The Origins of Power, Prosperity and Poverty
By Acemuglu and Robinson
My review
Why nations fail?
Simply because they are destined to.
On page 452 of the book, the authors put the question again: why Nations Fail? And the answer proposed is they fail because of extractive institutions.
Interestingly, it is mentioned in the preface, so you can just read that. But to get there you really need to study the contingent path of history (or iron fist of history).
It is evident that changes, small or big, that are made at several junctures throughout the history of a nation decide if it will succeed or fail. In broad terms, the establishment of inclusive political and economical institutions, rather than exclusive and extractive ones, determines the path such nation will take.
Some nations might achieve short success, economic growth, industrialisation and improving quality of life through dictatorship, like the USSR, and many examples in Latin America and the Middle East, but with the presence of extractive institutions and the absence of "creative destruction" it will run out of steam and fail.
Sounds simple, but it is not, it is a very complicated process and the authors have tried through analysing various historical information to present their case. Of course it is often easy to go back through history to find things/events that prove you right, but in this case, although it is the same, hand-picked events to prove the theory right. However, there is an important difference, repeat the process of analysis on many nations and countries, and surely you can either prove them (the authors) right, or wrong.
The authors have looked at and discussed the history of these nations in details :
England
USA
Mexico
Colombia
Guatemala
Argentina
North Korea
Indonesia
China
Japan
New South Wales (Australia)
Egypt
Sierra Leone
South Africa
Zimbabwe
Somalia
Ethiopia
Botswana
France
Spain
Italy (including Roman empire and Venice)
Austria-Hungary
Russia
Uzbekistan
And in the process widely touch on every country in the world (almost).
This leaves you with the clear and proven hypothesis, Nations Fail because of extractive instructions.
What does the term extractive institutions means? I would say it is the system of governance that ensures monopolies control the economy, and those monopolies are either part or closely aligned to the political elite. During the American civil war, for example, the legislators (all slave owners) in the south ensured that owners of 20 slaves are exempted from serving in the Southern army, so the ones fighting and dying in the war were not the ones benefiting from slavery. Another example comes to mind is Saudia Arabia, where the crown prince MBS held few hundreds of the Saudi elites (royal and businessmen) in the Ritz hotel and forced them to give up some of their wealth, it was not a unique or unprecedented situation, and anywhere in the world where rights are not protected, rights of ownership not political rights- that’s an advanced step, the countries institutions will be considered extractive.
Why rulers create those extractive institutions? Some because they stupid, but it is hard to believe that someone who succeeded in ruling a country is actually stupid. Often it is necessary to stay in power, to ensure that you control the population, and not alienating the elite. On many instances it is sometimes necessary to make stupid decisions because you want to help everyone; which in short term works, but in long term it is destructive. The authors gave an example of some economic decisions in Ghana in the 1960s, as the country emerged it was important to implement some investments/ incentives in different parts of the country, that meant a leather product factory is placed few hundred miles away from the places where all the leather would be coming from, ultimately increasing the cost and reducing the productivity, but if the president did not place it there he would’ve lost the support of the locals in that area. Few years later the leather factory collapsed, because on the long term it was not sustainable.
Another reason why rulers make “stupid decisions” is to protect the status quo. When William Lee invented a knitting machine in 1587, he sought a patent from Queen Elizabeth 1,but her reply was "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." what the Queen feared was creative destruction, and because she had exclusive political institutions, she could make these decisions unchallenged. Queen Elizabeth had the right to protect “her poor subjects”, and by doing so she was protecting the stability of the crown and her rule. However, a 100 year later the “glorious revolution” took place, and change in England became possible, it change happened. Acemuglu and Robinson argue that because of the Magna Carta (1215), the plague (1347), the English Civil war (1642), glorious revolution (1688) were all small/ big junctures that led to the England of the 18th century and that made the industrial revolution possible in England (later the UK) only because of gradual changes of its political institutions over the past few centuries.
The book presents various examples of failing nations, proving that race, religion or geographical place on the map have very little in the success or failure of a nation. It debunks few economic theories and ideas, that sometimes are widely accepted, and proves that nations succeed once they have inclusive political institutions, and the rule of law prevails over personal interests of leaders and rich elite. (it is worth noting the reference the authors make to Rule of Law and ruled by law).
It is an excellent read, I highly recommend it.
Ahmad Baker
