Acemoglu and Robinson present in Why Nations Fail: The Origins of Power, Prosperity, and Poverty an important idea: that it is institutions that determine whether countries are rich or poor. When institutions concentrate power in the hands of only a few, nations fail. Unfortunately, their book can also be frustrating – their focus on institutions can feel like it blinds them to other possibilities, and as a result their examples, though fascinating, can feel repetitive.
A&R argue that political and economic institutions can be extractive (designed to extract resources and centralize power in an elite who will then oppose change or progress) or inclusive (decentralizing power and allowing individuals economic autonomy). Both types of institutions, they argue, must be inclusive for long run prosperity. It’s an important division, and one that has a lot of explanatory power: anyone who’s crossed the American border with Mexico can’t deny that it is the institutions, not the fifty feet of distance, which matters.
The bulk of the book provides examples. Their studies are both well written and compelling, but they also make me wonder whether institutions are really the distal cause: apart from the simple case of countries with a colonial past, there is little discussion of what leads to good institutions. When they do raise the issue, they seem to implicitly assume that institutions are chosen rationally by elites, based on the cost and benefits of each type, an assumption that seems unconvincing.
Economists and development experts often underrate the importance of institutions, and so Why Nations Fail makes a critical contribution. It also makes a strong argument against the centralization of political power, which can be tempting in the short run but corrupts institutions and social norms in the long run. It’s engagingly written and full of interesting facts, and so is well worth the read for anyone remotely interested in these issues (and everyone should be). It just doesn’t seem to entirely meet its (admittedly ambitious) mandate: to explain why some nations fail and some succeed.
Want more enlightenment? Keep reading (or order from the UK or Canada). Why Nations Fail is certainly worth a look.
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China provides an interesting paradox to the argument presented in the book – political power is highly concentrated, yet China has seen consistent, rapid, economic growth in recent years.
For non-economists, the book may have benefited from an introduction framing differing theories of economic growth, and how institutions are linked to other instigators of economic growth.
Very true. Of course, maybe they’ll turn out to be right and China will start struggling because of its political concentration, but we may have to wait and see.
At least one alternate theory is Jared Diamond’s Guns, Germs, and Steel – it discusses geography as a formative, and is well worth a read.
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