Why Nations Fail

WHY NATIONS FAIL: THE ORIGINS OF POWER, PROSPERITY, AND POVERTY
By Daron Acemoglu and James A. Robinson

Just recently I began a review of Niall Ferguson’s Civilization with the observation that it was impossible to believe Ferguson thought he was saying anything new in his triumphalist account of the West’s ascendancy over “the rest.” To be fair and balanced, I don’t think Daron Acemoglu or James A. Robinson are saying much that is new either, though they have assembled a barrage of puffery that might lead you to believe otherwise. How many other works of popular political science have blurbs from five Nobel laureates in economics, accompanied by a selection of bestselling academic authors like Steven Levitt (Freakonomics), Charles Mann (1491), Jared Diamond (Guns, Germs, and Steel), Francis Fukayama (The End of History) and even Ferguson himself?

The authors take some pride in the simplicity of their thesis, and it can in fact be quickly summarized. Nations that prosper are characterized by “inclusive” political and economic institutions, characterized by such items as representative, centralized government, free markets, property rights, and the rule of law. These states foster innovation and capitalism’s attendant creative destruction, while raising all boats through the operation of Adam Smith’s invisible hand. The negative flipside of the inclusive state is one dominated by “extractive” political and economic institutions. An extractive state is run for the benefit of elites, and so doesn’t offer any incentive for economic growth or development from below.

If the virtues of the inclusive state remind you a bit of the Whig interpretation of history checklist, that shouldn’t come as a surprise. Acemoglu and Robinson see history as marked by various turning points or “critical junctures,” and chief among these is England’s Glorious Revolution of 1688, which begat the Industrial Revolution. This is the end that the Whig historians saw all history tending toward, and it’s not hard to see why. We are living in the world the Industrial Revolution made. Though the word “post-industrial” gets thrown around a lot, thus far it has no real historical meaning.

While I’m sure Acemoglu and Robinson would deny charges of presentism in their work – that is, studying the past with reference to what came after – I think it’s still a live issue. At times it even strikes one over the head, as when the argument is consistently made about how much more sustainable inclusive economies are. Taken outside of the specific and somewhat narrow thesis being presented (that inclusive economies have greater innovation and are thus more capable of adapting), I think if most people were presented with the question of whether industrial capitalism is sustainable their answer would be No. I know my own response would be a very quick “Of course not.” The fact is, it’s difficult if not impossible to compare pre-industrial states and their governments with anything that came after. When it’s said that the Roman Republic worked because of its (relatively) inclusive institutions and the Empire declined because of its increased levels of extraction you really have to squint and stand back a ways to see it. Furthermore, what has come after the Industrial Revolution hasn’t been around that long. Less, for example, than the lifespan of the Roman empire. Extractive social structures have been the norm, indeed the only game in town, for most of human history. Not because they’re better or promote prosperity, but I think because they’re simpler to run. Complex social structures are harder to sustain.

Another point where the authors leave themselves open to criticism is their privileging of the nation state as the unit of comparison. This takes two forms. In the first place, there are the striking cross-border shopping comparisons made between places like Nogales, Mexico and Nogales, Arizona, or North and South Korea. These are used to show the beneficent or pernicious effects of contrasting national institutions. But what about striking inequalities within borders (and I am not referring here to the legacies of “dual economy” systems, that the authors do nod briefly toward)? In the nineteenth century it was true that national differences trumped class or ethnic differences within countries. Far better to be a poor Englishman than an Indian peasant. But recently that great divergence has been narrowing. And so life expectancy for residents of Washington, DC is twenty years less than for those living in the capital’s affluent suburbs. And within just one city, Glasgow, in 2008, there was a nearly thirty year difference in life expectancy between those living in the nicer and the poorer parts of town (where unemployment was around sixty percent). These are things to keep in mind when considering the authors’ contention of how inclusive institutions tend to grow stronger through a “virtuous circle” process. A statement like “Under inclusive economic institutions, wealth is not concentrated in the hands of a small group that could then use its economic might to increase its political power disproportionately” only makes sense when comparing jurisdictions like the two Koreas. When looking at the situation today within many Western democracies, it will likely strike most readers as bizarre. Put another way, mention is made several times to the uprisings of the “Arab Spring,” but nothing is said about the Occupy movement.

The second problem with using the nation state as the unit of comparison is that is elides a rather significant issue that the authors don’t get into: what they call “extractive colonies.” When they do use this language they’re usually referring to situations in the past when Europeans nations, sometimes quite deliberately, retarded development in countries they were raping of resources. But extractive colonies are still very much with us today. You don’t have to be a reader of Chomsky to know that, for example, they have long been established throughout the Middle East primarily to ensure American access to cheap oil. Which, in turn, fuels (literally) American economic prosperity and growth. The point being that states don’t just exist on an institutional continuum between inclusive and extractive, they make use of both. Politically, inclusion at home may be made possible by extraction abroad. If you were living in any number of Middle Eastern petrostates in the second half of the twentieth century you were likely suffering under extractive institutions, but whose? More needs to be said about such rich/poor synergies that exist outside the box of the nation state.

As with Ferguson’s Civilization one can’t shake the sense that the authors’ argument is end-directed toward justifying America’s global dominance at this, the end of history. Indeed, both books even conclude with the same focus on China as potential challenger (with the authors here saying not to worry). Nothing I’ve said is meant as a criticism of inclusive institutions, but with any simple thesis care must be taken to avoid simplistic applications.

Notes:
Review first published online April 9, 2012.