A return to ‘Why Nations Fail’

Power, prosperity and poverty remain a play in the construction of institutions

Acemoglu and Robinson’s aim with their book is clear in its name ‘Why Nations Fail: The Origins of Power, Prosperity, and Power.

It is a conundrum that humanity has gone through endless intellectual explorations and trial-and-error to solve world’s major problems.

Yet, so many nations are failing.

In one way or the other, we are all affected by power, prosperity and poverty.

We are either privileged with power, hoping for prosperity, or plagued by poverty.

For the authors, it all comes down to institutions.

They argue that manmade institutions need to be checked, not preordained like geography, culture or disease.

But institutions are made by us, with clear beginnings and aims, room for amendments, and apparatus for implementation.

To solve problems like poverty, we need a clear enemy that can be defeated with intellect and pragmatism.

Institutional failure can be just that.

“As we will show, poor countries are poor because those who have power make choices that create poverty” — this links well with the idea of institutions because the authors define them as “the rules influencing how the economy works, and the incentives that motivate people”.

Institutions are man-made rules, and the people making these rules are the power-people in that country.

Vested interests can corrupt the powerful into creating conditions for poverty because inequality serves status quo, maintaining their power.

This game of power is illustrated in the example of Mobutu and the exploitative practices of the powerful in Congo.

“Nations fail when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth.” And because they are man-made, they must, ideally, be amendable and accountable.

On the other hand, the geographically and culturally similar country of Botswana has a different trajectory because it formed inclusive institutions.

Similarly, the separate Koreas are both very different, even though they were once a single country, due to the dichotomy of extractive and inclusive regimes.

Regarding China, the authors pin its “temporary” growth success on political centralisation because it is still a highly extractive system.

They argue that China is not following the long-lasting model of creative destruction.

Instead, it is doing relentless investments and rapidly changing technologies, disrupting true innovation, for long-term results.

The authors add that the media will have real impact only when a big part of society mobilises and does so to “transform extractive institutions into more inclusive ones”.

The book presents the importance of critical junctures as turning points and how some regimes benefit from them and others do not.

For example, it is explained that the Industrial Revolution was a critical juncture to be benefited from.

England underwent the change due to its openness and move towards inclusive systems, while the Ottoman Empire’s absolutist and extractive nature did not allow it to benefit from the critical juncture.

While this comparison may be convincing, the treatment of the Ottoman Empire might seem unfair — after all it was a huge empire, with complex public administration to accommodate the plethora of communities living under it.

Is it not eurocentric to put Western history and values on a pedestal, in sharp binaries to any opposing system that is not ‘Western’ or ‘white’? Perhaps a careful observation of that would be good for reading this work.

‘Why Nations Fail’ is an interesting dive into the economics, politics and history of inequality and poverty.

The widening disparities should cause a sense of urgency as they are the root of poverty and power.

While the book provides some answers, it negates the impact of geography and culture.

Institutions may well be more important, but they cannot be the only thing.

There is still some merit to geography and culture.

Societies are constituted of these and institutions are born out of multifaceted societies.

Even within a country, rules are applied differently.

But the comparison of similar countries that took up vastly different paths is a strong argument in how the rules of the game are applied.

Indeed in inclusion lies the true spirit of humanity.