Review: Why Nations Fail

Picture of me blowing smoke

I’m developing something of a sub-section on social, political, and economic philosophy…

I said in the review (reproduced below) that the theory of this book very much compliments that of Francis Fukuyama also reviewed here. There are other books in this arena as well, one by Phillip Bobbitt and one by Henry Kissenger. Each of these books has something to contribute to the same subject, roughly the history of nations on Earth. What I didn’t say in the review is reflected in an early marginal note that appears in this book. I wrote that this theory of Acemoglu and Robinson, given their introduction of it, seemed “trivially true”. What I meant was that given equality of other things, a nation whose political and economic institutions were more pluralistic would, on the whole, do better economically than one whose institutions were less pluralistic. I think the authors mount a powerful argument for the theory. I think they are right. But I still think that on the whole the theory is but trivially true.

To begin, the authors examine and reject a few other theories purporting to explain why some nations are wealthy and others not so wealthy. In particular the “cultural” and the “geographic” theories are of interest here. The authors very much emphasize that the institutions of which they speak emerge through history. The process can and has taken hundreds of years in some cases and the results have always been contingent meaning that only a small difference here or there might have blocked such evolution (as it has in much of the world) or reversed it even once begun (something that has also happened). The authors emphasize that small differences between institutions in different states are magnified by “critical junctures”, events like the Black Death, the discovery of the Americas, or the invention of movable-type printing.

The authors trace these differences and how different nations (in 1600 all “extractive” as the authors term it) responded politically and economically. These responses are all broadly social, and the social fault lines are reflected by culture and in turn rest on geography. In England the Magna Carta was signed in 1215. It gave the nobility a little say over what the King did, but it was hardly inclusive politically as we would understand that today. The plague followed in 1348, 133 years later and shifted things a bit more by pure chance. A greater percentage of English nobility was wiped out than was the case for example in France, Spain, or Eastern Europe.

Four hundred and seventy three years intervened between the Magna Carta and the Glorious Revolution (1688), almost nineteen human generations. The book covers much more of the intervening details for example the War of the Roses, the Cromwell experience, and the installation of William of Orange. This history is what set the culture of England and insured that the English response to events would be different from that of France or Spain.

Cultural differences are social and subject to contingent social forces. The only thing contingent about geography (used broadly and into which I am folding climate and mineral resources) is which nation ends up with which territory.  Rwanda, Burundi, and Ethiopia grow delicious coffee, among the world’s best. Their coffee growing potential has nothing to do with culture and everything to do with where they are situated in the world. But none of the three have any coast. To ship their coffee to world markets each must pay transit fees to other nations in order to reach some port. If Ethiopian coffee farmers are to reap the same economic benefit as say producers in Guatemala who also grow superb coffee and do have access to a coast, Ethiopian coffee must sell for a higher price than Guatemalan coffee. Even if Ethiopian and Guatemalan economic institutions were equally inclusive (or extractive) Ethiopian farmers cannot get the same price for their coffee if they (or their elites) want to compete (and so sell for the same price) with Guatemalan farmers.

To wrap it up, nations with pluralistic institutions generally become wealthier than those without and the historical path from extractive to inclusive institutions is contingent. But among the contingencies are the culture as it evolved through many generations, and the location of the nation on Earth which limits, magnifies, or otherwise impacts the cultural contingencies and the possible wealth that might be generated under different institutions.

In my Amazon review (below) I bring up the “other end” of the whole process, something that is not the author’s concern. They are interested in why nations are wealthy (or not) now, and not what happens when even inclusive institutions go on too long. They do note that when new groups become wealthy under inclusive institutions, these become “new elites” and begin to work, politically, to constrain future inclusiveness so as to lock in their new privilege.

In the present day, such behavior in the Western and more inclusive nations has resulted in something of an equilibrium between forces, but at any given time one or the other can be ascendant. It is clear from the flattening of U.S. wages and the increase in wealth inequality since the 1970s that since that time, the push back towards exclusivity is gaining ground; an observation the authors seem to deliberately avoid making.

Why Nations Fail By Daron Acemoglu and James Robinson 2012

When I stumbled on this book I wondered how it would compare to the work of Francis Fukuyama in “Political Order and Political Decay” also reviewed. As it turns out the two works are entirely complimentary, the work of Acemoglu and Robinson riding on top of Fukuyama’s. Like Fukuyama, the author’s here recognize that a prerequisite to the political and economic orders that evolve in modern rich nations as compared to poor ones is a State, with writ over its whole territory, capable of enforcing property rights (whether they do so initially or not) and a relatively broad base of economic interests not tied solely to the land. Another prerequisite for both is the eventual evolution of a polity supporting “rule of law” which is not the same as “rule by law”. The difference is that in the former, everyone (in theory) comes under the law while in the latter the elite typically do not. This prerequisite is, in general, a consequence of the broad based economic coalition.

What begins to drive such nations is a feedback the authors call inclusive institutions, a “virtuous circle” leading to yet broader, more pluralistic political institutions and economic institutions characterized by lowered economic barriers, technological innovation, and competition that drives a broad-based increase in wealth. The authors emphasize that a virtuous evolution is not foreordained. There are always forces working to try and coerce political and economic institutions into an extractive mode in which both political and economic institutions are organized for the benefit of a few. This is, in fact, what was the case over the whole world in 1600 and has remained the case in most of the world. Though specific institutions in these countries (Russia, most of South America) have changed many times, they remain extractive and this tendency, the tendency of elites to preserve their status at the expense of everyone else the authors call a “viscous circle”.

Many nations today labor without even the prerequisite of a State writ. Such nations cannot possibly develop inclusive institutions of any kind. But even extractive institutions can grow an economy if the State writ is present and there are resources in demand by the rest of the world. Extractive societies can grow relative wealth, for example Saudi Arabia, but the authors argue (citing case after case, exploring many individual national histories) that there are severe limits to that sort of growth. Like Fukuyama these authors also recognize that even among the most inclusive nations today (mainly Western Europe, the United States, Australia, New Zealand, Japan, and a few others with but one, Botswana, in Africa) are not immune from sliding backwards, particularly as concerns economics, into more extractive forms. Fukuyama, explores how this backsliding happens at the political level, while in this book, aside from the recognition that this can happen, such backsliding in the present is not specifically addressed.

This is well written and richly detailed exploration of political and economic institutions throughout the world. No continent (save Antarctica) is ignored. Acemoglu and Robinson make a fine case, and because the actual history of nations sets these outcomes much depends on how small initial differences are magnified by events out of anyone’s control (the Plague in Europe, the discovery of the Americas, the colonial grab for Africa) they recognize the limitations of their theory as well. The historical path taken by every nation or quasi-nation is unique. Emerging into the modern period there are endless variations. China is unusual in that economic institutions appear to be liberalizing while political institutions remain purely extractive. The difference, also the case in Russia, is that the State is compelled to find some solution to competition on the world stage. Chinese and Russian economic institutions remain broadly extractive and their growth will not continue for long.

The author’s point here is well made and well established. They do not, alas, address the gorilla in the room. Even if all the world’s nations were as inclusive as the wealthiest of today’s States, there are limits to growth. One problem with open-ended competition on a level playing field is that greater wealth ultimately comes down to greater resource utilization. There is only so much to go around. But this is not their problem. The goal here is to argue the case for wealth associated with both political and economic inclusiveness. I cannot find any weakness in that argument broadly conceived as the authors portray it.