Daron Acemoglu and James
A. Robinson have asked themselves the question “Why are some
nations rich and some others poor?” Their short answer is
“Inclusive political and economic institutions”.
The book is written very
vividly and its clear language makes it accessible to both experts
and nonprofessionals. Even though it is not exactly structured this
way, the authors discuss three topics: Economic theories that cannot
explain economic prosperity (1), theory proposed by the authors (2),
and undermining historical references and contemporary examples (3).
(1) The geographic,
cultural, and ignorance hypotheses cannot explain economic
prosperity.
The geographic
hypotheses says that poor countries are poor and rich countries
are rich because of geographical differences. This belief doesn't
withstand historical and current examples such as:
- Most African countries are poor, Botswana is rich.
- Singapore and Malaysia are significantly richer than their neighbors.
- Regions at the border between Mexico and the United States (The authors offer the example of the divided city of Nogales.) share the same geographic patterns but their wealth bears no resemblance.
In addition, the
geographical hypotheses cannot explain why the wealth of specific
countries (Examples include China and Japan.) changes over time.
According to the cultural
hypothesis, religion, beliefs, values, and ethics are linked to
prosperity. “Some populations simply lack a good work ethic.”
The authors raise two
main arguments against this hypothesis:
First, cultural patterns
are oftentimes identical in frontier regions, although the economic
performance of the states involved can differ substantially. Mexico
and the USA as well as North and South Korea serve as examples here.
Second, by definition,
cultural patterns change only slowly. As a consequence, they cannot
explain rapid growth such as the development China experiences today.
Followers of the
ignorance hypothesis say that poverty exists because some
rulers simply don't know how to make their country rich.
Acemoglu and Robinson
argue that ignorance can, at best, explain a small part of world
inequality: “It’s not ignorance but oftentimes political strategy
to sustain an undemocratic regime that is at the origin of wrong
economic policies.”
In addition, the
ignorance hypothesis can only explain poverty, not prosperity.
(2) Inclusive
political and economic institutions make nations wealthy.
Acemoglu and Robinson
argue that, to prosper in the long run, countries need inclusive
economic and political institutions.
Inclusive economic
institutions create a level playing field for and encourage every
citizen to participate in economic activities. They are characterized
by
- secure private property rights,
- an efficient legal system,
- the availability of basic public services and infrastructure,
- efficient markets and freedom of trade,
- encouraging investment,
- technological evolution,
- and a high level of eduction.What matters most is that these institutions are available for everybody, not just for the elite of a country.
Most important for
inclusive political institutions is a pluralistic society:
Political power should be distributed widely and checks and balances
among institutions should prevail. On the other hand, to dispose of
political power at all, a state must be sufficiently centralized.
As opposed to inclusive
institutions, extractive institutions are designed to extract
income and wealth from a subset of society to benefit a different
subset.
History shows that
extractive institutions cannot create incentives for people to make
their countries thrive in the long run. Also, they rarely exploit the
talent pool of a society efficiently. Temporary economic growth is,
however, possible under extractive institutions if they direct
resources in the right direction, e.g. towards high-productivity
activities. Ultimately, growth under extractive institutions is,
nevertheless, doomed to slow down. The reason is that people under
extractive institutions will not save, invest, or innovate, simply
because they have no incentive to do so.
Why do not all countries
in the world adopt inclusive institutions then? The reason is linked
to the lack of innovation that arranges the elite of a country.
Obviously, innovation leads to creative destruction. In other words,
it replaces the old by the new and, thereby, creates winners and
loosers and redistributes wealth. If you have power and money today,
this is exactly what you want to avoid.
Over time, institutions
can shift from inclusive to extractive and vice versa. Major
historical events (“critical junctures”) play a major role here.
In addition, political and economic institutions interact. For
example, inclusive political institutions make the emergence and
subsistence of inclusive economic institutions very likely (“virtuous
circle”).
(3) Historical
references and contemporary examples
To justify their above
theory, the authors describe many relevant historical examples:
- The consequences of a lack of political centralization are explained by a description of today's situation in countries such as Afghanistan, Columbia, Congo, Haiti, Nepal, Somalia, and Zimbabwe.
- China today and the Soviet Union from 1928 until 1970 serve as examples to illustrate economic growth under extractive political institutions.
- The break-down of the Roman empire and the economic decline of Venice in the 14th century illustrate how a shift from inclusive to extractive political institutions results in extractive economic institutions.
- Two powerful stories describe the fear of creative destruction:The Roman emperor Tiberius killed the man who just showed him his invention of unbreakable glass instead of rewarding him because he feared the economic and social effects this invention might have.In 1589, William Lee presented his knitting machine to English Queen Elisabeth I and asked for a patent. Instead of obtaining it, the Queen responded “Thou aimest high, Master Lee. Consider thou what the invention could do to my poor subjects. It would assuredly bring to them ruin by depriving them of employment, thus making them beggars.”
- Major critical junctures described in the book are the black death (and the related loss of the world's workforce) in the 14th century, the discovery and colonization of the Americas in the 14th century, the invention of the printing press by Johannes Gutenberg in Mainz in 1445, the French revolution in 1789, and the industrial revolution in England the 19th century.
The above list of
examples is a personal choice; the book offers many other historical
references.
What can I criticize? I
found the book sometimes a bit repetitive. But that is definitely a
minor aspect. Daron Acemoglu's and James A. Robinson's “Why nations
fail” is, beyond any doubt, worth reading.
You can find a speech of one of the authors about the book here.
You can find a speech of one of the authors about the book here.