Why Nations Fail
Thoughts
The first time I learned about this book was during a lecture about four months ago, where the professor introduced us to this book when we were discussing social inequality. A few days later, the authors, Daron Acemoglu, and James A. Robinson won the 2024 Nobel Prize in Economic Sciences because of this book and the research around the topic of this book, and I think it was a great chance to read it, since I was interested in the subject. I am a person who often wanders on the Wikipedia website to read the histories of nations.
The core theory the authors proposed in this book is that inclusive economic and political institutions are the key to prosperity. The authors used tons of countries and historical moments as examples to support their theory. The theory was different than the geographical or cultural theories proposed before, and I was amazed by their ability to distill this new theory from hundreds of events not related to each other.
My most important takeaway is that to make a country prosperous, the state needs to give everyone chances to improve and provide positive feedback to people who take the chance. As long as people think they are able to make their lives better through their hands, it will create a virtuous cycle in society, and in the end, prosperity will come.
Notes
The reason why nations poor is because they have been ruled by narrow elites that have organized dociety for their own benefit at the expense of the vast mass of people.
1. So close and yet so different
The author points out why people in the same town divided by the border of US and Mexico can have huge difference in education, lifelength, and many other aspects. The main reason is the political and economical institutions of the country formed along history make the situation now. US government is formed from immigrants want more incentive to develop, and democratic but Mexico is formed from the collapse of Spanish empire and it is oligarchy. In the US system people have more incentive to invent and make money, which Mexico didn’t, and this causes the wealth gap of two countries.
2. Theories that don’t work
The author claims that there are some theories trying to explain world inequality, such as the geography hypothesis, the culture hypothesis, and the ignorance hypothesis (poor caused by the ignorance of the leader of the country). Each of them has flaws. Geography hypothesis cannot explain why the city we mentioned at Chapter 1 has such difference. Culture hypothesis changed the result into reason, also cannot explain North and South Korea. Ignorance hypothesis cannon explain why Ghana’s change after independence doesn’t work. Instead, poor countries are poor because those who have power make choices that create poverty on purpose. We need economics and politics to explain the situation.
3. The making of prosperity and poverty
The author proposes the concept “inclusive” and “extractive”, the former means all people can benefit, and the latter means only a few elite can benefit. Inclusive economic institution and inclusive political institution is the only way bring continuous prosperity. To be inclusive, econiomic institutions must secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract; it also must permit the entry if new businesses and allow people to choose their careers. Although transform brings prosperity, extractive leaders don’t have incentive to transform since the transformation may reduce their power and benefits.
4. Small Differences and Critical Junctures
In this chapter, the author primarily discusses how significant changes arise from critical junctures where initially there are only minor differences. The Industrial Revolution happened in England because, when the Black Death swept through Europe, the peasants in England united more effectively to resist the king compared to those in Eastern Europe. This led to a transformation in political and economic institutions, ultimately widening the gap between the regions. The following chapter will explain how this institutional theory explains the world. The author also notes that extractive economic institutions has a growth limit and will eventually collapse, as seen in cases like Argentina and the Soviet Union.
5. “I’ve seen the future, and it works”
The author discusses about why extractive institutions can bring prosperity but cannot last. Comparing to distributed power, a centralized government has the power to reorganize resources and thus increase productivity. The example in the book is the Lele and Bushong tribe of Congo. However, when the growth increases to some point, since the extractive institutions distributes the benefits to the elites, creative destruction and innovation will face barriers and the growth stagnates. Moreover, as the system creates significant gains for the elite, there will be strong incentives for others to fight to replace the current elite, and the instability can lead to the breakdown. Like Maya and Soviet Union, although its growth looks rapid, the extractive institutions will not able to continue.
6. Drifting Apart
This chapter talks about rich and poverty are not totally because of the cumulation in history. Venice showed that inclusive institutions can be reversed back to exclusive. Roman Republic showed that partically inclusive institutions can have problems as the time goes due to the inequality of chance to get into the decision circle, which led to the transformation to Roman Empire, an exclusive instituion and ultimately fell. England is a really poor place in the history for a long time, although the Roman Empire did leave some heritance, the historial factors is not simple, predetermined, and cumulative. When West Roman Empire falls, England go back to their poor old days quickly. But the collapse of Roman Empire did create critical juncture, which leads to the feudalism of European countries and the escape of feudalism during Black Death, where other places of the world didn’t have.
7. The Turning Point
Parliament in England doesn’t like the crown beacuse the crown seized too much power. The conflict between the parilament and the crown occurs several times, the most important one is called Glorious Revolution and the parliament won. This leads to the increase of taxing, investment in public facilities such as canals and roads, and the financial system. The improved infrastructure and property rights also leads to the increase of patents, finally the Industrial Revolution. Why this happened in England? Inventors in other countries cannot succeed was because their system doesn’t encourage creative destruction. In England, the broad coalition against the crown means there will be greater demands for the creation of pluralist political institutions, and English people did the right thing at critical junctures.
8. Not on our Turf
This chapter explains why country having too much and too less central power would not develop like England. For countries having too much central power, such as Ottoman Empire and Austro-Hungarian Empire, the creative destruction would be blocked (eg. printing, railway) since the ruling class are fear of losing political power. For countries having too less central power, such as Somaila, the traditional elites and clans are also fear of losing political power, since if the state started centralize power, some clans will get power and the others will lose power.
9. Reverse Development
This chapter explains some part of the European prosperity are based on the extraction and colonization of other part of the world, leading to their reverse development and current poor situation. The Dutch East India Company extracted Indonesia to control the spice trade; the Europeans exported slaves from Africa, made the African tribes more extractive; British people colonized South Africa and created acts deprive the land and education rights of black people, leading to an apartheid dual economy; and also colonized India, weakening their ability of producing textiles.
10. The diffusion of prosperity
This chapter explains how other parts of the world become prosperous after the Industrial Revolution. Australia was originally a place where British exiled their convicts, but the administrators faced a similar problem with the United States – there weren’t enough indiginous people to force into labor, and an extractive system doesn’t work. This situation eventually led to a more inclusive institution than England. The French revolution had huge impact not only on France but also on surrounding countries, transforming serfdom and feudalism into more inclusive institutions. Japan was controled by a weak central power and was eventually overthrown by unified forces, then the previously neglected emperor initiated reforms. This and previous three chapters explained how inclusive economic and political institutions emerged in England to make the Industrial Revolution possible, and why certain countries were able to the advantage of this growth while others resisted change, and mostly shaped the world inequality we observe today.
11. The Virtuous Cycle
This chapter explains how inclusive institutions persist. When people overthrow a dictator, they often have different interests, which leads to a balance of power rather than allowing one party to dominate. When many parties have a say in decisions, the principle that laws should be applied equally to everybody starts making sense, and in turn strengthens pluralism. Moreover, as elites benefit from the growth brought by an inclusive economy, they have less incentive to cling to power. Last but not least, free media mobilized opposition to threats against inclusive institutions. Both England and the United States faced attempts by rulers to dismantle the inclusive system, but the system ultimately prevented these attempts from succeeding.
12. The Vicious Cycle
Even though previous extractive institutions were overthrown, the new force would tend to keep the structure of the ruling system and become a new elite and oligarchy. Extractive political institutions lead to extractive economic institutions, which enrich a few at the expense of many. While the new force itself is individual instead of a broad coalition like the overthrown happened in England and France, they have every interest in defending the previous system when they are in power. This is called “The Iron Law of Oligarchy” by Robert Michels. The examples of Sierra Leone (Stevens, railroad), Guatemala (Ramiro, Richard, Ricardo, 1531-1993), and Ethiopia (Haile Selassie, Mengitsu) show that the new power still maintains the previous bureaucracy and system. The vicious cycle is not unbreakable, but the example of the U.S. South (slavery, civil war) shows the vicious circle’s great resilience in the face of challenges.
13. Why Nations Fail Today
Nations fail today because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate, destroying not only law and order but also even the most basic economic incentives. Zimbabwe under the rule of Robert Mugabe is an example. Another reason is that their states (國家機器/政府) fail. Extraction paves the way for conflict, and conflict precipates state failure. The civil war in Sierra Leone is an example. Zimbabwe, Sierra Leone, along with countries such as Colombia, Argentina, North Korea, Uzbekistan, and Egypt, although they have different histories, languages, and cultures, the one thing they shared is that their extractive political institutions created extractive economic institutions, transferring wealth and power toward elite. The solution to the economic and political failure of nations today is to transform their extractive institutions toward inclusive ones. The vicious cycle means that this is not easy, but not impossible.
14. Breaking The Mold
This chapter provides example of how Botswana (Sebele, Bathoen, Khama, meeting with Chamberlain at London), U.S. South (Rosa Parks, sit in the white section of the bus), and China (Mao’s death) seized the critical juncture to break the vicious cycle. The author thinks that a confluence of factors, in particular a critical juncture coupled with a broad coalition of those pushing for reform or other propitious existing institutions, is often necessary for a nation to make strides toward more inclusive institutions.
15. Understanding Prosperity and Poverty
The author mentions the theory he proposed in this book again, which is that inclusive economic and political institutions are the key to prosperity. To make nations prosperous, it is crucial to raise the incentive of people (my understanding is to make people believe life will be better if you work hard or to give them hope about the future), and to empower a broad coalition of society through existing institutions or other ways to make change. Authoritarian regimes are not a must step toward inclusive institutions, there is growth because it aligns with the interest of the elites. The author points out that we cannot engineer prosperity since each country has its path of transformation. The current foreign aid is mostly wasting money on doing something that won’t help the transformation. Still, it shouldn’t stop since it helps people in extreme conditions less suffering, and the education programs perform well. He also says that media can play a transformative role in the process of empowerment, as authoritarian regimes do their best to fight free media.
