALD KOLASI:

405

ERALD KOLASI:

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ERALD KOLASI:

in Prussia have lost their credibility, right? So the conservative Junker classes, the landowning aristocracy,

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ERALD KOLASI:

they've lost a lot of their credibility because they've just suffered this massive national humiliation.

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ERALD KOLASI:

And as a result a lot of reformers come along, right? So there's a bit

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ERALD KOLASI:

of a reshuffling of the class dynamics in Prussia where the reformers like Scharnhorst in

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ERALD KOLASI:

the military and like von Humboldt for education start to have a lot more power,

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ERALD KOLASI:

right? And so von Humboldt in particular, he implements a lot of major reforms that

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ERALD KOLASI:

essentially form the cornerstone of the modern K12 system. So this is when Prussia decides

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ERALD KOLASI:

to adopt not just compulsory education like they've done earlier, but they actually decide to

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ERALD KOLASI:

enforce that. They actually decide to fund it, you know, to have state funded education.

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ERALD KOLASI:

That's something vastly different than what was before the State even establishes sort of like

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ERALD KOLASI:

national curriculum standards and national professional standards for teachers. Right? So all teachers have the

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ERALD KOLASI:

same competencies and capacities. Kids are learning the same things. The government sort of wrests

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ERALD KOLASI:

control from education from the church, right, and from private individuals. And so this is

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ERALD KOLASI:

sort of the major birth of the modern public education system. It happens because Prussia

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ERALD KOLASI:

was absolutely humiliated in the Napoleonic wars and decided to implement a lot of major

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ERALD KOLASI:

reforms to its society. Later in the 19th century when you have American reformers like

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ERALD KOLASI:

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ERALD KOLASI:

very impressed. They came back, they imported a lot of those ideas, right? And so

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ERALD KOLASI:

a lot of what started in Prussia then spread all around the world. And essentially

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ERALD KOLASI:

that is why we ended up... I mean, I'm cutting a lot of the historical

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ERALD KOLASI:

details for the United States, obviously, but the point is, that is how we ended

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ERALD KOLASI:

up with modern public education. It was in response to a national humiliation from the

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ERALD KOLASI:

Napoleonic Wars. Right? And so the broader point there, Steve, as I've been saying, is

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ERALD KOLASI:

that these exogenous shocks, they don't just amplify preexisting differences among institutions, they can also

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ERALD KOLASI:

create new institutions in the first place. Right? Including inclusive institutions, the exact same kinds

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ERALD KOLASI:

of institutions that Acemoglu and Robinson care about. And I can't think of a more

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ERALD KOLASI:

inclusive institution than modern public education- universal, compulsory, modern public education that includes millions and

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ERALD KOLASI:

millions of children for free. Right? There are very few things that are more inclusive

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ERALD KOLASI:

than that. And the point is that system, there was a point in history when

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ERALD KOLASI:

that system just did not exist. And then it existed. Right? So it was born

436

ERALD KOLASI:

for the first time. And why was it born? Basically, it was a response to

437

ERALD KOLASI:

war. And so that war then scrambled the ruling dynamics- the ruling class dynamics in

438

ERALD KOLASI:

Prussia- gave more power to the reformers over the conservatives. And so because they had

439

ERALD KOLASI:

more power, they were able to implement their vision for public education and for a

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ERALD KOLASI:

lot of other areas of Prussian life, which ultimately helped Germany out. But especially public

441

ERALD KOLASI:

education really was one of the biggest, if not the biggest, reforms that was made.

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ERALD KOLASI:

And that reform then reverberated around the world. Right? So this is one thing they

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ERALD KOLASI:

fundamentally get wrong, right? They never really explain where inclusive institutions come from. They kind

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ERALD KOLASI:

of just assume they're there sort of in these kind of initial conditions, and then

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ERALD KOLASI:

these critical junctures and shocks come along like wars, like natural disasters, and then they

446

ERALD KOLASI:

amplify these preexisting differences. But the point that I'm making is that no, these shocks

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ERALD KOLASI:

can create them in the first place. Once you're willing to accept that argument, then

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ERALD KOLASI:

you really can see the importance of fundamental background factors like ecological and geographical conditions.

449

ERALD KOLASI:

Right? And especially when ecological conditions change, like when a pandemic comes along and fundamentally

450

ERALD KOLASI:

transforms a society and how society works. Right? Like Covid came along, and then a

451

ERALD KOLASI:

lot more people started working from home, and that suddenly became acceptable for a long

452

ERALD KOLASI:

time. So that's just a minor example, but you get my point. Right?

453

STEVE GRUMBINE:

A great example, though.

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ERALD KOLASI:

Yeah. So that is something that strongly undermines their theory. It's just that human society

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ERALD KOLASI:

is embedded in a broader natural world and embedded in the broader planetary biosphere. And

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ERALD KOLASI:

so it interacts with the planetary biosphere. Human societies, of course, also interact with other

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ERALD KOLASI:

human societies. And those exogenous interactions, either trade or war or other things, can also

458

ERALD KOLASI:

affect the internal dynamics of society. That, I think, is where they make a huge

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ERALD KOLASI:

error. They're so focused on the internal institutional dynamics of a society that they ignore

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ERALD KOLASI:

the profound exogenous external factors that can affect the internal evolution of those institutional dynamics.

461

ERALD KOLASI:

Right? Like. And again, I gave a major example earlier when the Soviet Union collapsed

462

ERALD KOLASI:

and that dragged down North Korea's economy profoundly. So let me pause right there and

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ERALD KOLASI:

get your take on that, because I know I spoke for a while, so.

464

STEVE GRUMBINE:

It's great, though. You're the star here for this. But as far as

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STEVE GRUMBINE:

it goes, I mean, a couple things are jumping out to me when

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STEVE GRUMBINE:

you said they just act like, yeah, it was just always there, kind

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STEVE GRUMBINE:

of like these always, never statements. This thing was just there. And then

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STEVE GRUMBINE:

it wasn't. Hey, this is like going to grad school. I know this

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STEVE GRUMBINE:

is kind of different, but, like, I remember when I sat down in

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STEVE GRUMBINE:

my first finance class, they tried to explain how money comes to be,

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STEVE GRUMBINE:

and it was just like, wow, they sell bonds. Well, where do they

472

STEVE GRUMBINE:

get the thing to do that to begin? You know, and they never

473

STEVE GRUMBINE:

had answers for any of these questions, I mean, at all. And I

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STEVE GRUMBINE:

couldn't understand why that was. But in reality, a lot of these narratives

475

STEVE GRUMBINE:

that we go through do not take a dialectical perspective of understanding how

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STEVE GRUMBINE:

things come to be. And I think this concept of institutions is really

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STEVE GRUMBINE:

important because a lot of people think we're just going to vote these

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STEVE GRUMBINE:

institutions in. They don't realize that...  You know, I think the vast majority

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STEVE GRUMBINE:

of these institutions come as a direct result of some significant shift, not

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STEVE GRUMBINE:

only in ruling class dynamics, because it's certainly not brought on by the

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STEVE GRUMBINE:

desires of the working class. It's brought on by the ruling elite and

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STEVE GRUMBINE:

whoever the ruling classes of that time, which you have been repeatedly bringing

483

STEVE GRUMBINE:

to the fore in this conversation. That, to me, I think is really

484

STEVE GRUMBINE:

important. I think it helps level set expectations through normal, acceptable institutional channels

485

STEVE GRUMBINE:

for change. Coming to the United States, momentarily, I think we all got

486

STEVE GRUMBINE:

shocked when Biden was stymied with the PRO Act because of the parliamentarian

487

STEVE GRUMBINE:

and other things like that. I mean, when the ruling class doesn't want

488

STEVE GRUMBINE:

something to happen, it just doesn't happen. And no amount of hand wringing

489

STEVE GRUMBINE:

by the voters, so to speak, is going to change that. The voters

490

STEVE GRUMBINE:

have to do something different to make those kinds of shocks occur, to

491

STEVE GRUMBINE:

create the conditions by which change happens. Anyway, I just thought of that

492

STEVE GRUMBINE:

as you were going through it. It is a marvel how we eliminate

493

STEVE GRUMBINE:

or ignore the base conditions that create the environment for these kinds of

494

STEVE GRUMBINE:

institutional arrangements.

495

ERALD KOLASI:

Yeah, yeah, absolutely. What it highlights is, I think, one of my fundamental critiques against

496

ERALD KOLASI:

sort of the new institutionalists and a critique that other people have made as well,

497

ERALD KOLASI:

which is that yes, institutions are important, but they're not fundamental. At the end of

498

ERALD KOLASI:

the day, it's not really the institutions that truly matter. It's the people in power,

499

ERALD KOLASI:

right? It's who holds power. And those who hold power will try to establish the

500

ERALD KOLASI:

institutions that are concordant with the power they want to exercise in society. Now, of

501

ERALD KOLASI:

course, there can be resistance to that as well. So no one has infinite unlimited

502

ERALD KOLASI:

amounts of power, right? Not our current president, not any other president, not any future

503

ERALD KOLASI:

president, not the worst tin pot dictator in the world, right? No one has unlimited

504

ERALD KOLASI:

power. And I'm glad you mentioned sort of the dialectical dynamics. Always when the ruling

505

ERALD KOLASI:

classes in any society try to establish their power, they will encounter various levels of

506

ERALD KOLASI:

resistance, right? Sometimes, as Marx and Engels say, that resistance can come out in the

507

ERALD KOLASI:

open, you know, the form of revolution and rebellion and things like that. Sometimes the

508

ERALD KOLASI:

resistance can be more hidden or let me just say, you know, more subdued, right.

509

ERALD KOLASI:

In the form of protests or strikes or other various activities at work that are

510

ERALD KOLASI:

meant to kind of sabotage capital. But the point is there is that resistance there.

511

ERALD KOLASI:

And when you do have these exogenous shocks that impinge on societies, right. That, you

512

ERALD KOLASI:

know, influence how those internal Dynamics evolve, then those who are providing resistance to the

513

ERALD KOLASI:

ruling classes can sort of get a leg up. Their position can be strengthened, and

514

ERALD KOLASI:

maybe if it rises to the level of, you know, a revolution or something like

515

ERALD KOLASI:

that, they can actually take over. Right. Like the many revolutions we've had in modern

516

ERALD KOLASI:

times, a lot of them were caused by exogenous shocks.  For example, there is a

517

ERALD KOLASI:

paradox in that Lenin and many other socialists were against World War I. And yet

518

ERALD KOLASI:

World War I is the fundamental reason why the Bolsheviks came to power in Russia.

519

ERALD KOLASI:

Yep, because World War I is what led to mass starvation in Russia. You know,

520

ERALD KOLASI:

the breakdown of the Russian army, you know, mutinies, and then, of course, a lot

521

ERALD KOLASI:

of the protests and the strikes and the fighting on the streets. So kind of

522

ERALD KOLASI:

the broader collapse of social order in Russia happened because of World War I. And

523

ERALD KOLASI:

524

ERALD KOLASI:

525

ERALD KOLASI:

get the point, right? Which is that really what matters is who has power and

526

ERALD KOLASI:

how do they choose to exercise that power. And then the institutions are sort of

527

ERALD KOLASI:

a downstream effect from these broader class dynamics situated within the context of historical materialism.

528

STEVE GRUMBINE:

You know, you and I got together as a result of modern monetary theory

529

STEVE GRUMBINE:

and the work of this podcast. I appreciate your support all these years, and

530

STEVE GRUMBINE:

just the number of times you've come on has been amazing. But if you

531

STEVE GRUMBINE:

understand the MMT angle, you understand that it is based strictly in that institutionalist

532

STEVE GRUMBINE:

framework, understanding institutions, maximizing institutions, altering institutions through representative democracy in their mind. But

533

STEVE GRUMBINE:

I would push back that I don't believe we have seen evidence of people

534

STEVE GRUMBINE:

voting their way to any of these changes. In fact, as I will bring

535

STEVE GRUMBINE:

up until I lose my voice, Gillens and Page have suggested that that is

536

STEVE GRUMBINE:

just a laughable idea, that public opinion actually is what changes the nature of

537

STEVE GRUMBINE:

legislation and institutions. And as we've seen coming out of COVID the shift in.

538

STEVE GRUMBINE:

People talked about the great Reset. I think we could just say the great

539

STEVE GRUMBINE:

institutionalist reset. Right. Like the new institutions coming out of the crisis of hegemony

540

STEVE GRUMBINE:

that the COVID pandemic brought about. And you could see in China, China has

541

STEVE GRUMBINE:

done laps around the United States over the last, I don't know, 50 years

542

STEVE GRUMBINE:

or so in terms of bringing up quality of life, bringing up the kinds

543

STEVE GRUMBINE:

of institutions, if you will, that enable the people of China to lead fuller

544

STEVE GRUMBINE:

lives. I mean, they don't lack for health care, they don't lack for education.

545

STEVE GRUMBINE:

They don't lack for a great many things that people in the United States

546

STEVE GRUMBINE:

would be just mind blown if they didn't have to worry about. Can you

547

STEVE GRUMBINE:

talk a little bit about China and institutions and how this plays in the,

548

STEVE GRUMBINE:

the work that you're critiquing?

549

ERALD KOLASI:

Yeah, absolutely. I'm so glad you brought this up. You know, Acemoglu and Robinson, in their

550

ERALD KOLASI:

551

ERALD KOLASI:

and by then China was already a well known growth story, right? A major growth engine

552

ERALD KOLASI:

for the world economy. So they kind of have to say something about it. And so

553

ERALD KOLASI:

they cover recent Chinese history over the past 70 odd years or so. They talk about

554

ERALD KOLASI:

Mao, and in their view, Mao was just an abject failure and didn't do anything right.

555

ERALD KOLASI:

And then they talk about the institutional reforms that Deng Xiaoping made and how those institutional

556

ERALD KOLASI:

reforms, you know, like opening up special economic zones, how those institutional reforms then set China

557

ERALD KOLASI:

on a trajectory of world beating growth rates for the rest of the 20th century and

558

ERALD KOLASI:

the early 21st century. Then basically they say that, look, China has had amazing growth, but

559

ERALD KOLASI:

it's still fundamentally built on extractive institutions and these kinds of extractive societies, they can have

560

ERALD KOLASI:

growth for a while, but they can't really innovate. You know, China's mostly a copycat. It

561

ERALD KOLASI:

just takes everything from everybody else and eventually the growth rates are going to collapse and

562

ERALD KOLASI:

China's going to stagnate. So that's, if you will, loose predictions, I'll put it that way.

563

ERALD KOLASI:

Right. Because they also hedge their bets that they say, well, we don't really know what

564

ERALD KOLASI:

could happen. But based on their theory and what they write in that chapter, that's kind

565

ERALD KOLASI:

of what they're thinking about China, right? That it's fundamentally an extractive dictatorial society that's going

566

ERALD KOLASI:

to run out of steam. That was written 13 years ago. That hasn't happened obviously to

567

ERALD KOLASI:

this point. Right now, China's standing and position of strength relative to the west is higher

568

ERALD KOLASI:

than at any point in history. So, so far what they were sort of loosely predicting

569

ERALD KOLASI:

hasn't happened. But I do want to talk about China more broadly because I think there's

570

ERALD KOLASI:

a lot of cognitive dissonance among Western elites, including people like economists like Acemoglu and Robinson,

571

ERALD KOLASI:

when they talk about China. So on the one hand, people want to credit people in

572

ERALD KOLASI:

the Western world, especially want to credit China's amazing success to free market capitalism. Look, they

573

ERALD KOLASI:

allowed for a private industry to come in and foreign investment and you know, the government

574

ERALD KOLASI:

doesn't control everything anymore, like under Mao. And that's why they succeeded. Right. And in part,

575

ERALD KOLASI:

this message is meant for domestic audiences. It's a way of selling neoliberal free market capitalism

576

ERALD KOLASI:

to domestic audiences. It's basically saying, look, the way China did it is by becoming more

577

ERALD KOLASI:

like us. That's how they did it, guys. Like, they became more like us. So therefore,

578

ERALD KOLASI:

we don't need to really change anything in our system, because this is how everybody does

579

ERALD KOLASI:

it. Right. Anybody who has economic success, this is the path. Right. It's neoliberal capitalism, privatization,

580

ERALD KOLASI:

austerity, free trade, you know, the whole works.

581

STEVE GRUMBINE:

Right.

582

ERALD KOLASI:

So part of that message is meant for domestic audiences. On the other hand, Steve, you

583

ERALD KOLASI:

may have noticed that Western elites increasingly are talking about China in antagonistic terms. Right? And

584

ERALD KOLASI:

there's, you know, Trump, the trade war in his first presidency and launched kind of another

585

ERALD KOLASI:

trade war, which is sort of going nowhere in his second term as well. Right. So

586

ERALD KOLASI:

on the one hand, Western elites are also highly antagonistic towards China, and they want to

587

ERALD KOLASI:

make it into essentially the big bad wolf in a new cold war. And so there's

588

ERALD KOLASI:

this kind of tension, this dissonance there. China, on the one hand, is a tyrannical dictatorship

589

ERALD KOLASI:

where people don't have free speech and they can't do anything. But on the other hand,

590

ERALD KOLASI:

they're like us, guys. It's free market capitalism, and that's why they're succeeding. So there is

591

ERALD KOLASI:

that fundamental tension in the way that people in the Western world talk about China, that

592

ERALD KOLASI:

where do you put the emphasis on how much are they like us versus how much

593

ERALD KOLASI:

are they really different? And I'm going to get to that part. But first, I want

594

ERALD KOLASI:

to kind of go over the way Acemoglu and Robinson covered recent Chinese history, starting with

595

ERALD KOLASI:

Mao. And when we talk about Mao, especially when right wingers talk about Mao, the two

596

ERALD KOLASI:

phrases out of their mouth are always the Great Leap Forward and the Cultural Revolution, as

597

ERALD KOLASI:

if that's all that happened Under Mao. Under 27 years of Mao's rule, the only things

598

ERALD KOLASI:

that happened were the Great Leap Forward on the Cultural Revolution. Now, those two things I

599

ERALD KOLASI:

want to emphasize were horrible, terrible mistakes. The Great Leap Forward was Mao's attempt to rapidly

600

ERALD KOLASI:

industrialize China. It ended in disaster. Millions of people died from famine. Yes. The Chinese government

601

ERALD KOLASI:

says part of it was made worse by natural disasters like droughts and severe floods in

602

ERALD KOLASI:

certain part of the country. And that is to some extent true. But most historians acknowledge

603

ERALD KOLASI:

that it was a man made disaster. Right. So the Great Leap Forward was a man

604

ERALD KOLASI:

made catastrophe. And the bulk of the blame lands in Mao's lap. Now when Acemoglu and

605

ERALD KOLASI:

Robinson talk about Mao, they almost portray him as like an absolute tyrant with absolute power.

606

ERALD KOLASI:

That's kind of literally what they say, like all power was concentrated in Mao and you

607

ERALD KOLASI:

know, he led the country to disaster. What they don't understand is that that claim is

608

ERALD KOLASI:

just fundamentally false. There were various factions within the Communist Party that wanted different things, right?

609

ERALD KOLASI:

So there was, you know, the old guard, you know, leftist Communists like Mao. There were

610

ERALD KOLASI:

more reformers like Deng Xiaoping and Liu Xiaoqi. And when the disaster struck in the Great

611

ERALD KOLASI:

Leap Forward, the reformers had the upper hand, Right. Mao actually lost the title of chairman

612

ERALD KOLASI:

613

ERALD KOLASI:

the reformers, right? So Mao for about seven years was sort of taken away from China,

614

ERALD KOLASI:

from the economic management of China, right? So he wasn't making any more decisions about what

615

ERALD KOLASI:

and how much to collectivize and things like that. Right. It was the reformers that had

616

ERALD KOLASI:

the upper hand during that time. And so this reflects various power struggles happening within the

617

ERALD KOLASI:

Communist Party, which Acemoglu and Robinson don't say anything about. They kind of just like brush

618

ERALD KOLASI:

that aside as if Mao was again, was an absolute tyrant with total power, which is

619

ERALD KOLASI:

620

ERALD KOLASI:

Cultural Revolution to claw back some of the power that he's lost in the previous few

621

ERALD KOLASI:

years. And he does that, you know, he imprisons Liu Xiaoqi and some others, but at

622

ERALD KOLASI:

the same time, he also doesn't go back to what he did under the Great Leap

623

ERALD KOLASI:

Forward. He himself learned a lot of his mistakes. And there are actually many reforms in

624

ERALD KOLASI:

625

ERALD KOLASI:

point there is that they miss these sort of internal political dynamics within the Communist Party

626

ERALD KOLASI:

and how the Communist Party had a lot of internal discussions and disagreements about what is

627

ERALD KOLASI:

the best path forward. Right. It wasn't just a monolithic vision from Mao that somehow predominated.

628

ERALD KOLASI:

Different people held power at different times throughout Mao's rule. But the other thing I want

629

ERALD KOLASI:

630

ERALD KOLASI:

on what Mao had done, right? So in the 27 years that Mao was in charge,

631

ERALD KOLASI:

China's life expectancy nearly doubled. China's population nearly doubled. Chinese steel production, I think increased sixfold,

632

ERALD KOLASI:

633

ERALD KOLASI:

first time in its history under Mao. As the historian Maurice Meissner emphasizes, when Mao came

634

ERALD KOLASI:

635

ERALD KOLASI:

China was making jet fighters and tractors and, you know, marine missiles and all these kinds

636

ERALD KOLASI:

of things. Right. So it's a fundamental transformation that happened under Mao. A lot of people

637

ERALD KOLASI:

in the Western world aren't told these things because, again, it's everything is Mao bad. Right.

638

ERALD KOLASI:

And it's amazing how you go to Beijing and his picture is right up there in

639

ERALD KOLASI:

the Forbidden City. The Chinese people must be idiots to think that this guy who only

640

ERALD KOLASI:

did bad things is basically their George Washington. Right. And so, you know, what are some

641

ERALD KOLASI:

642

ERALD KOLASI:

643

ERALD KOLASI:

first countries in the world to have practically eradicated smallpox.

644

STEVE GRUMBINE:

Amazing.

645

ERALD KOLASI:

And if you don't know why that's a big deal, consider that in the 20th century alone, smallpox is

646

ERALD KOLASI:

estimated to have killed up to 500 million people. Just in the 20th century alone, that's roughly the equivalent

647

ERALD KOLASI:

of all the human beings that have died in all the wars that humanity has ever fought. Right.

648

STEVE GRUMBINE:

Amazing.

649

ERALD KOLASI:

That's what smallpox killed in the 20th century alone. And Mao's push for a mass

650

ERALD KOLASI:

vaccination campaign against smallpox is the fundamental reason why. Why it was eliminated in China.

651

ERALD KOLASI:

And think about the untold tens of millions of Chinese lives that saved. And the

652

ERALD KOLASI:

reason why that's important, too, is because the who, the World Health Organization, even though

653

ERALD KOLASI:

it couldn't operate in China at the time, it was sort of observing from a

654

ERALD KOLASI:

distance what was happening. It was observing from a distance what was happening. It noticed

655

ERALD KOLASI:

this success, at least this claimed success. It couldn't verify it live, but it assumed

656

ERALD KOLASI:

that a mass vaccination campaign would work. And the major evidence for that was sort

657

ERALD KOLASI:

of what happened in China. And as a result of that, the WHO made a

658

ERALD KOLASI:

huge international push, Steve, in order to eradicate smallpox worldwide. And so that's when that

659

ERALD KOLASI:

660

ERALD KOLASI:

declared that smallpox had been eradicated from the world. And that is probably the single

661

ERALD KOLASI:

greatest public health victory in human history. And Mao was at the center of that.

662

ERALD KOLASI:

Right. That's something that most people in the Western world, I bet you do not

663

ERALD KOLASI:

know about Mao. So. So, you know, once you take Also, literacy rates and education

664

ERALD KOLASI:

rates skyrocket under Mao. Mao made education a really big deal, and that was important,

665

ERALD KOLASI:

both towards improving health, towards training future generations of industrial workers. Because if you can't

666

ERALD KOLASI:

read and write, you can't operate like basic machinery, things like that. You're not going

667

ERALD KOLASI:

to be useful as a worker. Right? So all of these fundamental things, the raising

668

ERALD KOLASI:

of educational standards, improved health outcomes, greater industrial production organization, these things started under Mao,

669

ERALD KOLASI:

670

ERALD KOLASI:

671

ERALD KOLASI:

capital, the foreign investment coming into China. Chinese exports to the United States later skyrocket

672

ERALD KOLASI:

673

ERALD KOLASI:

nation status, so it faces a lower tariff regime than a bunch of other countries.

674

ERALD KOLASI:

So Chinese exports start rushing to the United States, foreign capital comes in. That also

675

ERALD KOLASI:

helps enormously with China's economic growth rates. But again, a lot of that early legwork

676

ERALD KOLASI:

was done by Mao. Mao was the one who agreed to normalize relations with the

677

ERALD KOLASI:

United States. And, you know, Nixon obviously, you know, deserves credit here on our side.

678

ERALD KOLASI:

Nixon and Kissinger, even though I'm not a fan of Kissinger in general, that was

679

ERALD KOLASI:

obviously a huge move in the Cold War, right? It was one of the central

680

ERALD KOLASI:

moves of the Cold War. And an important reason why we ultimately won it is

681

ERALD KOLASI:

normalizing relations with China. So the point is that so much of Deng's later success

682

ERALD KOLASI:

depended on what Mao had done. And from the 50s, a lot of people think

683

ERALD KOLASI:

that China's economic growth somehow started under Deng. Nothing could be further from the truth.

684

ERALD KOLASI:

China was already growing fairly rapidly under Mao. From the 50s to the 70s, average

685

ERALD KOLASI:

real GDP per capita growth in China was about 4% under Mao. Again, it would

686

ERALD KOLASI:

be faster under Deng in the 80s and the 90s. So that's absolutely true. It

687

ERALD KOLASI:

would be faster. And there's no doubt that a lot of the institutional changes that

688

ERALD KOLASI:

Deng made helped produce some of those faster growth rates. But the point is, the

689

ERALD KOLASI:

Chinese economy was already growing under Mao. It grew enormously over the 27 years that

690

ERALD KOLASI:

Mao was in power. It made a lot of fundamental changes and transformations which set

691

ERALD KOLASI:

the stage for the future success that China has now had. Right? And the other

692

ERALD KOLASI:

important thing about China is that it's really sort of a dagger in the heart

693

ERALD KOLASI:

of the institutional theory. It's the major counterexample that everyone points to, because what people

694

ERALD KOLASI:

like Acemoglu and Robinson want to say is that economic growth is all about having

695

ERALD KOLASI:

a good liberal democracy in effect. Right? Privatized austerity, neoliberalism, that whole vision of the

696

ERALD KOLASI:

world, that's what it comes down to. And China, of course, provides an alternative developmental

697

ERALD KOLASI:

path. It's like you don't need all of these institutions and all of these structures.

698

ERALD KOLASI:

You do need some level of competent government, sure. But you can get massive economic

699

ERALD KOLASI:

growth if that's what your goal is. And that's a separate question of whether that

700

ERALD KOLASI:

should be your goal. Right. There's a broader issue, but if that's the rules you're

701

ERALD KOLASI:

playing by, like you're trying to maximize economic growth, it's not clear that having liberal

702

ERALD KOLASI:

democracy with again, allegedly competitive multi party elections and allegedly independent central banks, allegedly independent

703

ERALD KOLASI:

judiciaries and all of that, it's not clear that that necessarily is the best model.

704

ERALD KOLASI:

You know, one baseline distinction between capitalism and socialism is that capitalism is an economy

705

ERALD KOLASI:

dominated by private property, right? And socialism is an economy dominated by public property. And

706

ERALD KOLASI:

if you look at China, it's an economy that's dominated by public property, right? So

707

ERALD KOLASI:

708

ERALD KOLASI:

If you look at companies where the state has any kind of stake, even if

709

ERALD KOLASI:

it's not necessarily a majority stake, you'll find that those companies represent something like 70,

710

ERALD KOLASI:

80% of total assets and capital in the Chinese economy. China operates under a Leninist

711

ERALD KOLASI:

principle, almost under the new economic policy, where the state has seized control over the

712

ERALD KOLASI:

commanding heights of the economy. So think about critical industries like energy, finance. So the

713

ERALD KOLASI:

top four biggest banks by assets in the world are all Chinese, and they're all

714

ERALD KOLASI:

owned by the Chinese government. And the healthcare, you know, defense, right? All of these

715

ERALD KOLASI:

major dominant sectors, the Chinese government has enormous ownership, right? Owns so many of the

716

ERALD KOLASI:

dominant companies that produce China's things. I mean, can you imagine the American government having

717

ERALD KOLASI:

the courage to nationalize Lockheed Martin and Boeing? I wish they would, Steven. If I

718

ERALD KOLASI:

were in power, that's one of the first things I would do. But that's not

719

ERALD KOLASI:

happening here. Right here we let our current capitalists be private and then we let

720

ERALD KOLASI:

them overcharge us to no end. So the Pentagon's budget keeps bloating just so we

721

ERALD KOLASI:

can pay Lockheed and Northrop Grumman some more money. So it's a very different vision,

722

ERALD KOLASI:

right? The people who say China's capitalist and things like that depends on what you

723

ERALD KOLASI:

mean by capitalism. Right. And Steve, you know, we can play games with definitions all

724

ERALD KOLASI:

Day long. Right. But if you're just looking at standard baseline definitions, the Chinese economy

725

ERALD KOLASI:

is more socialist than capitalist. I would say yes. That doesn't mean that it doesn't

726

ERALD KOLASI:

have strong capitalist elements. Of course it does. China also has big tech. China also

727

ERALD KOLASI:

has Alibaba and Baidu and Tencent and all of these major big tech companies. Yes,

728

ERALD KOLASI:

sure, they're private. But the point is, structurally speaking, the Chinese economy is dominated by

729

ERALD KOLASI:

the decisions that the state makes.

730

STEVE GRUMBINE:

Absolutely. Can I just jump in momentarily because this is really, really important. We

731

STEVE GRUMBINE:

just did a book club here recently on State and Revolution. And for folks

732

STEVE GRUMBINE:

that can't allow their precious eyes to glance at prior revolutionary thinkers that maybe

733

STEVE GRUMBINE:

don't line up with your Bill Clintons and Obamas to according. Okay, but for

734

STEVE GRUMBINE:

those that have the intellectual integrity to read theory and go back and look

735

STEVE GRUMBINE:

at this stuff, State and Revolution talked about the quote unquote withering away of

736

STEVE GRUMBINE:

the state, the eventual withering away of the state, the withering away of a

737

STEVE GRUMBINE:

lot of these institutions, withering away of class distinctions and so forth. But it

738

STEVE GRUMBINE:

doesn't start there. And they go to great pains explaining that. And when I

739

STEVE GRUMBINE:

think about where China is, it is obviously not the automated luxury gay space,

740

STEVE GRUMBINE:

you know, communism or whatever. Okay, it's not that. But what it is, is

741

STEVE GRUMBINE:

on that trajectory of any kind of capitalist element is merely allowed to exist.

742

STEVE GRUMBINE:

It's allowed to exist and could easily be unallowed to exist because the state

743

STEVE GRUMBINE:

functions as an arm to support the state, to make the body politics survive.

744

STEVE GRUMBINE:

And they allow certain people to be wealthy as long as it serves the

745

STEVE GRUMBINE:

interests of the state. But they are not afraid to make something illegal or

746

STEVE GRUMBINE:

to make a law that really stops some negative externality dead in its tracks.

747

STEVE GRUMBINE:

Like we act like, well, free market. We've got to allow everything just to

748

STEVE GRUMBINE:

play out the way ever it plays out. And that's winners and losers. That's

749

STEVE GRUMBINE:

the nature, nature of the markets, baby. And we love it. You know, And

750

STEVE GRUMBINE:

I say this because I have grown to despise. I don't know if that's

751

STEVE GRUMBINE:

the right way. Yeah, no, it is absolutely the right word. I'm going to

752

STEVE GRUMBINE:

despise the Biden bot that ignored his baiting during the State of the Union

753

STEVE GRUMBINE:

where he called China our number one enemy. And he talked extensively about these

754

STEVE GRUMBINE:

terms like in bad guy, good guy, axis of evil. You can almost hear

755

STEVE GRUMBINE:

Bush saying evildoers. And it made me so enraged to think about the fact

756

STEVE GRUMBINE:

that they have spent all their time allowing capitalists to get rich and not

757

STEVE GRUMBINE:

take care of infrastructure, not take care of making sure we have the best

758

STEVE GRUMBINE:

and brightest and most educated population. And instead China has said, you know what,

759

STEVE GRUMBINE:

hold my beer, we're going to take care of this. And they have done

760

STEVE GRUMBINE:

that. And instead of going around the world bombing people, I'm not telling you

761

STEVE GRUMBINE:

that they're wearing halos, but I'm telling you they're not wearing forked tongues and

762

STEVE GRUMBINE:

hooves either. I mean these guys are doing what they believe is in the

763

STEVE GRUMBINE:

state of China's best interest. So when they talk about socialism, it's with Chinese

764

STEVE GRUMBINE:

characteristics is all these components where they allow these things to happen, but they

765

STEVE GRUMBINE:

could shut them off immediately. Can you imagine shutting off private wealth accumulation in

766

STEVE GRUMBINE:

the United States? Can you even imagine the institutions that we've created in this

767

STEVE GRUMBINE:

country, allowing the people to thrive without having precarity on their backs, when in

768

STEVE GRUMBINE:

fact they are so ideologically locked into the idea that they must have workers

769

STEVE GRUMBINE:

in precarity for their version of capitalism to survive. And as an anti capitalist

770

STEVE GRUMBINE:

and an MMTer and a guy who fancies himself historically and you know, theoretically

771

STEVE GRUMBINE:

interested, curious, very much traveling down that path. It's no wonder we are in

772

STEVE GRUMBINE:

a country that is so bastardized and so fundamentally dog eat dog, no haven

773

STEVE GRUMBINE:

for the raven, just why has it got to be this way kind of

774

STEVE GRUMBINE:

thing, right? And reality is it doesn't have to be this way. That is

775

STEVE GRUMBINE:

what fundamentally happened during the Bolshevik revolution when they showed everyone there's another possibility.

776

STEVE GRUMBINE:

And the world said, oh my God, oh my God, what do we have

777

STEVE GRUMBINE:

to do? They did a couple minor reforms. You know, FDR comes in, they're

778

STEVE GRUMBINE:

trying to save capitalism by oh yeah, we're gonna soften the edge. We gotta

779

STEVE GRUMBINE:

chamfer these edges here a little bit. We're gonna rounding bit error here. Whatever

780

STEVE GRUMBINE:

they did not in any way shape or form put the people first. It's

781

STEVE GRUMBINE:

like food stamps. You know, everybody thinks food stamps are about feeding people. It's

782

STEVE GRUMBINE:

about ensuring the industry doesn't tank. These are things that are automatic stabilizers for

783

STEVE GRUMBINE:

industry. The secondary purpose of them is to make sure people have food. The

784

STEVE GRUMBINE:

primary purpose is to make sure, regardless of the economy, that there's industries, those

785

STEVE GRUMBINE:

staples for national defense, whatever, they make sure that they don't drown by ensuring

786

STEVE GRUMBINE:

that there is a cash flow to keep them going. And because of institutions,

787

STEVE GRUMBINE:

we've gotten to the point where we're penalizing the poor and pointing at them.

788

STEVE GRUMBINE:

How dare you get food stamps? It's like, you jerk, you Ideological fool. China

789

STEVE GRUMBINE:

doesn't suffer from that. China doesn't have any of those sorts of things. Everybody

790

STEVE GRUMBINE:

I talk to that's in China, I'm sure everybody has a complaint about everything.

791

STEVE GRUMBINE:

You could have the best wife in the world, you'd still complain about them.

792

STEVE GRUMBINE:

But when you look at the difference between the United States and China, people

793

STEVE GRUMBINE:

are thriving. They're educated, they don't have to wonder if their cancer is going

794

STEVE GRUMBINE:

to bankrupt them. They don't have to wonder about housing, they don't have to

795

STEVE GRUMBINE:

wonder about anything. Education's free, you name it. And I just find that the

796

STEVE GRUMBINE:

basics, the basics of life are not commodified. They're free of charge. They are

797

STEVE GRUMBINE:

in fact free from the profit motive. They are free from the capitalist impulses

798

STEVE GRUMBINE:

and the state ensures the outcomes. And I think there's proof positive that the

799

STEVE GRUMBINE:

institution of free market capitalism is a fricking lie. Anyway, that's, that's my take.

800

ERALD KOLASI:

There's a lot of great thoughts in there, Steve, and I just wanted to follow up on some of what you

801

ERALD KOLASI:

said. The first thing I want to say is that China does of course have, you know, its own problems, many

802

ERALD KOLASI:

problems. The cost of living is outrageous. The welfare state isn't very strong. For example, China doesn't have a national insurance

803

ERALD KOLASI:

system for a retirement pension plan. It's the different provinces that administer that. So it doesn't have something like our Social

804

ERALD KOLASI:

Security. And as a result, Chinese people save a lot of money. So the savings rate in China is way higher.

805

ERALD KOLASI:

That's why they launch a lot of debt fueled investment. That's why they rely so much on debt for growth, is

806

ERALD KOLASI:

because they don't have as much internal domestic consumer spending as they want. They have ecological problems and things like that.

807

ERALD KOLASI:

So I just want to be clear as we're having this discussion that China has plenty of problems too. There is

808

ERALD KOLASI:

no society on earth that doesn't have a lot of problems, especially right now where we are in late stage capitalism.

809

ERALD KOLASI:

But having said that, a lot of what you said is absolutely true as well.

810

STEVE GRUMBINE:

Right.

811

ERALD KOLASI:

So China right now has a higher life expectancy than the United States for the first time in

812

ERALD KOLASI:

history. That's something that the Soviet Union never achieved over us. Steve, a typical baby in America could

813

ERALD KOLASI:

always be expected to live longer than a typical Soviet baby. But now a typical baby in China

814

ERALD KOLASI:

can be expected to live longer than a typical baby born in the United States. That's a fundamental

815

ERALD KOLASI:

difference and a huge quality of life improvement over in China relative to here. Right. And there's just

816

ERALD KOLASI:

so many other ways. I think, like, yes, inequality in China is pretty bad. The Gini Index has

817

ERALD KOLASI:

been rising, especially for income, but it's not as bad as in the United States. So there's a

818

ERALD KOLASI:

lot of, like, indicators like that where China, I think, is doing very well. Again, it speaks, I

819

ERALD KOLASI:

think, fundamentally to their developmental path. And I wanted to say something about the power of capital in

820

ERALD KOLASI:

China. So you were talking about how in America we can't impinge on private wealth accumulation. That is

821

ERALD KOLASI:

one thing that the Chinese government does a lot, as you were pointing out. So crypto. Crypto is

822

ERALD KOLASI:

big in the United States right now, and it used to be big in China, but then the

823

ERALD KOLASI:

Chinese government banned bitcoin mining completely. That's where a lot of the bitcoin miners transferred from China to

824

ERALD KOLASI:

the United States because the regulatory environment was lax.  In China right now, crypto is basically dead for

825

ERALD KOLASI:

profit. Private education is another area where the Chinese government just basically banned it. Like, they've literally just

826

ERALD KOLASI:

banned for profit, private education. Again, hard to see something like that happening here in the United States.

827

ERALD KOLASI:

Right? But it goes to the point that you're making, which is that, yes, there are a lot

828

ERALD KOLASI:

of wealthy, corrupt capitalists in China, but a lot of them are also under the close leash of

829

ERALD KOLASI:

the state. Right? And if they do something stupid, you can't have like an Elon Musk figure in

830

ERALD KOLASI:

China, because if somebody comes out like that thinking, I'm just going to dominate over society and do

831

ERALD KOLASI:

what I want, you get your ear pulled by the Communist Party and then you're told what to

832

ERALD KOLASI:

actually do, right. Before it goes to your head. So a figure like Elon Musk or Jeff Bezos,

833

ERALD KOLASI:

somebody like that can never arise in China to dominate society. You can have the Jack Mas that

834

ERALD KOLASI:

are really wealthy. That's fine. You can have billionaires. China has plenty of billionaires. But they don't have

835

ERALD KOLASI:

the same kind of institutional power in society that our billionaires have over here, because our billionaires have

836

ERALD KOLASI:

basically been given free rein to just do what they want. In China, they're much more closely controlled

837

ERALD KOLASI:

by the state, both what they do and what they say. So those are just some examples, I

838

ERALD KOLASI:

think, to reinforce your point and to reinforce the broader argument that we're not destined to stick to

839

ERALD KOLASI:

neoliberal capitalism. We don't have to do this. That is the choice that our elites have made so

840

ERALD KOLASI:

far over the past few decades anyway. But this doesn't have to be the choice that we make

841

ERALD KOLASI:

going forward. Right There is. And There are alternative visions and futures available to us, but we need

842

ERALD KOLASI:

the power of imagination to think of them. And then we need the political will and more importantly,

843

ERALD KOLASI:

the organization to actually get it done. And then in the future, if there's an exogenous shock that

844

ERALD KOLASI:

comes along that can push the system along, that could also help get things done. But the point

845

ERALD KOLASI:

is, we are not destined to stay on the current path we're at, right? Never eternalize the present.

846

ERALD KOLASI:

History is dynamic. Things can change. And there are countries out there, like China, that have shown that

847

ERALD KOLASI:

alternative developmental paths and trajectories are possible if we're willing to dare to seize the moment.

848

STEVE GRUMBINE:

I know we're coming up to a close here, but I wanted to bring

849

STEVE GRUMBINE:

one thing up that we had kind of talked about offline that I think

850

STEVE GRUMBINE:

is really important. I was bringing up the arrangements that happened in Zimbabwe, and

851

STEVE GRUMBINE:

you said, you know, I think a big better depiction of this could be

852

STEVE GRUMBINE:

in Venezuela. And with Venezuela being right in the crosshairs of Trump's foreign policy

853

STEVE GRUMBINE:

bullshit that he's doing right now, I was wondering if maybe you would talk

854

STEVE GRUMBINE:

about the Venezuela situation a little bit from this perspective.

855

ERALD KOLASI:

Yeah, absolutely. Again, what the institutionalists would say is that Venezuela is a terrible socialist country.

856

ERALD KOLASI:

And, you know, that's why the economy has tanked. That's why millions of Venezuelans have fled.

857

ERALD KOLASI:

It's all because Maduro's corrupt or Chavez was corrupt, and socialism is bad. And, you know,

858

ERALD KOLASI:

they're subsidizing everything. Everything's free, et cetera, et cetera. So that line of argument. So here's

859

ERALD KOLASI:

what actually happened. After Chavez died, Maduro comes to power, and then things are okay for

860

ERALD KOLASI:

861

ERALD KOLASI:

because a huge chunk of the government's budget comes from oil exports, Right? So most of

862

ERALD KOLASI:

Venezuela's foreign trade is from oil exports. Its economy is fundamentally dependent on oil exports because

863

ERALD KOLASI:

that's how it gets dollars into the economy. And Venezuela, like many other South American countries,

864

ERALD KOLASI:

has what I would call de facto dollarization in many corners of its economy. Meaning dollars

865

ERALD KOLASI:

are widely used for normal economic transactions. Right? Like if you wanted to stay at a

866

ERALD KOLASI:

hotel somewhere or something like that, dollars are accepted. That's true throughout much of South America

867

ERALD KOLASI:

and Latin America. And again, that's a consequence of American imperialism over the past century. So

868

ERALD KOLASI:

the point is, Venezuela is very dependent on oil exports for bringing dollars into the economy

869

ERALD KOLASI:

and for stabilizing the exchange rate between its local currency and the dollar. So oil prices

870

ERALD KOLASI:

871

ERALD KOLASI:

United States. So the United States started producing a lot more oil and natural gas. So

872

ERALD KOLASI:

that led to a supply glut in the global economy. And that was matched with a

873

ERALD KOLASI:

874

ERALD KOLASI:

to reorganize the Chinese economy. Again. He was more of a leftist ideologically closer to Mao

875

ERALD KOLASI:

than to Deng. So he thought China was growing too fast. It was leading to a

876

ERALD KOLASI:

lot of imbalances in the economy. And that's when Chinese growth rates start coming down from

877

ERALD KOLASI:

like 12, 13% to more like 6, 7, 8% under Xi. Right. So that's a massive

878

ERALD KOLASI:

change that he really gets going in just a couple of years. There's declining demand for

879

ERALD KOLASI:

oil in China. There's a supply glut from the shale revolution in the United States. Oil

880

ERALD KOLASI:

881

ERALD KOLASI:

dry up, right? Because its oil exports crumble. And so it's getting far, far fewer and

882

ERALD KOLASI:

far fewer dollars. And that leads to inflation, right? Because the dollar, it's a dual currency

883

ERALD KOLASI:

regime, in effect. So if one currency becomes very scarce, what tends to happen in those

884

ERALD KOLASI:

situations is people start using more and more of the other currency of the remaining currency

885

ERALD KOLASI:

to get the scarce currency. And so it leads to a lot of inflation, right? And

886

ERALD KOLASI:

it leads to a recession. And then what makes the situation worse is Trump 1.0 comes

887

ERALD KOLASI:

888

ERALD KOLASI:

like Jeffrey Sachs have estimated they've led to like 40,000 deaths. And that was a while

889

ERALD KOLASI:

ago, right? This estimate was a while ago. Who knows? Who knows now? So they impose

890

ERALD KOLASI:

this brutal sanctions regime. It becomes much harder for Venezuela to conduct trade with other countries

891

ERALD KOLASI:

as a result of this regime. It becomes even difficult to import medicine. Right? Something so

892

ERALD KOLASI:

basic because again, a lot of companies don't want to export to Venezuela because they're afraid

893

ERALD KOLASI:

of running afoul of US sanctions, even though the sanctions are not formally targeted at Venezuela

894

ERALD KOLASI:

as a country, it's more like the regime. Nevertheless, it has these kind of knock on

895

ERALD KOLASI:

effects around the world where a lot of Western companies just don't want to do business

896

ERALD KOLASI:

with Venezuela anymore. So Venezuela's international trade dries up. It's harder for it to export its

897

ERALD KOLASI:

oil. The sanctions hurt with that. So oil production and oil exports plunge even more. So

898

ERALD KOLASI:

the economy enters a huge depression. That's when millions of people flee again because of a

899

ERALD KOLASI:

situation that was made worse by American policy. And where do a lot of those millions

900

ERALD KOLASI:

of people end up Fleeing? Right here to the United States. This is a common theme

901

ERALD KOLASI:

with imperialism. Right. The right simultaneously loves imperialism but hates immigration. However, imperialism often leads to

902

ERALD KOLASI:

unwanted immigration. When we overthrow the governments of other countries, we destabilize those countries, People end

903

ERALD KOLASI:

904

ERALD KOLASI:

government. There was a massive three decade civil war that followed. Hundreds of thousands of Guatemalans

905

ERALD KOLASI:

ended up fleeing to the United States. Time and time again in Latin America, the same

906

ERALD KOLASI:

thing happens. We destabilize the country, the economy collapses, people flee to the United States. Anyway,

907

ERALD KOLASI:

so the point is, that's what happened with Venezuela. Again, it's not fundamentally social. Is that

908

ERALD KOLASI:

instant institutions bad? There were a lot of exogenous shocks which crippled the Venezuelan economy. So

909

ERALD KOLASI:

that's again, falling oil prices. That was the first shock Venezuela could have weathered that really.

910

ERALD KOLASI:

The bigger shock was the huge sanctions that came in in the first Trump administration. And

911

ERALD KOLASI:

then now, of course, Steve, as you know, there is a quote, unquote pressure campaign to

912

ERALD KOLASI:

try and topple Maduro. We don't know where that's going to go, if it's going to

913

ERALD KOLASI:

lead to a full blown war, if there's going to be sort of a coup or

914

ERALD KOLASI:

something else, or who knows. But the point is there is a massive American effort now

915

ERALD KOLASI:

to overthrow the Venezuelan government and that's going to produce a lot of chaos and instability

916

ERALD KOLASI:

as it always has. And so fundamentally, once you understand what happened in Venezuela over the

917

ERALD KOLASI:

past few decades, you realize that again, the central part of the story isn't the institutions,

918

ERALD KOLASI:

isn't socialism, capitalism. It's all of the exogenous shocks and factors that are impacting the internal

919

ERALD KOLASI:

dynamics of the Venezuelan economy and the political system.

920

STEVE GRUMBINE:

And who's in power via external source. I mean, one of the things that

921

STEVE GRUMBINE:

I guess as we close out that I think is really important, that I've

922

STEVE GRUMBINE:

gotten from this is a lot of the things that we hold on to

923

STEVE GRUMBINE:

as just people, our false consciousness. I don't know if I'm saying this correctly,

924

STEVE GRUMBINE:

but I'm just going to say it plainly. I mean, the things that we

925

STEVE GRUMBINE:

think we know and the reasons why things are the way they are, the

926

STEVE GRUMBINE:

way we, we just envision them, are not really rooted in truth. I mean,

927

STEVE GRUMBINE:

a lot of the stuff that we think we know, we find out that

928

STEVE GRUMBINE:

these things are institutions brought on by the power elite, they are thoughts, they

929

STEVE GRUMBINE:

are concepts, they're ideas that cloud the material reality that underlies them. And we

930

STEVE GRUMBINE:

just assume that TINA narrative, "there is no alternative," because it's terrifying, it's bigger

931

STEVE GRUMBINE:

than us, it's beyond what most people can wrap their brains around. And ultimately

932

STEVE GRUMBINE:

the people in power make decisions. They begin their PR campaigns, they spread propaganda,

933

STEVE GRUMBINE:

they change narratives using that media arm that, what I think five billionaires own

934

STEVE GRUMBINE:

all the media. And so in terms of deeply entrenching institutions or even shifting,

935

STEVE GRUMBINE:

they've got all the tools and power to do it. So if we flip

936

STEVE GRUMBINE:

this on its head and it was the working class that had control of

937

STEVE GRUMBINE:

those things, that it had control of the state, that it had control over

938

STEVE GRUMBINE:

the institutions and stuff, it would look very, very differently. We can't say for

939

STEVE GRUMBINE:

sure, you know, what it would be because you saw the difference that happened

940

STEVE GRUMBINE:

in Russia. We had a very different outcome than we did say in Italy.

941

STEVE GRUMBINE:

Gramsci was very clear on that. Your final thoughts on this as we go

942

STEVE GRUMBINE:

out? I just. I wanted to throw some of that out there, get the

943

STEVE GRUMBINE:

juices flowing for further work.

944

ERALD KOLASI:

Thank you so much. And I think this is such an important discussion. I think my final thoughts

945

ERALD KOLASI:

would be, you know, as a. As a materialist myself, always remember that history is. Is dynamic and

946

ERALD KOLASI:

full of opportunities, and it doesn't just end right now. So there's a vast horizons of possibilities that

947

ERALD KOLASI:

are open to us in the future. And I think what people need to do is to think,

948

ERALD KOLASI:

to organize, see where we can apply pressure points in the system. And eventually down the road, a

949

ERALD KOLASI:

lot of big changes are going to come. They may not come as fast as we want them

950

ERALD KOLASI:

to come. That's often what's frustrating about history, right? But the thing is, whenever you have a critical

951

ERALD KOLASI:

juncture, as the institutionalists call it, or a shock or a revolution, or whatever you want to call

952

ERALD KOLASI:

it, revolutions can often undo in a few hours what has been building up for a thousand years.

953

ERALD KOLASI:

So never forget that. The power of a radical break with the past and how we can alter

954

ERALD KOLASI:

human history. And that's some of the examples that we've been covering in this conversation, Steve. And I

955

ERALD KOLASI:

hope people take some inspiration from that going forward.

956

STEVE GRUMBINE:

Fantastic. All right, folks, my guest Erald Kolasi is an amazing mind. He's an author and

957

STEVE GRUMBINE:

he runs a substack that I highly recommend. It's under his very name, Erald E R

958

STEVE GRUMBINE:

A L D Kolasi K O L A S I and his book. Real quick, plug

959

STEVE GRUMBINE:

your book one more time for everybody because I want them to get this book.

960

ERALD KOLASI:

961

ERALD KOLASI:

It's about complex relationship between human societies and the natural world and

962

ERALD KOLASI:

how they affect each other. So yeah, thanks so much.

963

STEVE GRUMBINE:

Absolutely. All right folks, my name is Steve Grumbine. I am the host

964

STEVE GRUMBINE:

of Macro and Cheese. This podcast is a part of the non profit

965

STEVE GRUMBINE:

Real Progressives. Real progressives is a 501c3 not for profit. All of our

966

STEVE GRUMBINE:

work is funded by you. Donations. And those donations are at least as

967

STEVE GRUMBINE:

long as this institution exists, tax deductible. So please consider becoming a monthly

968

STEVE GRUMBINE:

donor to our work. You can go to our website, realprogressives.org, go to

969

STEVE GRUMBINE:

the donate section. All of the platforms, from the recording platforms, to replacement

970

STEVE GRUMBINE:

parts for the equipment, to all the different things that we do with

971

STEVE GRUMBINE:

webinars, you name it, all of that costs money. We desperately need your

972

STEVE GRUMBINE:

support. You can also go to patreon.com real progressives. And of course we

973

STEVE GRUMBINE:

have our own substack Real Progressives. And we would love for you to

974

STEVE GRUMBINE:

become a monthly donor there as well. With that, on behalf of my

975

STEVE GRUMBINE:

guest, Erald Kolasi, myself, Steve Grumbine, we are out of here.