Why Nations Fail – Book Review

Why does one nation fail while another nation progresses? This is the question Harvard University economics professor James Robinson and MIT economics professor Daron Acemoglu attempt to answer in their recent book Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Robinson and Acemoglu’s primary argument deals with a country’s political and economic institutions, and how those countries’ inclusivity or exclusiveness decides their path into the future. Despite its rich historical detail and strong writing, Why Nations Fail suffers severely from a lack of detail in its political theory. The explanation of why a nation fails or succeeds based on the inclusiveness of its politics is too ambiguous and imprecise. Vagueness and simplicity are used to cover glaring omissions to Robinson and Acemoglu’s theory.

An inclusive political institution is one that is centralized and pluralistic, one that is typically democratic or similarly structured. Public services are available to all citizens, especially those at the bottom of the socio-economic ladder, and the government represents the views of all citizens, not just the political elite.  An inclusive economic institution is one that allows and encourages mass participation in the country’s economic activities and enables individual citizens to make the choices they wish. In an inclusive economic state, citizens can pursue entrepreneurship without the fear of the government creating monopolies and running them out of business.

An extractive political institution occurs when the political elite provide for themselves at the expense of the rest of the public.  Regular citizens have little say in leadership of the country. Public services are nonexistent or minimal, and economic activity is discouraged and disallowed. Extractive political and economic institutions promote infighting and public unrest. Absolutist states, like the former Soviet Union and North Korea, are good examples of extractive institutions, both led by an elite with disregard for its public. In spite of its negatives, extractive institutions are common because they make sense to power hungry elite; they generate limited prosperity while providing the elite in charge the ability to do anything they want. According to Acemoglu and Robinson, extractive institutions are bound to fail. One reason why is due to these countries’ inability to progress and innovate technologically. The authors attribute this to the idea of creative destruction. In creative destruction, a technological innovation makes a job easier, or a worker more efficient. This leads to more being produced and a greater surplus in the state, causing higher public demand from the central government. To combat this, political elites do not allow technological innovation to affect their states in order to continue to rule with an iron fist.

The central thesis in the book revolves around the idea that, “economic growth and prosperity are associated with inclusive economic and political institutions, while extractive institutions typically lead to stagnation and poverty.” (Chapter 3, page 91) Acemoglu and Robinson use an exhaustive amount of case studies to further support their theory. One of their defining examples in how the modern world has been developed is the Industrial Revolution in Britain. Simply put, the Industrial Revolution happened because the Glorious Revolution occurring 60 years before led Britain to establish more inclusive economic and political institutions. The British parliament represented all of Britain and its regulations on the Crown allowed a new merchant class to emerge instead of the continuation of trade monopolies. In the mid-18th century, states around the world faced the decision to industrialize or not. Inclusive institutions, realizing the obvious benefits and increase in production, industrialized and became even more wealthy and inclusive. Political elites in extractive political institutions did not industrialize in fear of creative destruction. There were no incentives for political elites to innovate because their current situation was ideal, and they feared a wealthier lower class would begin to question the authority of their leadership and gain power. Acemoglu and Robinson use the Black Plague in Europe as a lifelike example of a critical juncture. A critical juncture “is a major event or confluence of factors disrupting the existing economic or political balance in society.” (Chapter 4, page 101) A critical juncture can change the trajectory of a nation, opening the way for inclusive political institutions to emerge or reinforcing and strengthening existing extractive institutions. In England after the Black Plague, labor became scarce after much of the peasant class was wiped out. The massive demand for labor encouraged peasants to demand higher wages, eventually leading to the end of the feudal state in England. Around Europe, feudal states faced the same decision that England did, many however did not improve and in fact regressed as feudal lords saw the rising of the peasants as a challenge to their authority and further decentralized and polarized to quell a possible collaboration of peasants to revolt.

While Why Nations Fail is a wonderful book that can be highly praised, it also has many problems; most of all, its simplicity and vagueness concerning its primary theory that inclusion is good, extractiveness is bad. Mancur Olson talked about the details of economics in democratic systems and how they compete at the expense of others to redistribute income in his book Power and Prosperity. [i] Robert Bates in his paper “State Failure” goes over various economic particulars such as fiscal dearth and resource wealth. [ii] Robinson and Acemoglu hardly focus on particular economic institutions, maintaining that economic institutions are the result of political institution’s policies, not the other way around. This rather simplistic view doesn’t portray economic and political institutions interchanging and mixing, as many others seem to. Bates, among many others, references ethnicity, geography, cultural circumstances, and religion to further enhance and validate his theory on state failure. Robinson and Acemoglu mention some of these theories, but immediately disclaim them. In particular, they make short work of the geography hypothesis, culture hypothesis, and ignorance hypothesis, all theories that have been merited by academics in the past. To further augment this theory, Jared Diamond’s Pulitzer Prize winning Guns, Germs, and Steel argues that the environment and local geography were important in shaping the world, not political and economic institutions.[iii] While institutions are certainly a significant part of the equation, Why Nations Fail inexplicably discredits and disparages other theories. Acemoglu and Robinson use examples such as North and South Korea and the United States and Mexico to discredit the geography hypothesis, but a few examples cannot completely eliminate a hypothesis when other factors are in play.

Possibly most egregious of all, Robinson and Acemoglu’s exceptions and misconceptions of India and China, two of the biggest and most important countries today, discredit their findings. China, a communist and extractive state, is on a path of economic dominance, not economic decline. Acemoglu and Robinson attempt to argue that eventually China will begin to decline due to its current state of unsustainability. But what measures time and when some states will begin to decline? Acemoglu and Robinson use the Mayan civilization as evidence that extractive institutions eventually fail, but the Mayan civilization lasted centuries, not 40 or 50 years. India, on the other hand, is at the opposite end of the spectrum. India has inclusive political institutions, but is extremely poor and in a massive state of polarization between the political elites and the poor. Technological innovation leads a bolstering economy, key factors of Acemoglu and Robinson’s argument for success, yet the country is poor overall.

Finally, Why Nations Fail misses one important, and worrisome example. The United States, touted as a pinnacle of success using inclusive institutions, is becoming more and more extractive. Market inequality, wealthy elites hoarding money and resources, a growing divide between the rich and poor – according to Robinson and Acemoglu, all of these are stereotypic factors of an extractive state. But isn’t the United States culpable for all these and becoming even worse? In his book The Price of Inequality, Columbia professor and Nobel Prize winner in Economics Joseph Stiglitz argues that America is becoming increasingly more financially unequal. He even goes so far as to say that, “America is the most unequal advanced industrial country,” in the world. [iv] America’s lack of sustainability is obvious: it is in a deep recession, if not depression, because of radical spending by the political elites and the banks. This negates another keystone of Robinson and Acemoglu’s argument about inclusive institutions.

In conclusion, Why Nations Fail is an entertaining narrative on a difficult yet intriguing topic that many will find extremely attractive reading. It is rich in historical content which makes it a pleasure to read, but it suffers in several crucial areas. Robinson and Acemoglu spend much of their book discussing inclusive and extractive institutions and how they shape the success or failure of a state. Citing many historical sources including the Industrial Revolution in Britain, the Mayan civilization in the Americas, the slave trade in Africa, and the communist governments in China and the former Soviet Union, Why Nations Fail makes a compelling argument. However, oversimplification has led to a conclusion that is not nearly as well rounded or cohesive as it ought to be. Jared Diamond’s popular book Guns, Germs, and Steel establishes that geography and the environment as the most important factors in determining the failures and successes of nations. Acemoglu and Robinson refute those thoughts early on in their book and barely discuss them. Furthermore, dominant states in the world today; China, India, and the United States, all refute the theory presented by Robinson and Acemoglu weakening its legitimacy and longevity. Finally, while Why Nations Fail will, and should, be one of the leading books on the topic of state failure, it cannot be the prevailing theory without a more detailed and expansive reexamination.

[i] Olson, Mancur. Power and prosperity: outgrowing communist and capitalist dictatorships. New York: Basic Books, 2000. Print.

[ii] Bates, Robert. “State Failure.” Annual Review of Political Science 2008 (2007): 1-12. Print.

[iii] Diamond, Jared M.. Guns, germs, and steel: the fates of human societies. New York: W.W. Norton & Co., 1998. Print.

[iv] Stiglitz, Joseph E.. The price of inequality: how today’s divided society endangers our future. New York: W.W. Norton & Co., 2012. Print.


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