Why Nations Fail is an intriguing book that examines why some nations remain poor while others prosper. The authors contend that the answer lies in the economic and political institutions put in place during critical periods in history.
Political and economic institutions that promote inclusion, in which everyone benefits from the same policies, tend to grow faster and be more successful long-term. Conversely, extractive political and economic systems often stagnate or even collapse over time.
Inclusive political institutions
Why Nations Fail is a book that seeks to answer why some countries prosper and grow while others struggle. It contends that economic inequality has little or nothing to do with culture, geography or climate, but rather stems from poor decisions made by those in power.
The authors contend that inclusive political institutions are essential for nations’ success. This can accomplish by encouraging and developing processes which ensure representation for all citizens, particularly women, within them. Furthermore, it’s essential to guarantee legitimacy to these processes through clear rules for inclusion as well as having an accountable government.
Inclusive political institutions lead to a more peaceful society. To achieve this, all citizens should represent and their opinions heard in policy discussions, elections, and decision-making positions.
Another key reason why inclusive political institutions are important is they make a nation more prosperous and productive. This can accomplish by guaranteeing people access to adequate resources. A functioning legal system that upholds contracts and safeguards private property rights also plays an integral role.
Similarly, economic institutions create incentives to develop new technologies. For instance, the United States became one of the world’s most innovative economies thanks to a patent system that safeguarded intellectual property rights.
However, there remain numerous obstacles to overcome in order to achieve inclusive political and economic institutions. For instance, countries may face difficulty changing their institutions when they run by a dictator or lack any form of democratic system at all – this presents difficulties as people often have strong preferences for the status quo and may resist change.
Furthermore, inclusive political and economic institutions can shape by a country’s culture and history. For instance, the United States had long been known for its extractive economic institutions until after the Civil Rights Movement transformed it into one where everyone has equal access to politics and economic opportunity. This marked a monumental change in its institutional path; going from being heavily dependent on slavery and Jim Crow laws to an economy where everyone has an equal voice in decision-making processes.
Extractive political institutions
Nations that struggle to develop often do so due to weak political institutions. These obstacles prevent them from creating an economy that encourages productivity and economic expansion, as well as hindering new technology advancement – thus hampering innovation and progress.
Inclusive economic institutions enable a nation to tap into the energy, creativity and entrepreneurship of its population. They create incentives for individuals to innovate, produce and invest in the country’s resources.
However, many countries with inclusive economic institutions still fail to develop due to a lack of political policies that encourage growth. These nations tend to be poor and have very low per capita incomes.
Many countries, largely in Latin America and Africa, fall into this category. They have a history of colonialism and limited exposure to inclusive economic institutions.
Extractive political institutions tend to concentrate political power within themselves and have a weak central government. Furthermore, these establishments often feature oligarchical elites who use their position for personal gain.
Acemoglu and Robinson identify these systems as “extractive.”
History has seen nations become extractive for a variety of reasons, such as war and conquest, monopolies, slavery, serfdom, feudalism and oppression. Therefore, it is critical to assess whether a nation’s current political and economic institutions are inclusive or extractive.
One way to determine which type of institution exists in a nation is by looking at its rules and enforcement mechanisms. If those regulations are restrictive and not enforced, then that nation is likely to have extractive political institutions.
On the other hand, if a government is inclusive and allows people to exercise political power, then there will likely be inclusive political institutions in place. In such cases, people have an opportunity to hold their government accountable for its decisions.
However, it is impossible to accurately predict which combination of institutions will prevail in the future. China’s authoritarian institutions have spurred rapid economic development while democratic India has lagged behind.
Consolidation of power
Why some societies progress while others stagnate has long baffled political scientists and economists alike. According to Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson, the answer lies within institutional power.
Institutions are a set of rules that determine how people acquire, use and retain power. They also help shape the distribution of resources and the nature of production over time.
Consolidation of power occurs when someone or group gain control over government. This could include appointing judges, secretaries and ministers as well as winning military backing.
Additionally, it involves various other mechanisms that guarantee the person in power remains in control. They might do this by outwitting their adversaries, upholding laws, or winning a war that benefits them.
In order to solidify their power, these rulers must first build a high level of prestige. This implies appearing successful against internal or external enemies and winning the loyalty of those who trust them.
To achieve this goal, they often employ various tactics such as recruiting elites, expanding their military and increasing citizen wealth. These steps enable the ruling class to monopolize both economic and financial resources while exercising tight control over its citizens.
However, these strategies could backfire and result in the suppression of free expression and democracy. If not handled carefully, these strategies could create a situation even more hazardous for the nation.
Many authoritarian states struggle to achieve economic prosperity. Their methods of power accumulation, such as mass killing and imprisonment, may backfire and result in a counter-coup against them.
Inclusive economic policies
One major reason nations fail is due to extractive economic institutions. This occurs when an elite class controls government and makes decisions without considering the larger population, leading to slow economic growth and political unrest, famine, and disease.
Inclusive economic policies can guarantee that all individuals in a country have an equal opportunity to contribute to and benefit from the economy. They may include policies which encourage innovation, boost investment in education and training, reduce discrimination, as well as strategies that promote financial inclusion by giving people access to credit and savings vehicles.
Countries that implement inclusive economic policies are able to expand their economies and lift citizens out of poverty. To do this, they can undertake various activities such as building infrastructure, investing in education and skills development, combatting poverty and encouraging technological advancement.
Why Nations Fail asserts that these policies are essential for nations to thrive. Their arguments founded in decades of research and draw inspiration from developmental economists such as Douglas North, James A. Robinson and Daron Acemoglu.
The authors use South Korea as an example to show how countries with inclusive economic institutions can foster growth and become rich. These include private property laws, strong banking sectors, and excellent public schools.
Conversely, extractive economic policies can ensnare a nation in an endless cycle of poverty and instability. These may involve taxation or expropriation that weaken property rights and promote inequality. Furthermore, they often cause political unrest – another major hindrance to development.
Some countries, such as Zimbabwe, have an extractive political system that serves primarily the interests of wealth accumulation and power consolidation. This is a widespread issue across sub-Saharan Africa where there often lacks a strong central government and can be ruled by an absolute monarch or political party, making it difficult to create an inclusive economic structure.
The United States and other advanced economies have inclusive economic policies designed to foster growth and wealth creation for all. These may include measures that promote financial inclusion, support sustainable infrastructure, or fight climate change. Anti-corruption measures like anti-money laundering regulations or cross-border agreements help detect and prevent illicit activity.
China is a new model of “authoritarian growth”
The CCP has repeatedly promised to make changes to laws and procedures, but the actual outcome has been disappointing for ordinary Chinese. While the CCP claims to be pursuing legal reform, reformers argue that their progress has been slow and incremental. As with any process, small steps make a big difference. A broader legal system is necessary for true democratic development in the PRC.
China’s ruling party has little control over local officials. This means that abuses can occur with little or no oversight from the central CCP. However, the CCP has been able to detect abuses and punish the officials responsible for them. In addition, the CCP has forced the press to promote its own agenda and portray its own growth and progress as an example for foreign critics.
One of the major risks facing China’s continued economic development is the lack of democratic institutions. The lack of freedom of expression, freedom of information, and toleration of social diversity has all undermined China’s ability to sustain its economic growth. Furthermore, the absence of democracy in China has prevented innovation, and the deteriorating environment has stifled the growth of state-owned companies.
As the author points out, the Communist Party has maintained political power in China since 1949. The Chinese Communist Party’s founder, Mao Zedong, tried to operationalize Maoism in the country, which is a Marxist form of government. However, Deng Xiaoping tried to modernize the leftist economic policies of China.
Foreign aid structure
Acemoglu and Robinson discuss the history of foreign aid in Afghanistan and how it has failed to bring about development. They also examine the role played by corruption and the appropriation of aid by dictators. Their book is well-written, but it also has some problems. Readers might expect a scholarly book, but instead find themselves reading about a controversial policy that has little to do with the development of a country.
The problem with foreign aid in developing countries is that many development agencies act as if the leaders of these nations simply want to do the right thing and learn. Instead, development aid should involve smart people from Washington to train those leaders and accompanied by a bit of arm-twisting.
The authors draw some important conclusions, but the taxonomy of inclusive versus extractive policies gets repetitive, and the authors aren’t entirely clear on their concluding policy advice. However, their wide scope and enthusiasm make this a worthwhile read. One chapter in particular takes us through the Soviet five-year plans, the Neolithic Revolution, and the ancient Mayan city states.
The book could also discuss the impact of foreign pressure on developing countries, particularly on their extractive regimes. Acemoglu and Robinson could have addressed this in more detail. While they do note that the international financial institutions promoted economic reforms in these countries in the 1990s, the results were that they resulted in the privatisation of state-owned assets, which created monopolies and supplemented the fortunes of rich businessmen. They should have also explored the effect of Western business connections on the Egyptian regime.
Institutional choices determine levels of economic growth
The quality of institutions is an important factor that determines economic growth. Institutions that are inclusive, well-anchored, and protect property rights are characteristics of high-quality institutions. These characteristics have important implications for how we view the role of institutions in economic growth. Let’s examine a few of these characteristics.
In addition to the characteristics that affect the quality of institutions, the economic structure of a country can also affects the performance of those institutions. For example, many less developed countries have inclusive institutions that merely written in the law and selectively enforced. These institutions often fail to increase economic growth because of decreasing returns on production activities, which are insufficient to cover the costs of enforcing them.
The quality of institutions in a country is an important factor in explaining cross-country differences in economic growth and long-term trends. Researchers have attempted to link the long-term growth rate to various control variables, including institutional quality. However, some have questioned the validity of most of the indicators used in the literature. In general, however, institutional quality found to have a positive impact on growth performance.
In addition to the quality of institutions, economic outcomes also depend on political power. As a result, institutional quality is a key state variable in economic development. High-quality institutions will not prevent the next economic crisis, but they will increase the odds of a society recovering from a crisis and continuing its long-term trajectory of progress.
Recommended readings:
- Colonialism in the United States and Canada
- Human Rights Legislation – Poverty As a Social Condition
- World Day of Social Justice
- HEC – Higher Education Commission Islamabad
- The Business Case For Diversity and Inclusion
