Review: Why Nations Fail

To forgo reading Why Nations Fail – a weighty but intensely engaging investigation of the determinants of economic prosperity – is, it seems, to risk being left out of the conversation of the day on political economy. Widely discussed in recent weeks, the book, the work of MIT’s Daron Acemoglu and Harvard’s James A. Robinson, takes as its sizable task a compelling account of what makes for a successful nation. The answer emerges over the course of the book’s 500 pages through a series of historical case studies designed to hammer in a central point: economic success is the product of particular political institutions, and the political institutions that breed success are “inclusive” as opposed to “extractive.” Pluralism begets prosperity; by the same token, autocracy begets decline.

The book opens with the case of the bisected town of Nogales, whose split halves lie in Arizona and Mexico respectively. The town represents, from the perspective of the authors’ hypothesis, a beautiful natural experiment, one that is returned to repeatedly and joined later in the book by other borderland examples: two populations separated neither by space nor by culture, but instead by their governing institutions. In that regard, the great disparity in wealth and health between the two sides of Nogales makes for a powerful opening salvo, the first of a number to come. The town is then used to open a historical sketch of the contrasting colonial experiences of North and South America as an introduction to the work’s thesis, which hybridizes economic and political concerns through a discussion of institutional structures that either work to spread opportunity and incentivize economic activity or to concentrate wealth and influence in the hands of a fortunate few. Acemoglu and Robinson summarize the large-scale structure of their argument at the end of this introductory jaunt through the history of the Americas:

It is about the effects of institutions on the success and failure of nations – thus the economics of poverty and prosperity; it is also about how institutions are determined and change over time, and how they fail to change even when they create poverty and misery for millions – thus the politics of poverty and prosperity.

Over the course of the book, the authors largely execute this program as promised. Leaping from continent to continent, the authors build a substantial catalogue of examples to bolster their case. From Botswana to Uzbekistan, the same arguments hold sway: extractive political institutions dedicated to the wellbeing of the elite breed similarly extractive, and counter-productive, economic institutions, while the same holds for the transmissible benefits of inclusive political institutions that meaningfully guarantee property and political rights.

The implications of Acemoglu and Robinson’s thesis are at times hopeful, at others unsettling, and overall distinctly controversial. First, the unsettling: the authors argue that the reciprocal relationships between political and economic structures produce vicious and virtuous circles in the cases of extractive and inclusive institutions respectively. On a global scale, then, when it rains it pours; the rich getting richer while the poor fall deeper into poverty. Growth, while achievable under extractive institutions, isn’t sustainable under the same circumstances, the authors argue, an observation that hardly offers reassurance to those concerned about growing inequality worldwide. At the same time, there is a ray of hope: as Acemoglu and Robinson note, “neither the vicious nor the virtuous circle is absolute.” It is possible, in the pair’s view, to effect meaningful change to extractive institutions on the heels of particularly disruptive or revolutionary events, what the two label “critical junctures,” like the Black Death or the Industrial Revolution. Most contentious of the authors’ findings, perhaps, is their assertion that China’s growth will not only slow from the breakneck pace that has characterized its development over the past several decades but will gradually stall out unless accompanied by political reform. All of their findings though, whatever their character, are of tremendous import for the conversation on international economics, and Why Nations Fail is a valuable book to pick up not just for exposure to hot topics in development but for a more serious engagement with one particularly powerful vision of the mechanisms behind them.

The work’s strong points aside, there are nits to be picked, some small, some larger. For one, in addressing itself to a lay audience the book necessarily handicaps itself; the statistical analyses undergirding many of the authors’ claims are consigned to references in the book’s length bibliographic essay. That isn’t to say that the book doesn’t make its argument well; it does, but it does so rhetorically, by way of anecdote. Also problematic is the sometime slipperiness of what the Acemoglu and Robinson mean by inclusive and extractive institutions, particularly given the work’s broad time frame; institutions that were inclusive in the context of the Glorious Revolution are, in relative terms, extractive as compared to modern Western democratic structures. Although the authors likely intended that inclusive and extractive be considered in gradations, their use of the terms as quasi-absolute adjectives sometimes makes their examples seem like anachronistic judgments. Finally, there is China, something of a fly in the ointment for the pair at a theoretical level. As mentioned above, Acemoglu and Robinson characterize China’s extraordinary growth as founded on fundamentally extractive institutions, and therefore as unsustainable; at the same time, their account doesn’t fully explain how exactly those extractive institutions worked to produce such atypical growth. As to whether China’s growth will eventually collapse, the verdict will likely be out for some time. Until then, perhaps the weight and force of the authors’ remarkable argument ought to spare them that criticism.

Finishing Why Nations Fail is satisfyingly final; the book is as exhausting as it is exhaustive. Were the authors’ arguments less thorough, it would be tempting to convict Acemoglu and Robinson of grandiosity in their case for a “Theory of Everything” of global inequality. It does, after all, take gumption to dedicate just 25 pages to “Theories That Don’t Work,” as one of the book’s chapter heading labels them. Some reviews have taken such a tack, albeit mildly; judgments on the work range, for the most part, from “great” to “very good, but let’s not get too excited here.” Audacity notwithstanding, Acemoglu and Robinson’s ambition here is entirely welcome, an encouragingly bold attempt to get right to the heart of the thorny questions that wreath discussions of global inequality. That Guns, Germs, and Steel author Jared Diamond, whose geographic account of wealth differences is heavily criticized in the book as exactly one of those errant theories, was willing to provide a nonetheless glowing blurb for Why Nations Fail is testament to just how convincingly the authors make their case for their perspective on political economy. The ideas catch and resonate remarkably, and ought to inform any casual discussion of international inequality. At length and in depth, Why Nations Fail is a book worth reading.

9 Comments

  1. Francy says:

    statement “We have not been growing but ratehr fluctuating from 3 recessions plus 1 technical recessions these past 11 years.” can’t be furthest from the truth. We have been growing based on the GDP measure of growth. The question is why does not it not spread down like in previous decades.I think that there are a number of reasons:A. Modification of the tax policy that favor the rich by passing the tax burden to the lower income by increasing GST. Thisis done supposedly to compete with HK. But in HK, there is no GST and they continue to keep healthcare & education affordable. As the Singapore govt tries to compete with HK in income tax rate, they forgot to tell Singaporeans that HK recognizes land sales proceeds in govt revenue. On the other hand, Singapore land sales proceeds are not included in govt revenue and go directly into reserves. Because it is so huge, it depresses govt revenue by as much as a third in good years.B. The huge increase in defence spending reduce the amount of resources that can be channeled to core areas which affect lower income families the most like housing, education, healthcare & transportation. Whilst I agree that defence is impt, it cannot be a bottomless pit because beyond a certain point, defence spending is unproductive spending unlike education, say. And I think spending more than Indonesia & Malaysia on defence is really overdoing it.C. There is also a subtle shift in consumer behaviour as well as the govt practice of selling land/renting out hawker stores to the highest bidder that raise the cost of living. You see in the past, our parents/grandparents used to buy things from hdb shops where the shops are bought or rented relatively cheaply. Now we shop in shopping centers where hundred of millions are paid for the land to the govt and these r owned by Reits who try and increase rental at very opportunity. How to keep things cheap when rentals r so high. So too with hawker stores where rents have been creeping up although they hv start to deal with this.D. There is the loose immigration policies, of course, that depress wages.E. Corporatisation of essential services like public transport, govt hospitals & utilities. All the CEOs are paid hugely but they must generate higher & higher profits. So what happens, they squeeze captive consumers like us by raising fares, tarriffs or reducing c class beds in govt hospitals. That’s why SMRT always ask for higher fares even when profits continue to grow and our electricity & water tariffs continue to be one of the highest in the world.While the anger is centered on immigration at the moment, I think the root lies in the combination of factors. The reason I say this is because one ex PAP mp highlighted the fact that citizens in some middle eastern countries continue to be quite happy even though immigrants outnumber natives sometimes

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