on 5 July 2013
How dare the authors propose to answer a question that has engaged the finest scholarly minds since the mid-eighteenth century? The title of the book betrays the chutzpah of two of the finest political economists alive - Professors Daron Acemoglu (MIT) and James Robinson (Harvard). Jean-Jacques Rousseau, Karl Marx, Max Weber, David Landes, Paul Samuelson, Kenneth Arrow, Jared Diamond, Jeffrey Sachs, Douglas North, Steven Pinker--to name but a few social thinkers--have addressed this question in one form or another. What new insights do Acemoglu and Robinson proffer? These were the questions in my mind after reading a review of Why Nations Fail in The Economist. Despite my initial reservations, I read Why Nations Fail and listened to Robinson's lectures on Youtube. I am glad I did. However, after reading the book, I feel gloomy about the prospects of poor countries like mine (Nigeria).
THE BOOK IN BRIEF
The authors seek to explain two observations: the cross-country disparity of wealth we see today (say the United States compared to Zimbabwe); and the intra-country process of wealth/poverty creation. Acemoglu and Robinson's main argument is that these two phenomena are best explained by intra-country politics: the interplay of inclusive/extractive political and economic institutions. So what? This may seem banal. Of course, politics matters, one may argue. But do geography, climate, culture and ignorance (of the elite) not matter more? The book tackles these putative causes of poverty. Acemoglu and Robinson refute the geographic, climate, cultural and ignorance theses of poverty. Geography may explain inter-continental differences in natural endowments like as arable land and draught animal species, but it does not explain intra-continental disparities in wealth. Cultural arguments are weak because they purport to explain everything. Why was China poor in the early twentieth century? Chinese culture. Why is it now rich? Chinese culture. Not a convincing argument. And ignorance? Poor country elite are not ignorant of the causes of economic development. Most of them are educated in the West; they know that good roads, widespread education and infrastructure make a difference. Yet, they don't build the infrastructure. Why? The causes of poverty must be more fundamental.
The book develops a framework for understanding the causes of long-run nation failure. If the political institutions, defined as the rules of the political game, are extractive (i.e. serve the interests of a narrow section of society at the expense of the majority) then economic power will be concentrated in the hands of the elite. In the process, this will stifle the incentives for innovation and productivity in the country. If, on the other hand, the political institutions serve the needs of society at large (a broad coalition) such that no one group dominates then it is more likely that property rights will be respected and people will be incentivised to improve productivity. But that is not the entire story. It is not enough that the country have a broad coalition; it needs a centralised authority. The book uses Somalia as an example. Somalia is as democratic a country as you could imagine: every adult male has a say in the running of clan affairs. But that is the problem. There is no centralised state with authority over the disparate clans. So while there is a broad coalition, Somalis are not incented to invest in productivity-enhancing technologies; a state of anomic anarchy persists.
Acemoglu and Robinson stress the path-dependent but contingent nature of economic development. Extractive political institutions tend to reinforce extractive economic institutions (a vicious circle), whereas inclusive political institutions reinforce inclusive economic institutions (a virtuous circle). My favourite example in the book is the comparison between Sierra Leone and Australia. Both countries are mineral-rich; yet, Australia is a rich country and Sierra Leone is famous for 'blood diamonds'. Why? The authors argue that there is no resource curse per se. Instead, in Sierra Leone, an extractive political system (British colonialism) was in place when diamonds were discovered. The British cordoned off the diamond belt and awarded a monopoly to De Beers. In Australia, this did not happen. When gold was discovered in the Australia, inclusive political institutions were in place. Did the Australian government cordon off the mineral-rich areas and award a monopoly? No. They did try to monopolise the rents from gold mining, but were forced to open up the land to ordinary Australians. The authors emphasise a fact that most people from the Third World know: politics matters greatly. Ask an average Nigerian why her country is poor. She will not say it is because of culture, disease, rainfall or ignorance of elite. Most likely, she would tell you that it is because elite political interests benefit from the status quo--and have no intention of changing it.
I thoroughly enjoyed reading the book until I reached the chapters about the pre-Civil Rights U.S. South, Sierra Leone, Guatemala and Zimbabwe. I have not read anything so depressing in a long time. Extractive political elite have a remarkable resilience. Despite industrial revolutions, civil wars, coups, social upheaval, these elites--planters in the U.S. South, descendants of the Conquistadors in Guatemala, Mugabe and his clique in Zimbabwe--survive pretty well and continue to impoverish their countries. Further, it is unlikely that outside intervention--no matter how well-intentioned--cannot distort the dynamics of the vicious circle.
So why do nations fail? Because they have extractive political and economic institutions. These are difficult to change though they can be successfully challenged and altered during critical junctures. The roots of modern world inequality lie in the emergence of inclusive institutions in Britain and the fruits of this - the industrial revolution - spread to those parts of the world that had similar institutions (settler colonies) or quickly developed them (Western Europe). Other parts of the world languished with extractive institutions which have persisted over time and thus remain poor today.
AUTHORITARIAN GROWTH, DEVELOPMENT AID AND DETERMINISM
Every work of scholarship has limitations; Why Nations Fail is no exception. I perceive three such limitations. First, in their attempt to refute the authoritarian growth thesis--the notion that though authoritarian regimes are unattractive, if such regimes can achieve sustained economic growth then the society can make progress towards more inclusive institutions (see chapter 15)--Acemoglu and Johnson deliberately muddle the intellectual waters. They argue that the 2003 U.S. invasion of Iraq, which was supposedly justified on the basis of the authoritarian growth thesis, was doomed to failure because modernisation theory is incorrect. Really? Should readers believe that U.S. intent to modernise Iraq was the justification for the war? Further, is authoritarian growth not efficacious in poor, post-conflict societies like Sierra Leone and Rwanda? It is easy to write off the authoritarian growth thesis, but I am not so sure that the authors' weak refutation applies to all countries regardless of level of economic development. Would the authoritarian model work for middle-income countries like Chile? Perhaps not. Might it work for desperately poor countries like Sierra Leone? Perhaps.
Second, the authors chronicle the ineffectiveness of foreign aid to trigger long-run economic growth. They give an excellent illustration of aid failure in Afghanistan. This makes sense since poverty is caused by extractive economic and political institutions, not ignorance of local elites. The authors then suggest that in order to be effective aid should be restructured in `so that its use and administration brings groups and leaders otherwise excluded from power into the decision-making process and empowering a broad segment of the population might be a better prospect' (page 547, epub version). What a woolly policy recommendation! The authors assume that development aid is benign, unintrusive and purely `technical'. I am not sure this is the case since development aid may tied to Western geopolitical power interests.
Third, despite protestations to the contrary, the book's central thesis smacks of determinism. Though the authors stress the contingent nature of historical economic development, their notions of the virtuous and vicious circles simply mean that history is (almost certainly) destiny. Well-organised groups like Southern Blacks can interrupt the vicious circle with considerable support from a centralised state. Also, individuals like Seretse Khama, Botswana's first post-independence president, can make a difference in the development of countries' institutions. Unfortunately, such outstanding individuals are extremely rare.
Despite the limitations of the policy recommendations, Acemoglu and Robinson have achieved a remarkable feat in Why Nations Fail. They have put intra-country politics at the centre stage of the development agenda. I salute their broad scholarship and hope the book stimulates further discussion in policy circles. I highly recommend Why Nations Fail.
I approached this with hesitation, after reading other reviews. I thoroughly enjoyed reading it - but of course it is a long academic treatise, setting out bags of evidence and potential evidence and a simple central economic thesis for which it argues, at length.
The thesis is a thesis about growth, which the authors see as the test of the success of nations. (Others might think of course, that this isn't just about growth and GDP, but you can see what they have in mind.) Growth is only possible if there is a centralised state. No centralised state, as in Somalia, just means chaos and no prospect of growth. If there is a centralised state, there be what the authors call an 'absolutist' regime where all power is concentrated in the ruler and the ruling elite and there can be growth for a while and of a kind - centrally driven growth, as under Stalin in Russia between 1930 and 1970 as labour was moved from the fields to the cities, or under the Chinese regime today, which has done something to address the need for incentives economically. But such growth will come to an end (and often it doesn't happen at all, because it's against the personal interest of the ruler or ruling elite) - because the essence of ongoing growth is 'creative destruction' the invention of new technologies etc which will throw up a new class of rich people. That's only going to happen in a world in which property rights are secure and there are incentives to innovate and invest. Of course whether that will happen is a matter of history and history is 'contingent' - you can't tell what will happen. The Young Pretender reached Derby in 1745. If he had reached London and regained the throne for the Stuarts, history in England would have been different, and the Industrial Revolution might not have happened.
There are many powerful illustrations of the central thesis in the book. The two halves of Nogales, one half in Mexico and one in the US. The two halves of Korea. And there's a lot of history telling. There's also lots of interesting history. In terms of colonial exploitation of new lands, an accidental difference between North and South America. In the South, there were plentiful natives and plentiful gold and silver to exploit - and a playbook for the colonial power (capture the local king, torture him generally or often to death, and demand rooms of gold and silver). In the North by contrast, there is a sparse population of natives; and no gold or silver. The playbook doesn't work. And people need to be incentivised to work and earn for themselves. Hence inclusive economic and political institutions....Similarly story in Australia...
What might you wonder about here? Well, the 'history is contingent' line takes up a lot of the book. The authors develop a theory of virtuous and vicious circles and what makes it more likely that the right institutions will develop (you start off on the right path, and then it's not quite in the interests of anyone to seize control of the state, because there isn't quite such a thing - power is pretty dispersed already). I would be interested to know if game theory could help here - it isn't discussed. Then you might wonder about states that have been apparently inclusive that cease to be so. Germany under National Socialism for example is not discussed. And then you might wonder just how far political and economic institutions need to be inclusive to drive growth and the success of nations. England gets the thumbs up for the Magna Carta, the Glorious Revolution and so on, which points it on the right path. The industrial revolution happens, however, with a very limited franchise - and no votes at all for women.
Not the least of the merits of the book, though, are the hard thoughts that its 462 pages present. I would very strongly recommend it.
The success of this book mirrors the progress of the "inclusive institutions" idea it talks about.
The author wrote about this stuff six years ago but did not capture the imagination of the general public. What Acemoglu does not know about growth is not worth knowing, he's the author of an excellent graduate textbook on the subject. But two transformational events have happened since 2006 that have made his ideas relevant and current: the financial crisis and, by dint of having survived it well, the emergence of China in the public's consciousness as a financial superpower.
My prejudice has always been that, warts and all, our pluralistic, capitalist, free-market system works very well. With an eye on the recent performance of markets and the increasing and often justified perceptions of stagnation and inequality in our western society, however, many people these days argue that there's another way and that China holds many of the answers. This is the book that gives you all the ammunition to demolish that theory. I think that is the secret of its massive success.
But that's a mere bonus, and the theory itself is quite beautiful. Here it is, in ten quick bullet points.
1. You can totally forget about growth if nobody holds the "monopoly on violence." You get places like Somalia, Afghanistan etc.
2. There are two types of politics: inclusive and extractive
3. There are two types of economic institutions: inclusive and extractive
4. Extractive political institutions often don't care at all for growth or innovation, lest a new order arises and the new order challenges these extractive political institutions. The author quotes examples from English history where kings and queens stifled innovation in weaving, Austrian history, where the king did not build any railways and Ottoman history where the sultan pretty much banned books.
5. Regardless, growth has occurred in history under extractive political and economic institutions. The Soviet Union provides such an example. The manner in which this was achieved was not through innovation, but through the reallocation of resources from less productive activities (agriculture) to more productive activities (industry). The Soviet Union grew for 30 consecutive years at 6% per annum on the back of this planned reallocation of resources (eat that, China!) and was fully expected by nonpartisan observers to overtake the US economy by the turn of the 20th century. This never came to pass because once the resources had been fully reallocated there were no further productivity gains to be gleaned and thus no growth to be had. The anti-growth facet of extractive economic institutions reared its ugly head, as people simply refused to give their best if they could not enjoy the fruit of their labor. Draconian punishments for people who shirked their duties could not compensate for the lack of personal incentive and the Soviet empire crumbled.
6. The combination of inclusive political institutions with extractive economic institutions is typical of empires and it can work for a while. Rome is the example here. Rome was a republic, but was a ruthless extractor of wealth from its empire. It grew, but only by increasing the size of the empire, as the economic agents (the conquered lands) did not really push the boat out just to send the whole harvest back to Rome. So when Rome stopped expanding at the necessary pace, that was the end of growth at the pace that was necessary to support inclusive political institutions (lots of guys in Rome sitting around pondering on the greater issues in life and citing poetry to one another). What happened next is the political institutions reversed back to extractive, as factions in Rome fought each other for the loot. This occurred hundreds of years before the empire itself fell, significantly. But it was at the core of the decline.
7. The combination of inclusive economic institutions under extractive political institutions has also been tried and ultimately fails if there is no success in transforming the politics. Venice is the example here, and China is the current laboratory. The idea here is more subtle. The inclusive economic institutions go away and do their thing and produce growth. The Venetians ploughed the seas and dominated commerce through the invention of limited companies. The Chinese have set up the factory of the world by partnering with foreign manufacturers. This has brought serious wealth to both Venice and China. Trouble is, the fact that the political institutions are extractive means that the speed limit is lower. Intellectual property rights (not mentioned by the author, NB) spring to mind in China. You would not invest in an idea in China, because you just don't know that a government controlled company won't take it from you immediately. The lower speed limit means you at some stage hit a limit on growth. At that stage, you get reversal. China, for example, is stuck assembling phones designed in California. (again, the author is not stupid enough to write this, he wants his book to sell in China too) The authorities in Venice (the extractive political institutions) closed down the right any layman had to be part of a limited company and wrote in a "libro d'oro" the names of those who could. The extractive political institutions reversed the progress and forced the economic institutions to go extractive.
8. The main problem is that there is a strong vicious cycle between extractive economic and extractive political institutions. It's also called the "Iron law of oligarchy" apparently. If the inclusive economic institutions are not producing enough to feed the beast, their masters fall prey to the extractive political institutions they are perceived to be challenging. If they are producing too much, too quickly, they are usurped. And to get there in the first place is a rather large challenge to begin with. Fortunately, there's also a virtuous circle between inclusive economic and inclusive political institutions. Acemoglu quotes as an example the case where FDR thought 56% of the popular vote was enough of a mandate for him to stuff the Supreme Court with his own guys. Did not work for him.
9. More often than not, unfortunately, the starting point of societies is some sort of king lording it over a bunch of subjects. So you start with extractive politics sitting on top of extractive economic institutions. How do you make any headway? It takes all of the following: (i) a benign monarch / king / bunch of "elders" / dictator / potentate / senate / whatever / who "gets it" (ii) some kind of plurality on the ground. Like maybe layers of power, or a variety of tribes or a variety of jobs people do. Or some type of nominal alternative (even dormant) power structure left from years before. That way there are many "interests" on the ground that both push for change from many angles, but also fail to move things in any single direction after change has occurred (iii) a significant transformational event, such as the discovery of America that enriched the merchant class or the black plague that made labor so thin on the ground that it was able to negotiate better terms or at least led it to revolt and plant the seeds of transformation later. What happens next is you travel a few yards toward more inclusive institutions and with a bit of luck you don't lose that ground. History is not destiny. The UK did not have to become a pluralistic economy, it had all of the above and good luck, and it got it all at regular instalments. An important point the author makes is that the same events work for some and don't' work for others and the difference on the ground that made it click in England but not in Austria could be truly tiny. You really need the luck. That said, once you get your "first down" things get easier. The guys on top have less of a good thing to defend and the guys at the bottom get a better idea of how much there is to gain!
10. The best way to get there, though, is to send a bunch of guys from a highly developed place, who command the latest technology, to a sparsely populated remote land where nobody is around to challenge them. Provided there isn't enough of them to go around, all extractive political baggage they bring gets checked at the door as they all need to knuckle down to work to avoid starving. The author quotes North America and Australia, but Magna Grecia is a fantastic example from antiquity, when Spartan settlers (Sparta being the Soviet Union of antiquity) set up some very inclusive cities in southern Italy and Sicily. Does not work nearly as well if they land in the middle of a highly evolved and densely populated extractive civilization, on the other hand. The temptation there is to exterminate the local leader and sit on his throne. It's pretty much what the Spanish did in Latin America.
AND THAT'S REALLY IT
Acemoglu is not happy to just discuss his theory, he also spends some time going over alternative theories, such as the theory that the tropics are not conducive to growth and such like, but dismisses them in a manner that is polite enough not to offend. Proponents of such theories even praise him in the jacket of the book. There's a single exception. He spends quite some time toward the end of the book to deal with a theory he considers pernicious. He takes issue with the idea that if we trade enough with the Chinese they will get rich enough that they will come around to espousing democracy. Or that if we install democracy in Iraq the locals will pick up where we left off. He applies the tools discussed above and as far as I'm concerned he succeeds in debunking one of the main pillars of modern western policy. Things basically do not automatically get better merely because people are exposed to our ways and get richer from dealing with us. If their institutions are rotten, we're just wasting time. And by dealing with them, we are supporting those rotten institutions.
There's things about the book I don't like so much, I must admit. I think they all result from the fact that this was a second attempt to get the ideas across, so the author had to go lowbrow. Reading the book sometimes feels like you are on a Chinese tour bus. Pommes frites under the Eiffel Tower on Monday, chocolates opposite the Commission in Brussels on Tuesday, tour of the canals with optional visit to the nightspots in Amsterdam on Wednesday. It's fun, but the author cannot possibly know the history of so many places well enough. So he exposes himself unnecessarily to pedants who happen to know the specifics better and get stuck on detail. I refer you to the negative reviews for more detail.
The other beef I have is that in the spirit of Jared Diamond, he does not actually take us to Paris, Brussels or Amsterdam, but to some really basic places instead. The idea is the places he examines are so simple that there can be absolutely no doubt it's his explanation driving things and not something more complex. But I, for one, would like him to get the tools out and apply them to somewhere more fun. I'd bet my house he's thought about all these things so deeply because he comes from Turkey, which not only picked up the baton from the Roman Empire he likes to talk about, but has had two revolutions in the past 100 years, one to overthrow the Sultan and a more peaceful one to get rid of the generals. I guess the author is scared he may bring prejudice to bear if he looks at his homeland. Or it's that they know where he lives.
Regardless, this is a seminal book. It's a chance to tell your kids you read a classic when it came out.
I cannot recommend it enough.
on 12 February 2015
I romped through this book in a couple of days and have been musing over it for the past 24 hours – so it gets full marks for its readability and provocation. It helps that its 500 plus pages consist really of short potted histories of various countries selected to illustrate its main thesis about institutions, power, privilege and challenge. In that sense it has similarities with the charming books of Robert Greene which deal with such issues as power, seduction and war.
But there are inexcusable major omissions and weaknesses in this book by two American Professors (
Acemoglu an economist; Robinson a political scientist) which promises a distinctive lens with which to view history, namely that of “extractive institutions” and “countervailing power” and which suggests western societies owe their pre-eminence to their “inclusive institutions”.
When they define what they mean by this phrase, we get a paean to liberal or capitalist democracy – which I find a tad….well… curious given that the book was drafted in the aftermath of the 2008 global crisis; the spread since then of disgust at the behaviour of the power elites; of deepening concern about the scale of inequality within the west; and of massive alienation from political parties and voting.
I would therefore have expected a suggestion that the west is now in danger of going the same way as others – and for the same reason….But no - the book ends on a note of almost laughable complacency. “Failure” is what has happened to Africa and most of Asia (apart from Japan and South Korea) and will, according to the 10 page analysis they give China in the concluding chapter, also be the fate of that country’s current effort….
It is in this concluding chapter at the very least that I would have expected to see a recognition that Contemporary Europe and North America are showing the very same exclusion and "extractive" power which they have identified as the fatal weakness of the powerful - but this passes our authors by!! If ever there was a case of "institutional exclusion" of citizens, it is what we have been experiencing in the past decade. But these don't figure on the author's radar screen. Not a single reference, for example, to the extensive “end of oil” literature – or to the recent important Rebalancing Society of Canadian management theorist Henry Mintzberg. There is a passing reference to the different use of patents in Europe a hundred years ago - but no mention of the variety of the variety of major ways in which resources are now sucked from citizens and passed to the ruling elites eg military expenditure; pharmaceuticals; “intellectual ownership”; marketing; privatisation; commodification etc
Astonishingly it is only on the second last page that the authors mention the role of the media as a change agent!! And this in a book which purports to be about power.
Karl Popper’s The Open Society and its Enemies (1945) is, of course, a work of political philosophy - not history – but should be a key reference in any work which purports to offer “countervailing power” as a driver of history.
Paul Hirst was another political scientist who developed in the 70s and 80s the notion of “associative democracy” (people power) which was taken up by thinkers such as Will Hutton and morphed, in the 1990s, into the vision of a “stakeholder society”. With Mintzberg, these are the authors we should be paying attention to.
According to this book, for a country to be prosperous it should have a strong centre balanced by a widely inclusive set of organisations. When circumstances change it should be able and willing to change these organisations to suit the new conditions. It should not be dominated by an elite that extracts the state's wealth for itself. This thesis is a celebration of the process started in the 18th century for the development of a socially and economically liberal, democratic, pluralist societies.
Three quotes in this book can be used to define it:
"The central thesis of this book is that economic growth and prosperity are
associated with inclusive economic and political institutions, while extractive
institutions typically lead to stagnation and poverty." (p91)
"Rich nations are rich largely because they managed to develop inclusive
institutions at some point during the past three hundred years." (p364)
"...history is not destiny. Despite the vicious circle, extractive
institutions can be replaced by inclusive ones. But it is neither automatic
nor easy." (p426)
This is a book of recurring phrases, which form part of the authors' theory:
> Absolutist and Centralised States
> Creative Destruction
> Critical Junctures
> Extractive and Inclusive Organisations
> Vicious and Virtuous Circles
In human history things happen and it is a nation's response to these "critical junctures" that determine their prosperity. Historically nations are often organised extractively. This can be very successful for a long time but eventually will fail. At critical junctures there will be decisions to be made about creative destruction. If times have changed then old institutions should be left to die. Often vested interests will oppose this causing a long slow decline of the whole nation. Only with creative destruction in an inclusively organised nation can there be long term survival.
England (later Britain) is the prime example of the successful inclusive nation followed by the other European and anglosphere nations. But however inclusive Britain was at home, it created extractive organisations in its colonies.
Theories of geography,culture and political ignorance keeping states in poverty are all considered and rejected by the authors in favour of political and economic inclusiveness. Thus the book starts with a comparison of Nogales Arizona with Nogales Mexico, the same town with the same geography and the same people separated by a single border. The examples continue world-wide and thorough history. There is Afghanistan, Argentina, Australia, the Austro-Hungarian Empire, the Aztecs, Barbados, Botswana, Brazil, Columbia, Congo, Egypt, Ethiopia, France, Ghana, Great Britain, Guatemala, the Incas, India, Japan, North and South Korea, the Mayas, Mexico, the Napoleonic Empire, the Ottoman Empire, Peru, the Roman Empire,Russia, Sierra Leone, Somalia, South Africa, Spain, USA, Uzbekistan, the Venetian Republic, Zimbabwe and many more.
Physically there is a lot crammed into a small paperback book of over 500 pages including a Bibliographical Essay and Sources, References and an Index. There are 20 maps, which all seem too small. In the centre of the book are 16 black and white photographic plates.
The authors discuss only nation states and historical empires. There is no mention of trans-national elites extracting wealth world-wide. This includes legal avoidance of national corporation tax by most of the world's largest trans-national companies. Applying their theory to large companies would also be interesting.
This book can seem repetitive, as the theory is applied to so many examples. This theory also needs a name and a formal definition somewhere near the start of the book, but it is certainly a book well worth reading, perhaps more than once. Indeed, this is an important book that ought to be read.
Why are some countries rich and others poor? Lots of people have lots of different answers and many books have been written to try and answer the question. What do these two authors have to say? The authors' thesis basically comes down to this: it is about institutions, namely whether a nation's institutions are inclusive or extractive. What do they mean by these terms? As far as I can tell, inclusive institutions mean that a government devises institutions that protect property rights, provides comprehensive public services, and upholds equality and the rule of law and foster innovation. Extractive institutions are basically a racket for the dominant group in a nation - a tribe, an ethnic group or social class - to squeeze wealth out of everyone else. They are closed societies, where individual and technological initiative are stifled.
Inclusive institutions make a country rich; extractive institutions make a country poor. However, the authors reject cultural or genetic explanations for this distinction, and stress that the development of such institutions was historically contingent. No Whig theories of history here, then. The authors provide a wide range of historical and contemporary examples to illustrate and develop their theory. The reasons for the divergence are numerous: the effects of European colonialism are not left out, although it should be noted that Europeans frequently commandeered exploitative indigenous economic institutions and perfected them (as the conquistadors did in places like Peru and Mexico). Other factors come into play, such as leadership and the conscious decisions societies make in the face of social and technological change.
How convincing is all this? To my mind, any theory in the social sciences, especially one that aims at a kind of grand unifying theory (which the authors' work seems to be doing though I suspect they would deny this) is fundamentally unable to capture all the complexities of both historical and contemporary reality. Lumping Sierra Leone and the Soviet Union as examples of `extractive' societies is too crude. The Soviet Union initially accomplished a high level of growth but over time ran into the ground because the system could not innovate or diversify but its trajectory is different from Sierra Leone. In the long run, the Soviet Union failed but it did achieve growth for a time and a form of modernity, albeit one that became dilapidated with time, while the latter is a disaster zone. The authors consider both contemporary China and Mao's China as examples of nations under extractive institutions but again there are so many points of differences as well as similarities that it is not immediately obvious if it makes sense to treat Maoist and contemporary China as `extractive institutions'. Where do countries like Turkey fit into their model? What is needed is some sort of scale to place where a country is on the extractive to inclusive spectrum. It is surely not a case of either/or (after all, elements of extractive institutions can co-exist with inclusive ones, as in the United States). Without such nuances, the theory is vulnerable to death by hundreds of exceptions.
Having said that, there is something to be said for the broad outlines of the theory. It obviously makes a huge difference if you live (say) in a country in which you can set up your own business without fear of being gouged by corrupt officials or organised crime. It makes a huge difference if you can get an education and practise whatever profession you like. It makes a huge difference if you live under the rule of law or an arbitrary, capricious dictatorship; whether you are free of overt discrimination at the hands of the dominant group; whether you can expect the government to provide good quality public goods like street lighting and health care; that you will not be denied these benefits because you belong to the wrong tribe, or because you oppose the ruling political party. Rich nations tend to have better institutions - not perfect by any means, but better. The authors are right to point out these contrasts.
Rich countries are culpable in keeping poor countries poor and (such as the British suppressing nascent capitalism in the Indian sub-continent in the 18thC) but post-colonial leaders have frequently taken this baleful legacy and entrenched it. Two examples from the book will suffice to illustrate this point. In the 1960s, Sierra Leone and Botswana took different courses, on account of decisions made by their leaders. In the former, Siaka Stevens punished a district that voted against him by cutting off its economic lifeline, a railway to the coast, which he had ripped up. This move was detrimental to the national interest but Stevens did not care for the country's interest, only in punishing a group that had voted against him. In Botswana, the discovery of diamonds under the native land of its then-leader, Seretse Khama, did not lead to a intra-communal fight over the spoils, as they did in Sierra Leone. Why? Because Khama immediately declared the diamond seam the patrimony of the nation, and not just his tribe. Thus, diamonds have been a blessing in Botswana but a curse in Sierra Leone. Again, the authors are right to highlight these contrasts.
Finally, the authors are right to note that societies that allow greater political and economic freedom allow greater technological innovation, therefore offering better prospects for that society to overcome whatever challenges it might face. Extractive societies fear the `creative destruction' innovation brings. This has been one of the strengths of the United States (although its current political dysfunction might undo this advantage) and the Achilles' heel of its rivals, the Soviets in the 20th Century and perhaps China in this century (the authors seem confident on this point in relation to China; time will tell if they are vindicated).
So overall, although the authors' theory does not nail the problem of the contrast of rich and poor decisively on the head, the book does offer some broad insights and is worthy of serious, respectful consideration.
on 8 January 2014
Previous reviews prepared me well for this book. It has a few key messages that are hammered home by repetition. Successful nations have inclusive, as opposed to extractive, political and economic institutions. These are shaped by historical events, especially turns that nations take at critical junctures. This book explains "why" nations fail or succeed very well. The evidence presented is logical and compelling. The historical anecdotes keep you going as the key points are driven home as all the logical bases get covered. On completing the book, I initially agreed with those disappointed that it didn't offer the same level of rigour and page space to how to help nations succeed. However, on reflection, I think that this criticism is unfair. Firstly. If you are convinced by the authors about what drives the success of nations, then it is bound to shape your thinking about solutions. Secondly, I would gladly pay for a follow up book that deals with solutions! From this book, it's clear that nation building/fixing is complex, takes time and necessarily involves many people/organisations working in concert and critically, with more of a combined impact than those working against sustained development.
on 4 May 2014
15 years academic work behind these results, which are compelling to read. Backed by case studies from all continents and most times. The book lays out conditions under which nations may prosper an thrive. It examines the necessity for a minimum of security/central control, the nature of political and economic institutions. Central control in order to secure individual rights. Instititions that can be extractive or inclusive. Unless inclusive, little chance of sustained prosperous development. Pluralism is required too, enough to allow creative destruction of activities that have served its purpose.
The case studies are insightful, showing that little changes by changing power unless institutions change too. The book also vividly describes the impact of contingent conjectures which may give impulse to a drift and fundamentally change the trajectory of a nation.
Lastly the book describes how difficult it is to engineer prosperity. It also gives some healthy kicks to futile foreign aid activity by various 'wannabegood' NGO's.
A very important addition to grasp why the world is as it is, and some ideas of where some giants may be heading.
on 20 March 2012
I bought this book when I read a favourable review and thought it would be interesting to explore the reasons why some states succeed economically, while others never `take off' and others take flight but stall. I smelt a rat when I started to find that the style of writing is repetitive and circular and when I found some straightforward factual errors.
The authors say that the Spanish Armada was pursued (by the English) `all round the coasts of Britain'. Well no: we stopped pursuing it off the coast of Kent, and it sailed home via the North Sea and the Atlantic because there was no other way back. The Armada was largely destroyed by bad weather, off the West coasts of Scotland and Ireland. Likewise, the authors say - as if there is some significance in this - that at one time England and Hungary were ruled by the same dynasty, the Angevins. Well, it depends what you mean by `Angevin': it was a prolific house; but the Angevin dynasty in Hungary did not come to power until the fourteenth century, by which time we English call our kings `Plantagenets'. They may have been descended from Angevins, but conventionally the Angevins ruled England in the twelfth century; and they were only remotely related to those who ruled in Hungary, Naples, Anjou and Provence.
The detail matters. If you can't get the facts straight, what hope is there for the grand theory?
When you look at the `case studies', the history here is truly crude - almost like Sellars and Yeatman's `1066 and All That', but without the humour. Take English history, which I know something about. The authors place far too much importance on the Black Death of 1381 (feudalism did not come to an end overnight as a result of that event, catastrophic though it was). They accept Geoffrey Elton's account of the `Tudor Revolution in Government', when this was largely discredited by medievalists, almost as soon as it was formulated. They regard Christopher Hill's account of the so-called `English Revolution' of 1640-60 as being the last word, ignoring at least four decades of criticism. They overemphasize the importance of the Glorious Revolution and ignore how English society was between 1688 and 1832 (and beyond), notwithstanding the Industrial Revolution. They constantly confuse `England' with `Britain'.
If the treatment of English history is so brief and sweeping as to be a caricature, it makes me wonder about the history of other countries; and I am very suspicious of the authors' treatment of Japan, Venice and Ancient Rome in particular. With regard to Rome, they take it as read that the Roman Empire declined before it fell; but there is a very respectable view that it simply fell, when invaded by the Barbarians; and the authors detect the seeds of decay as far back as the reign of Augustus. What then of Gibbon's view that mankind's happiest days were passed in the age of the Antonines, in the second century A.D.?
The problem is that the authors purport to be experts on everything and on every age, when in fact they are masters of nothing but a theory; and the theory is so broad and vague as to be almost incapable of proof or disproof. Thus centralisation + inclusive institutions = lasting economic success and prosperity. I think I go along with this to some extent; but the terms are very elastic. What degree of centralisation counts as such? What is meant by `inclusive' or for that matter `extractive'? They may be right about the USSR and China; but I am not sure they have explained why the former failed and why the seemingly inexorable rise of the latter may be an illusion.
on 9 November 2012
a very good historical review of the development process around the globe.
then they look to the prevailing theories/myths and the logic behind them.
I must confess that I agree with their views right from the beginning, so in some way the book confirmed my personal vision. highly recommended.