Review: Nations fail when people can’t hope

June 1, 2012

By Pierre Briançon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The book begins in Nogales, a city divided by a fence along the border of Arizona and Mexico, and ends 450 pages later in China, with the story of a young entrepreneur arrested in 2004 for having started a large steel plant competing with the state-owned companies. In between “Why Nations Fail” is a highly readable narrative of a breathtaking trip: from the Neolithic Revolution to 16th century England, from Spain’s Philip II to Stalin, from the Mayan city-states to the Portuguese colonisation of the Moluccan archipelago.

Daron Acemoglu, a professor of economics at MIT, and James Robinson, who teaches government at Harvard University, have looked far and wide for an explanation to account for the vast differences in income and wealth between rich and poor countries. They think they have found one. It’s the politics, stupid – or rather, the institutions.

The impressively deep and broad research leads to the conclusion that countries, communities and civilisations ruled by what the authors call “inclusive” institutions end up prosperous. Inclusive institutions are pluralistic and support strong and rigorously enforced property rights. They provide the confidence needed to encourage the many to invest in the future. “Extractive” systems, on the other hand, are ruled by the few, who hijack the resources and wealth. Without good politics, there can be no good economy.  Democracy is not a nice addendum to wealth: it is a pre-condition.

The ambitious quest for a unifying cause is the book’s greatest strength. Acemoglu and Robinson never make their simple truth a simplistic one. Nuances abound, as well as answers to the objections that their case might raise. Nor do they shy away from exploring the impact of other factors – major disease, weather, agricultural potential or natural resources. And they are fair when explaining why they think that rival all-encompassing theories – of geography, culture or other factors - “don’t work”.

The single-mindedness is also a weakness. Reality sometimes has to be stuffed into conceptual boxes. The repeated opposition of inclusive and extractive is irritating, if only because the former suggests an excessively rosy, let’s-love-each-other vision of the world. More substantially, the polarity doesn’t leave much room for the cases where the reality is not so black and white.

Nor do these categories allow the authors to escape the chicken-and-egg conundrum: as they amply demonstrate, good institutions certainly foster prosperity, but why are the institutions good in the first place? The cultural and economic preconditions – and the role of chance – warrant some deeper analysis.

The case for inclusive institutions is appealing, but a closer examination of the cases that may not fit would have helped. The 20th century, after all, gave us some examples of not-that-inclusive regimes that managed somewhat prosperous countries. Singapore comes to mind, but is barely mentioned. Similarly, it would have been interesting to have some analysis of why countries with roughly similar “inclusive” institutions end up with different levels of wealth; it’s simply not enough to discard as “extractive” the traits that don’t fit with the theory.

The authors owe much to the works of economic historians, who are duly credited, although the pioneering work of Fernand Braudel on the history of capitalism is bizarrely not mentioned. But as it is, Acemoglu and Robinson have written a book that will remain for quite some time the most provocative attempt at explaining, not only why nations fail, but why people count.

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