Book review: Why Nations Fail

There are a number of books that have been sitting on my shelves for years, unread. Often, it's no fault of the books, which have good reputations, but because the prospect of picking up a 500-page tome when I could read through a much shorter book, is a bit daunting. That's been the fate thus far of Daron Acemoglu and James Robinson's 2012 book Why Nations Fail. Until this month, when I finally read it. The arguments that the book makes were familiar to me from other sources (including articles written by Acemoglu, Robinson, and others): that countries that are prosperous today tend to have inclusive economic and political institutions, while countries that are poor tend to have extractive economic and political institutions. Acemoglu and Robinson define inclusive economic institutions as those that:

...feature 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 of new businesses and allow people to choose their careers.

On the other hand, extractive economic institutions are those that:

...are designed to extract incomes and wealth from one subset of society to benefit a different subset.

It will come as no surprise that the subset of society that benefits from extractive institutions are the political and economic elite. As for political institutions, and the interactions between political and economic institutions, Acemoglu and Robinson note that:

Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival. Inclusive political institutions, vesting power broadly, would tend to uproot economic institutions that expropriate the resources of the many, erect entry barriers, and suppress the functioning of markets so that only a few benefit.

It's an attractive hypothesis, and that Acemoglu and Robinson demonstrate with many detailed examples, both contemporary and historical, that differences in institutions are strongly associated with prosperity, and poverty. However, Acemoglu and Robinson are careful not to claim that institutions explain everything. Indeed, they show that states with extractive institutions can maintain long periods of high economic growth; however, that growth ultimately reaches a limit. The obvious example of this process is the Soviet Union.

The book will not be convincing to everyone. In particular, Australia is held in high regard for its inclusive institutions, along with New Zealand and Canada. Indigenous peoples in those three countries would no doubt be able to provide many counterpoints to the inclusiveness of institutions in those countries. This is all the more surprising given that Acemoglu and Robinson use the distinction between institutions in the US South from the rest of the country as one of their key examples. They also hold up Botswana as an exemplar for other countries, although:

Today Botswana looks like a homogenous country, without the ethnic and linguistic fragmentation associated with many other African nations. But this was an outcome of the policy to have only English and a single national language, Setswana, taught in schools to minimize conflicts between different tribes and groups within society.

I'm not sure that the exclusion of minority languages and cultures, in favour of a national majority, is necessarily an example to aspire to. It made me wonder about the durability of inclusive institutions in Botswana - how long before the minority groups begin to agitate for their own cultures to no longer be minimised.

The one thing that the book is light on is a policy prescription for developing inclusive institutions. That is for good reason - it's not an easy task. Acemoglu and Robinson note 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. In addition some luck is key, because history always unfolds in a contingent way.

So, anyone who is looking for policy advice is going to come away disappointed. Nevertheless, this is a good book, and I think it should be read alongside books that look at long arcs of history and development, such as Jared Diamond's Guns, Germs and Steel. Acemoglu and Robinson skewer geographical determinism in their book, but that doesn't mean that there aren't geographical factors that have contributed to the development of modern institutions.

Overall, I really enjoyed reading this book, and I've now moved onto their 2019 follow-up, The Narrow Corridor. You can expect a review of that book in due course.