Why Nations Fail

Why Nations Fail: The Origins of Power, Prosperity, and Poverty

Daron Acemoglu and James A. Robinson, 2012

The book applies insights from institutional economics, development economics and economic history to understand why nations develop differently, with some succeeding in the accumulation of power and prosperity and others failing, via a wide range of historical case studies.

In the first chapter they compare the USA to Mexico and Peru. The USA has been relatively prosperous while Mexico and Peru have not been. Why is that they wonder. When each government was forming, they went through different things. The USA, particularly in the 1800s, gave patents to anyone who had a good idea and land was given to those who claimed it and homesteaded. Patents and Land are examples of Inclusive Economics.  Mexico and Peru, among other countries, only gave opportunities to those who were already rich and powerful. This is an Exclusive type of Economics.

The authors examined the reasons typically given for the divide between rich and poor countries. Geography has been listed as one of the reasons traditionally.  And it is true to that most of the rich countries are in the Northern Hemisphere, while the poor ones are mostly in the Southern Hemisphere.  Other Economists try to argue that it has to do with difficulty with agriculture or poor education, but the authors of Why Nations Fail disagree.

In my Social Work Class about Women and Children in Developing Countries back in 2002, we talked about how Colonialism and Patriarchy were two key factors in keeping poor countries poor. There would be much social unrest, particularly for the first few years that the Colonizing Country pulled out and left the government.  The US won their freedom early on and grew prosperous after a short period of unrest.

Acemoglu and Robinson go on to talk about England and the Glorious Revolution. First came the Magna Carta and then eventually the formation of Parliament.  Soon the Industrial Revolution came and England became the most prosperous country in the world. Becoming Pluralistic and Developing Parliament allowed England to embrace the Industrial Revolution and become an Inclusive Economy. That is why it thrived.

France didn’t thrive until the French Revolution happened. Once the Monarchy was overthrown, the government shifted from Exclusive and Extractive to more Inclusive. The Rich Aristocracy essentially taxed all the poor people and allowed all the rich to just grow richer. This meant they were essentially sucking the life out of the Economy. When more people had opportunities to better themselves and their lives, the Economy rebounded.

Although the Mid-1800s were a time of Growth for the USA, the early 1900s saw a shift in things.  The rich US Barons fought a very public war against the Mudracker Journalists who called them out and called for change.  Eventually monopolies were broken up and things like The New Deal were put in place.  And once again, the Economy rebounded.

Acemoglu and Robinson discuss the idea of the Virtuous Circle Vs the Vicious Circle. A Virtuous Circle will give positive feedback into the Economy and keep thing moving and growing. A Vicious Circle will give negative feedback and keep the poor from ever rising to middle class and beyond.  They use the Mayan City-States in Pre-Colonial Mexico as an example of a Vicious Circle that led to the Failure of the Mayan Civilization.  Other examples they used of Vicious Circles or Negative Feedback were Zimbabwe, Somalia and Sierra Leon in Africa.

Uzbekistan was another example of a country that had benefited from being Colonized by the Soviet Union. When Soviet Union broke-up and then left their colony President Kasimov took over. He held fraudulent elections and kept himself in power indefinitely. He has also forced children in hard labor—harvesting the cotton crop, which is their biggest export. While the thinly veiled Dictatorship has kept Uzbekistan from failing completely, it is floundering.  The short term pay off are already damaging the long term prospects for this country. The effort to grow tea on the land failed due to Kasimov’s unwillingness to give up any power whatsoever.  Uzbekistan will mostly likely collapse in the near future.

Argentina was a peculiar case and unique in many ways. The country was one of the richest back in 1914 when the Peron’s took over.  Elections were bought and sold. Though they appeared to be democratic, they really weren’t.  Eventually, they corralled the money of their citizens, forcing them to exchange their American Dollar for the Peso. This meant they effectively stole money from everyone in the country and deflated the economy. Now their economy is stagnant. It hasn’t collapsed entirely, but hasn’t grown either.

After using many examples to illustrate their theories, the authors concluded their book. They didn’t really make any recommendations for trying to keep your own personal country afloat, however, they did mention that freedom of the press was a key part of keeping an Inclusive Economy.

Overall, I thought they had an interesting theory. The biggest criticism general readers had was how much information they had to wade through to get the basic idea of what the authors were trying to say. And it is not a small book at 556 pages to be sure, but it was a pretty quick read for me. Organization was the other criticism on Amazon.com.  And it is true that they did jump around a bit. Taking notes helped me keep their points in order though. It wasn’t too much of a detractor.  Other Economists complained about the lack of graphs and statistics. Adding such things might have improved it.  Still, it was definitely worth a read if you are curious about politics, economics and the like.

For more information you check out the Why Nations Fail Blog at http://whynationsfail.com/