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37 of 39 people found the following review helpful
4.0 out of 5 stars Why do I feel so gloomy?, 5 July 2013
This review is from: Why Nations Fail: The Origins of Power, Prosperity and Poverty (Paperback)
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 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.

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.
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