Stephen Haber on the value of integrating politics into economics
When Stephen Haber was a graduate student in the early 1980s, political economists were an endangered species. Political scientists studied how governments work, and economists focused on the functioning of markets — with little overlap between the two.
But Haber recognized that the two are inextricably connected. “There are reasons why each field developed its own set of tools, but the result was an incomplete theory about how the world works,” says Haber, a senior fellow at the Stanford Institute for Economic Policy Research and professor of political science, history and economics.
For the last 35 years, Haber has used his understanding of how politics and economics interact to shed light on a seemingly straightforward question: Why do some countries become rich and democratic, while others remain poor and autocratic?
To provide answers, Haber has focused on three areas that impact countries: finance, innovation, and climate and geography.
His insights have formed the basis for 10 books and scores of journal articles. While he’s studied Mexico and Latin America extensively, his research spans the globe. He’s shown, for example, that financial markets predicted the Communist victory in China and other civil war triumphs long before the fighting ended. He’s challenged the idea that reliance on natural resources like oil gave rise to authoritarianism in Saudi Arabia and elsewhere. And he’s cited the history of Britain’s patent system to counter critics who contend that intellectual property laws stifle innovation.
Haber’s most recent book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, which he co-authored with Charles Calomiris of Columbia Business School, examines why governments often create banking regulatory policies that stifle competition and increase systemic risk. The New York Times review called the book, which traces the political and banking history of five countries over three centuries, “brilliant,” and both Bloomberg Businessweek and The Financial Times named it among the best books of 2014. Coming on the heels of the 2008 global financial crisis, the book showed how economic models that don’t account for politics can fail.
“The basic problem faced by all countries, but especially those in the developing world,” says Haber, “is that bad economic policies make for good politics.”
Haber’s latest research is a data-driven analysis of how regional climates and geographies in 1750 help explain why Western Europe, North America and Scandinavia are wealthy democracies today, and countries in Central Asia and sub-Saharan Africa are not.
Politics + economics: odd couple no more
The origins of Haber’s fascination with the roots of economic disparity around the world lie in a trip he took to Mexico at the age of 13. “I grew up in a working class suburb of New York City,” says Haber. “I was blown away by the realization that two countries right next to each other could be so different.”
After graduating from The George Washington University in 1979, where he studied international affairs, Haber went on earn an MA and a PhD in history from the University of California, Los Angeles. It was during those years that he came to appreciate the role of political science and economics in explaining differences among nations.
The 18th century philosopher Adam Smith had considered himself a political economist, but the field had waned as history, political science, and economics each went their own way says Haber. Haber taught history at Columbia for two years before joining Stanford’s history department in 1987. Fourteen years later, he moved to the university’s political science department and became a senior fellow at the Hoover Institution. He is also a faculty affiliate at the Stanford Center for International Development.
“In the last 25 years, political economy re-emerged as a vibrant field,” says Haber, who held a series of leadership positions at the university and received every teaching award it bestows, including the Gores, Dinkelspiel, Cox, Phi Beta Kappa, and Dean’s Teaching awards.
“I took risks early in my career that I didn’t even know I was taking,” he says. “I’ve been lucky.”