Why nations fail

The reason some countries are poorer than other countries lies in the structure of political institutions. By creating the right or wrong incentives it is the way political power is distributed, rather than a country’s geography, culture or economic programmes, that determines whether a country is prosperous, argues a new book.   

Why Nations Fail begins with the recent example of the Arab Spring, which culminated in a public uprising, when the demands for political rights and government change were left unanswered.

The authors Daron Acemoglu and James Robinson, respectively an MIT economist and a Harvard political scientist, ask why is Egypt poorer than the US? Is Egypt poor, as many academics suggest, because of its geography, its mostly desert conditions and a lack of rainfall that makes productive agriculture largely impossible?

Do Egyptians lack the work ethic and cultural values to be economically successful? Or did the rulers of Egypt follow the wrong strategies to make the country prosperous? 

Acemoglu and Robinson argue in their book that the people in Tahrir Square with their desire for political change have an instinct for what is wrong with their country. They say the main reason Egypt is in fact poor is that it had a narrow political elite with concentrated political powers used to design a society for the benefit of the elite rather than the general public. 

And the authors say Egypt is only one of many countries that are poor because of its political structures and a centralised control of political power and economic resources among a small ruling elite. 

“Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.” 

The idea that fundamentally a political transformation is needed to turn a poor country into a rich one is supported throughout the book. It is political rights that enable the expansion of economic opportunities, the authors say. Where England had a revolution that overthrew the existing political power and distributed it more widely, Egypt merely passed on political power, after Ottoman and British rule, to an elite that had little interest in creating prosperity for Egypt’s people. 

The author’s use among others the twin towns of Nogales on both sides of the US-Mexican border as an example to put holes into the theory that geography is the main determinant of the prosperity of a place. 

They ask “how could the halves of what is essentially the same city be so different?” Despite both towns being subject to the same geography, climate, natural disasters and diseases, even the residents are different in terms of their health and life expectancy, in addition to the gap in wealth.  

Acemoglu and Robinson see access to different political institutions as the main differentiating factor, with US institutions being more conducive to economic success. Ultimately human-made systems, rules, both formal and informal create different incentives. Only institutions that centralise power and are inclusive at the same time are the ones that create prosperity. 

This explains why some corrupt regimes have such a strong impact on their countries’ wealth. But where does this leave China, which clearly has centralised its power, but maintains non-inclusive, Acemoglu and Robinson call them “extractive”, institutions that serve the ruling elite more than the people?  

Despite the extraordinary economic growth China has experienced, and the millions of Chinese who have been lifted out of poverty, the authors argue that without making its political institutions more inclusive, without removing political constraints, China may escape poverty but it will never reach the levels of modern prosperity. 

They also doubt that China’s economic success will gradually lead to the necessary political change.  

In a well written fascinating mix of economics, politics, history and current affairs, Acemoglu and Robinson make a strong and thoroughly readable case for political rather than economic reform in most poor countries. 

 

Daron Acemoglu, James Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, 546 pages   

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