36. Why Nations Fail by Daron Acemoglu and James A. Robinson

Updated: Jun 8, 2020


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?


Why Nations Fail” is a sweeping attempt to explain the gut-wrenching poverty that leaves 1.29 billion people in the developing world struggling to live on less than $1.25 a day.


Classic Example :


The city of Nogales is half in Mexico and half in the United States. People in Nogales on the US side of the border are well-educated, prosperous, and have long life expectancies. Those on the Mexican side are poor, poorly educated, and have shorter life expectancies.

The differences in Nogales can’t be explained by geography or culture. Instead, different governments cause the differences in development. The United States historically established pluralist institutions that encouraged technological innovation and spread wealth throughout the population. By contrast, in Mexico, Spanish conquerors established extractive institutions that were intended to…


Why Nations Fail: The Origins of Power, Prosperity, and Poverty, first published in 2012, is a non-fiction book by Turkish-American economist , Daron Acemoglu from the Massachusetts Institute of Technology and British political scientist , James A. Robinson from the University of Chicago.


The book applies insights from institutional economics, development economics and economic history to understand why nations develop differently, with some succeeding in the accumulation of power and prosperity and others failing, via a wide range of historical case studies.


The authors also maintain a website (with a blog in active since 2014) about the ongoing discussion of the book


In fifteen chapters, Acemoglu and Robinson try to examine which factors are responsible for the political and economic success or failure of states. They argue that the existing explanations about the emergence of prosperity and poverty, e.g. geography, climate, culture, religion, race, or the ignorance of political leaders are either insufficient or defective in explaining it.

Acemoglu and Robinson support their thesis by comparing country case studies. They identify countries that are similar in many of the above-mentioned factors, but because of different political and institutional choices become more or less prosperous.




Pic : Acemoglu

The most incisive example is Korea, which was divided into North Korea and South Korea in 1953. Both countries’ economies have diverged completely, with South Korea becoming one of the richest countries in Asia while North Korea remains among the poorest.


Acemoglu and Robinson's major thesis is that economic prosperity depends above all on the inclusiveness of economic and political institutions. Institutions are "inclusive" when many people have a say in political decision-making, as opposed to cases where a small group of people control political institutions and are unwilling to change.


They argue that a functioning democratic and pluralistic state guarantees the rule of law. The authors also argue that inclusive institutions promote economic prosperity because they provide an incentive structure that allows talents and creative ideas to be rewarded.




Pic : Robinson

In contrast, the authors describe "extractive" institutions as ones that permit the elite to rule over and exploit others, extracting wealth from those who are not in the elite. Nations with a history of extractive institutions have not prospered, they argue, because entrepreneurs and citizens have less incentive to invest and innovate. One reason is that ruling elites are afraid of creative destruction—a term coined by Austrian economist Joseph Schumpeter—the ongoing process of annihilating old and bad institutions.


While generating new and good ones. Creative destruction would fabricate new groups which compete for power against ruling elites, who would lose their exclusive access to a country's economic and financial resources.

Pic : Mexico and USA Border


The authors use the example of the emergence of democratic pluralism in Great Britain after the Glorious Revolution in 1688 as being critical for the Industrial Revolution. The book also tries to explain the recent economic boom in China using its framework. China's recent past does not contradict the book's argument: despite China's authoritarian regime, the economic growth in China is due to the increasingly inclusive economic policy by Deng Xiaoping, the architect of China's Opening up policy after the Cultural Revolution.


According to Acemoglu and Robinson's framework, economic growth will change the economic resource distribution and thus affect political institutions. Therefore, despite the current rapid growth, if China doesn't improve its political inclusiveness, China is expected to collapse like the Soviet Union did in the early 1990s.


Pic : Satellite Image at night - North Korea Vs. Korea


Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). For Example , South Korea 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 Korea 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 marshal 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.


What are the Extractive and Inclusive Institutions


1) Extractive Economic Institutions :


@ Lack of law and order.

@ Insecure property rights;

@ Entry barriers and regulations preventing functioning of markets and creating a nonlevel playing field.

@ Political institutions concentrating power in the hands of a few, without constraints, checks and balances or rule of law.


2) Inclusive economic institutions:


@ Secure property rights,

@ Law and order ( closely related to pluralism),

@ Markets and state support (public services and regulation) for markets;

open to relatively free entry of new businesses;

@ uphold contracts; access to education and opportunity for the great majority of citizens.

@ Political institutions allowing broad participationón and placing constraints and checks on politicians.

@ But also some degree of political centralization for the states to be able to effectively enforce law and order.


Conclusion


A Democratic Country with Functioning Judiciary, Rule of law, Private Enterprise , better Education System and Incentive for Innovation and People Participative Government will create an Economic Environment for Prosperity and Development compared to Oppressive and Authoritative Regimes.


Both Acemoglu and Robinson have done historical original reasearch and put forward the what they have discovered and this Book will act as a Guide for Decision Makers in Government , Administrators and All the Rulers to establish Prosperous Provinces, States and Nations alike.



MM Rao

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Sources :

https://www.washingtonpost.com/entertainment/books/book-review-why-nations-fail-by-daron-acemoglu-and-james-a-robinson

http://whynationsfail.com/

https://revisesociology.com/2016/08/05/why-nations-fail-summary/

https://wcfia.harvard.edu/publications/why-nations-fail-origins-power-prosperity-and-poverty


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