Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoğlu
My rating: 4 of 5 stars
While perhaps overlong and a bit dry, this book contains insights that go a long way, at least on a political and economic level, toward answering that perennial question, “What’s wrong with the world?”
I became aware of this book by reading an enthusiastic review in The Economist, and immediately set out to buy a copy, since the subject matter is so close to my heart. If, as Plato and Aristotle asserted, human beings live together and form societies in order to enjoy a higher quality of life than they can achieve on their own, then why do so many societies, even after all this time, live in such poverty and under such oppressive political conditions? How is it that these basic aims of society are continually being frustrated and subverted? Or, in other words, as Dennis Miller said on Saturday Night Live when a second Ernest Worrell movie was being released: “What is wrong with mankind?”
The authors don’t address themselves to that question directly, but the subtitle of their book, “the origins of power, prosperity, and poverty”, indicates that their focus is on what matters most to us in the public sphere. When they looked at the phenomenon of how certain societies, which are internally divided by nothing more than a political boundary line, can show such great disparities in wealth and freedom on the different sides of that line, they realized that the most commonly held explanations for poverty and repression cannot hold.
The usual explanations are either geographical, racial, cultural, or intellectual. But Acemoglu and Robinson point to several examples of disparities that cannot be explained in these ways. The cities of Nogales, Arizona, and Nogales, Mexico, are actually just one city that happens to have a national border running through the middle of it; the people on each side are ethnically and culturally much the same, and they live in exactly the same geographical circumstances. But Nogales, Arizona is prosperous, while Nogales, Mexico is poor. The key difference is political, and the most important aspect of that difference is the different character of the political institutions of each society.
The authors divide political and economic institutions into two categories: extractive and inclusive. Extractive institutions are those whereby wealth is produced by a majority and then extracted by an elite minority for its own use. Most of the world lives under such institutions, which can exist under any kind of political regime, whether monarchist, republican, socialist, or communist. The tight grip on political power by an elite is what allows the extractive economic institutions to persist.
By contrast, inclusive institutions are those whereby people have substantial autonomy and a meaningful voice in how political decisions are made. They have secure property rights and considerable freedom in choosing how and where they will exert their efforts. If they produce wealth, they are, for the most part, able to keep it, and so have incentives to innovate and take risks. Only such societies have a record of producing lasting and increasing wealth over the long term.
This is not to say that extractive societies cannot generate wealth over the short term; they can and do. The Soviet Union was one such. Through the middle of the 20th century the rulers of the USSR, by issuing decrees and forcibly allocating people and resources into certain sectors at the expense of others, were able to generate much industrial production. But extractive regimes cannot tolerate the all-important mechanism of “creative destruction”—the overthrow of existing methods and businesses when new techniques are discovered. Such unpredictable change is too threatening to authoritarian government, and there’s not enough in it for them: they’re happy with the way things are. Also, because such rulers appropriate the lion’s share of wealth to themselves, there is minimal incentive on the part of the public to exert themselves to produce more. So by the 1980s the Soviet Union’s growth spurt was finished.
How do inclusive institutions come about? They can arise when societies reach “critical junctures”—events that are upsetting enough to the existing order that there is an opportunity to redraw the social rules to be more inclusive. The authors point to how the Black Death in Europe in the 14th century disrupted feudal institutions, which were extractive, and placed more economic and political power in the hands of the surviving laborers. Many laws were enacted to try to turn back the clock and force workers to labor for their old rates of pay, but these laws were all soon dead letters. Market forces prevailed, and the serfs of Western Europe were freed from their bondage to feudal estates.
Several other critical junctures had to be negotiated before the inclusive institutions of modern Britain could be developed, and it was possible at each step that the process would be arrested. The authors emphasize that the process is contingent and in no way determined. To a great degree it may even boil down to luck.
This reader found the thesis persuasive. I felt that the authors made their case; indeed, for me they over-made it, for I found the book repetitive. There is an old teaching adage that in giving instruction, you should tell people what you’re going to tell them, then tell them, then tell them what you’ve told them. I felt that the authors carried this too far, that they were reminding me too often that the factors involved in all their case studies were these inclusive and extractive institutions, along with their accompanying terms “creative destruction”, “pluralism”, and “property rights”.
The case studies themselves—the stories of different countries at different periods of history—were interesting, and often illuminating, but I felt sometimes that the authors went into more detail than necessary to make their point, the more so because it was always the same point again and again. For example, I felt there were too many technical details given about the Industrial Revolution. A more broad-strokes approach would have been fine for their purpose. As for their actual prose, I found it to be clear and readable, but also plain and colorless. Their book is a report, and although it’s a very good report, it does not offer reading joys beyond what you can expect from a report.
At the end of the book they raise the important question of how their idea, if true, can be applied. In a short space they show that historical approaches to trying to improve the lot of the world’s poorest people have mainly yielded disappointing results. I was shocked at how much foreign aid leaks away into intermediaries’ pockets before any of it reaches its intended beneficiaries—and this before any kind of criminal misappropriation happens. But the authors acknowledge that there is no simple way of applying their theory to the practice of encouraging economic development. Its main use will be to spotlight what doesn’t work. What is possibly their most promising suggestion consists of a single sentence:
Instead, perhaps structuring foreign aid so that its use and administration bring groups and leaders otherwise excluded from power into the decision-making process and empowering a broad segment of population might be a better prospect.
That’s it. But good idea.
The Arab Spring was under way just as the authors were completing their manuscript; as I type these words Egypt is in the grip of deadly social unrest as supporters of the ousted president Mohamed Morsi are shot at by the Egyptian army. Egypt is at just the sort of critical juncture that the authors describe in their book, and their observation that the outcome of these junctures is highly contingent seems to be beyond question. I had high hopes for Egypt when Morsi was elected in June 2012; now, with the president deposed and a mounting death toll, things look bleak.
Egypt has not climbed from the tar-pit of extractive institutions, and it might never do so. But I now would not hesitate to say that the Arab Spring was about the popular yearning for inclusive institutions. They may not have been able to articulate it thus, but those people of the Middle East and North Africa wanted—and still want—more secure property rights, more voice in the political decision-making of their societies, and more freedom to live as they choose. Something tells me that Acemoglu and Robinson’s book is being read there, and that these ideas will indeed form the basis of successful movements toward power and prosperity. May it be so.
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