Brilliant and engagingly written, Why Nations Fail answers the question that has stumped the experts for centuries: Why are some nations rich and others poor, divided by wealth and poverty, health and sickness, food and famine?
Is it culture, the weather, geography? Perhaps ignorance of what the right policies are?
Simply, no. None of these factors is either definitive or destiny. Otherwise, how to explain why Botswana has become one of the fastest growing countries in the world, while other African nations, such as Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence?
Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or lack of it). Korea, to take just one of their fascinating examples, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to citizens and the great mass of people. Sadly, the people of the north have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas is due to the politics that created these completely different institutional trajectories.
Based on fifteen years of original research Acemoglu and Robinson marshall extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to build a new theory of political economy with great relevance for the big questions of today, including:
- China has built an authoritarian growth machine. Will it continue to grow at such high speed and overwhelm the West?
- Are America’s best days behind it? Are we moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority?
- What is the most effective way to help move billions of people from the rut of poverty to prosperity? More
philanthropy from the wealthy nations of the West? Or learning the hard-won lessons of Acemoglu and Robinson’s breakthrough ideas on the interplay between inclusive political and economic institutions?
Why Nations Fail will change the way you look at—and understand—the world.
This economic history is, as far as it goes, excellent. The main thesis is ultra simple: nations must develop inclusive economic and political institutions if they are to achieve prosperity. Such political institutions include fair and free elections, an independent judiciary, uncorrupt legislative and executive branches etc etc. Inclusive economic institutions include financial controls such as (in the U.S.) the Fed, the SEC, trust breaking litigation, and so forth. The authors say all of these things are mutually reinforcing. In the U.S., for instance, all three main governmental institutions at the federal level hold each other in check. This is also more or less true in Canada, Western Europe, Japan, Australia, New Zealand, and Botswana. Yes, that Botswana. The stories of Botswana -- and the rest of post-colonial Africa -- are ones I have not come across elsewhere and for which I am especially grateful.
Nations with inclusive economic and political institutions allow something called "creative destruction." This is what happens when new technologies appear and cause a redistribution of wealth. Perhaps the most recent example of creative destruction has been the impact of computers and the internet. So many industries have been upset by these new technologies: publishing, the music industry, retail stores, manufacturing, etc etc. Nations which do not have inclusive economic and political institutions are called "extractive." An extractive nation is one in which an elite prospers from the misfortune of the rest of the population. One example of this is the post-colonial African nation of Sierra Leone. When the British left Sierra Leone, and it was thought that the extractive mechanisms they had put in place would be abolished, just the opposite happened. Local strong men came along and upped the ante. This had the effect of disincentivizing entrepreneurs. After all, why work hard if 90% of one's output will be seized by the junta? Moreover, such extractive nations will not permit creative destruction because it threatens to undermine the power of the governing elite. So the extractive states tend to be backward because they shun new technologies. Though examples from antiquity are adduced -- Rome, Mayan civilization, for instance, both extractive -- the authors are mostly concerned with what happened starting with the Industrial Revolution on. They show how the English Civil War and subsequent Glorious Revolution set the stage for the growth of inclusive political and economic institutions in England and how these became mutually reinforcing over time.
The book is compelling. I hope people living in these extractive nations will get a translation because it is so eye-opening. But that's unlikely, isnt it? Since a major feature of extractive nations is suppression of the media, which is transparency.
This is a view of history, on the other hand, that does not question its foundations. It's a great cheering section for capitalism generally. But there's a huge problem with this economic-growth-at-all-costs mentality. It may have been fine for a century or so but now it's no longer tenable. In fact, it's killing us: climate change, loss of biodiversity, global deforestation; our oceans are covered, by one recent estimate, with 480 billion cubic tons of plastic. GDP is the wrong measure of our "progress" now. We need new sustainable economic models. So the book, while being a captivating history of how capitalism has worked historically, offers no solutions for how it might change. New models are badly needed. If, that is, we haven't already passed the ecological tipping point.
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