Why Nations Fail

Why Nations Fail: The Origins of Power, Prosperity, and Poverty is a non-fiction book by Turkish-American economist Daron Acemoglu from the Massachusetts Institute of Technology and political scientist James A. Robinson from Harvard University. The book applies insights from institutional economics, development economics and economic history to answer why nations develop differently, with some succeeding in the accumulation of power and prosperity, while others fail. The authors also maintain a website (with an active blog) about the themes of the book.^[1]

Structure

The book is structured into fifteen chapters:

• 0. Preface
• 1. So Close and Yet So Different - Why Egyptians filled Tahrir Square to bring down Hosni Mubarak and what it means for our understanding of the causes of prosperity and poverty
• 2. Theories That Don't Work - Poor countries are not poor because of their geographies or cultures, or because their leaders do not know which policies will enrich their citizens
• 3. The Making of Prosperity and Poverty - How prosperity and poverty are determined by the incentives created by institutions, and how politics determines what institutions a nation has
• 4. Small Differences and Critical Junctures: The Weight of History - How institutions change through political conflict and how the past shapes the present
• 5. "I've Seen the Future, and It Works": Growth Under Extractive Institutions - What Stalin, King Shyaam, the Neolithic Revolution, and the Maya city states had in common and how this explains why China's current economic growth cannot last
• 6. Drifting Apart - How institutions evolve over time, often slowly drifting apart
• 7. The Turning Point - How a political revolution in 1688 changed institutions in England and led to the Industrial Revolution
• 8. Not On Our Turf: Barriers to Development - Why the politically powerful in many nations opposed the Industrial Revolution
• 9. Reversing Development - How European colonialism impoverished large parts of the world
• 10. The Diffusion of Prosperity - How some parts of the world took different paths to prosperity than Britain
• 11. The Virtuous Circle - How institutions that encourage prosperity create positive feedback loops that prevent the efforts by elites to undermine them
• 12. The Vicious Circle - How institutions that create poverty generate negative feedback loops and endure
• 13. Why Nations Fail Today - Institutions, institutions, institutions
• 14. Breaking the Mold - How a few countries changed their economic trajectory by changing their institutions
• 15. Understanding Prosperity and Poverty - How the world could have been different and how understanding this can explain why most attempts to combat poverty have failed

Content

In 15 chapters, Acemoglu and Robinson try to examine which factors are responsible for the political and economical success or failure of states. They argue that the existing explanations about the emergence of prosperity and poverty, e.g. geography, climate, culture, religion or economic policies, are either insufficient or defective. They support their thesis by using countries as case studies, which are similar in all the mentioned factors but still developed differently in term of prosperity. The most incisive example is Korea, which was divided into North and South Korea 60 years ago and both countries’ economies have developed completely differently since then. Further examples are the border cities Nogales (Sonora, Mexico) and Nogales (Arizona, USA). By reference to border cities, the authors analyze the impact of the institutional environment on the prosperity of people from the same geographical area and same culture.

The major thesis of Acemoglu and Robinson is that economic prosperity depends above all on the inclusiveness of economic and political institutions. Only a functioning democratic and pluralistic state which guarantees the rule of law is able to exploit the ideas and talents, which are spread among the whole population of a nation. In extractive systems (autocracies) however, entrepreneurs and citizens have no incentives to invest in and work on innovations, which are necessary to create prosperity, because the ruling elites are afraid of creative destruction. Creative destruction would fabricate new groups which competed for power against ruling elites. Hence, elites would lose their exclusive access to the economic and financial resources of a country. The authors bring in the emergence of democratic pluralism in Great Britain after the Glorious Revolution in 1688 as being decisive for the Industrial Revolution as an example as well as the fall of the Soviet Union.

Reception

Interviews and presentations

Acemoglu was interviewed on the EconTalk podcast by host Russ Roberts about the book in March 2012.^[2]

Robinson presented the main ideas of the book at the RSA.^[3]

Positive reviews

Warren Bass reviewed the book for the Washington Post, writing: "It’s bracing, garrulous, wildly ambitious and ultimately hopeful. It may, in fact, be a bit of a masterpiece."^[4]

Development economist Paul Collier reviewed the book for The Guardian. He concluded his review by writing: "A thesis can be summarised, albeit crudely, in a short review. Yet the main strength of this book is beyond the power of summary: it is packed, from beginning to end, with historical vignettes that are both erudite and fascinating. As Jared Diamond says on the cover: "It will make you a spellbinder at parties." But it will also make you think."^[5]

Thomas Friedman reviewed the book for the New York Times, concluding his review by writing: "We can only be a force multiplier. Where you have grass-roots movements that want to build inclusive institutions, we can enhance them. But we can’t create or substitute for them. Worse, in Afghanistan and many Arab states, our policies have often discouraged grass-roots from emerging by our siding with convenient strongmen. So there’s nothing to multiply. If you multiply zero by 100, you still get zero. [...] Acemoglu worries that our huge growth in economic inequality is undermining the inclusiveness of America’s institutions, too. [...] When one person can write a check to finance your whole campaign, how inclusive will you be as an elected official to listen to competing voices?"^[6]

Peter Forbes reviewed the book for The Independent, writing: "This book, by two US economists, comes garlanded with praise by its obvious forebears – Jared Diamond, Ian Morris, Niall Ferguson, Charles C. Mann – and succeeds in making great sense of the history of the modern era, from the voyages of discovery to the present day."^[7]

Mixed and negative reviews

The negative reviews of the book focused on the following lines of criticism:

• The authors didn’t present more rigorous, statistics-based evidence to support their theories. This critique appeared in a mixed review of the book by William Easterly in the Wall Street Journal, that was generally supportive of the plausibility of the book's thesis but critiqued the book's failure to cite evidence to show that their historical case studies demonstrated their claims, even though some evidence did exist in the scholarly literature.^[8]
• The authors focused almost exclusively on institutions as an explanation, and even within institutions, they focused on a relatively narrow subtype. Jared Diamond wrote that "In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse.^[9] Diamond's review was excerpted by economist Tyler Cowen on Marginal Revolution.^[10]
• Jeffrey Sachs objects that other factors (such as geography) that can also affect growth are ignored.^[11]
• David R. Henderson wrote a generally positive review in Regulation, but included the criticism that the authors failed to consider one example of extractive institutions: "A government of elitists that, claiming to speak for the large less-wealthy majority, extracts wealth from a small wealthy minority."^[12][13]
• In a blog post primarily devoted to Paul Collier's book Exodus, Nathan Smith built on some of the preceding critiques and added a further criticism: "A naïve view of the beneficence of democracy has long since been ripped apart by public choice economics, yet Acemoglu and Robinson revive it in the crudest form. People good, elites bad. [...] Honest empirical work on the democracy => growth causal link suggests that the effect is basically nil. But Acemoglu and Robinson's tendentiously fact-packed and conceptually confusing tome has given development economists a pretext for taking a more politically correct view."^[14] The critique was publicized by economist Bryan Caplan on EconLog, who blegged readers for their own thoughts on Smith's assessment.^[15]

Awards and honours

• 2012 Paddy Power And Total Politics Political Book Award (International Affairs)^[16]
• 2012 Financial Times and Goldman Sachs Business Book of the Year Award, Shortlist^[17]
• 2013 Lionel Gelber Prize, Longlist^[18]
• 2013 Arthur Ross Book Award, Honorable Mention^[19]

Related work by others

• The Wealth of Nations by Adam Smith
• Guns, Germs, and Steel by Jared Diamond
• Collapse: How Societies Choose to Fail or Succeed also by Jared Diamond
• The Elusive Quest for Growth by William Easterly
• The Wealth and Poverty of Nations by David Landes
• IQ and the Wealth of Nations by Richard Lynn and Tatu Vanhanen
• Violence and Social Orders by Douglass North, John Wallis, and Barry Weingast
• The Modern World-System, vols. 1-4 by Immanuel Wallerstein
• The God of the Machine by Isabel Paterson

References