Inclusive institutions make all the difference
A review of “Why Nations Fail.”
Cover of “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” by Daron Acemoglu and James A. Robinson.
Acemoglu, D., & Robinson, J. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown. 529 pages.
Understanding the text
Why do nations fail? It is a loaded question posed in the title of Daron Acemoglu and James Robinson’s 2012 book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.” Their answer? The two economists argue that nations fail due to their extractive political and economic institutions that discourage people to “save, invest, and innovate” (p. 317).
Extractive institutions concentrate political and financial power among a small minority (p. 376) and ultimately fail. Examples of failure can include “economic stagnation…civil wars, mass displacements, famines, and epidemics” (p. 372-373).
Extractive institutions could include but are not limited to: insecure property rights; absence of the rule of law; arbitrary taxation; an unfree or highly regulated media; slavery and feudalism; the refusal of elites to adopt new technologies; and guild and trade association imposed labour restrictions. Such institutions may cause temporary economic growth, but the growth rarely persists. However, the extractive institutions themselves continue since the elites who control them can maintain power via military, legal, political, and financial policy instruments to benefit themselves at the expense of others (p. 343).
Inclusive institutions are political and economic arrangements where power is more pluralist and less centralized (p. 314). They can persist as well, unlike extractive institutions, since elites have an incentive to extend the length of their power by guaranteeing their continuation. Inclusive institutions are common throughout the developed world and often include free media, secure property rights, intellectual property rights, the rule of law and the right to vote.
Acemoglu and Robinson argue that extractive and inclusive institutions develop through “critical junctures,” defined as significant historical points that alter the current economic and political powers in one or more societies (p. 431). Examples of critical junctures include the death of Mao Zedong in China, the Black Death and European Colonialism. Nations that failed could not exploit the opportunities of critical junctures, resulting in the continuation of state absolutism or lack of centralization (p. 217-218).
Conversely, prosperous nations develop inclusive institutions when large swaths of a population made up of various members of society exert their opinions, wants, needs, and concerns that ultimately influence political power, guaranteeing more pluralist societal arrangements (p. 306). Once these critical junctures occur, the authors argue that it’s the “small differences” (p. 107) between societies that cause institutional development to vary in one place than another due to the contingent nature of history. There is no predetermined path for societies. They can either prosper or get stuck in the vicious circle of extractive absolutism (p. 110-111).
Why the book is persuasive
Acemoglu and Robinson provide a plethora of case studies of why nations fail, proving their central argument. The examples span six continents from the Neolithic Revolution to the modern world, demonstrating why extractive political and economic institutions ultimately make nations fail. The broad, historical approach gives the reader a general understanding of humanity’s most significant turning points without being bogged down with too many minute details. Brief exposure to events like England’s Glorious Revolution, the French Revolution or Japan’s Meiji Restoration offers the reader a modicum of salient information that they may wish to further investigate on their own – it’s nice to know a bit about everything sometimes.
The case studies are also incredibly thought-provoking. They use primary evidence like journal entries, conversations, business decisions and letters from noteworthy individuals, painting a vivid picture of past political and economic situations. For example, the conversations between Botswanan tribal chiefs and the British colonial secretary Joseph Chamberlain during a meeting in London on their people’s and land’s protection (p. 406). Or even the testimony of a teenager in Sierra Leone about the brutality he and others endured at the hands of the Revolutionary United Front attempting to ‘free’ people from the All Peoples’ Congress’s egregious extractive policies (p. 375). The authors also share Bartolomé de las Casas’s written records detailing the Spaniards’ tortuous enslavement of the Indigenous people in the Americas (p. 13-15). It’s far more entertaining than reading a list of facts, figures and institutional milestones organized chronologically. The fascinating stories make the book gripping, transporting readers to the times and places of past people.
In addition to the exceptionable amount of information, Acemoglu and Robinson convey their argument without relying too heavily on academic jargon, making the text accessible for readers without a background in social sciences. They do, however, occasionally use jargon and academic terminology. For instance, the authors highlight the importance of Robert Michels’s theory on the Iron Law of Oligarchy (p. 360) as an explanation for the continuation of absolutist regimes. And they critique Seymour Martin Lipset’s Modernization Theory (p. 444) since it is no longer valid, seeing how absolutists can exert more power through economic gains and, recently, military-grade technology like surveillance systems. These theories, however, are by no means the crux of the book’s central thesis; they instead complement its overall objective.
Readers can also expect to read a book presented in a relatively neutral, unbiased and non-partisan tone. There is limited, if any, slanted language. The authors do not vehemently support one political ideology and oppose another. Instead, their broad choice and pickings of evidence illustrate their thoroughness and fairness about how extractive, absolutist institutions can occur in any country. Unfortunately, extractive institutions appear to be the default status for many (perhaps most) nations.
Most importantly, the authors address and critique Jared Diamond’s geography hypothesis in his seminal masterpiece “Guns, Germs, and Steel.” Diamond argues that today’s stark inequality between nations and the rise of civilization is the result of geography. Acemoglu and Robinson contend the answer lies in politics instead. The authors argue that Diamond’s thesis is incorrect, citing a Natufian settlement dating to 9500 BC because the area shows evidence of political and economic stratification before the adoption of agriculture, likely due to the willful decision of a powerful elite (p. 138-139).
It is a fascinating example because it supposedly turns Diamond’s theory on its head and counters the notion idea geographic determinism and development. However, there is an issue with the authors’ critique of Diamond. Acemoglu and Robinson missed the area in Diamond’s book where he says complex societies are possible, not inevitable (p. 274 of Guns, Germs, and Steel), and that population density growth can occur “under exceptionally productive conditions for hunting-gathering” (p. 273). This happened in the Natufian settlement at Abu Hureyra. Therefore, Acemoglu and Robinson incorrectly accused Diamond of not acknowledging the exceptional circumstances of past communities, even when he did.
For readers interested in further investigating the geography hypothesis and debate between the three scholars, check out this link from the New York Review of Books.
What are some issues with the book?
Despite the book’s strengths, the definitions and theories on critical junctures and contingent paths of history need more fleshing out, and the rebuttals against previous development theories may need additional attention.
Consider the importance of critical junctures to their thesis. Are we ever able to predict critical junctures or know when we’re living through them so we may take the necessary actions towards inclusive institutions? The authors admit that their theory’s predictive power is “limited” (p. 434). However, for many readers or policymakers, it would be difficult, if not impossible, to ever recognize opportune moments to embark on a path to more inclusive institutions when they arise. The authors do not specify any factors, signals or events that might suggest we’re experiencing a critical juncture. Only major, calamitous events seem apparent. (The COVID-19 pandemic is probably an obvious one. Hopefully, governments will use this situation to provide better medical and sanitary services permanently.)
The authors, however, are quick to defend that this is not a shortcoming of their central argument because it still provides guidelines to explain why nations prosper while others fail (p. 435). They claim the theory empowers us to “recognize bad policy advice, based on either incorrect hypotheses or inadequate understanding of how institutions can change…and attempting to develop simple solutions” (p. 437). The main arguments suggest sound policy advice is predicated on pluralism and inclusion. But how should states empower their citizens such that their freedoms, rights and abilities do not infringe on others? To be fair, that’s a question that requires a book’s worth of an answer.
Their position is probably widely accepted in that it’s obvious, but it does not add much to political-economic philosophy, notably the underlying theories of liberalism. Furthermore, how might this theory be applied to policies designed to be exclusive to help the vulnerable? For example, some welfare policies apply only to those who fall below a defined economic threshold. In a similar vein, disability legislation only applies to those with debilitating medical conditions that hinder or prevent them from fully participating in civic and economic life. After all, the purpose of positive discrimination policies is to provide a “hand-up” exclusively to disadvantaged people to ensure their inclusion, even if it’s limited. As one can probably imagine, determining a policy’s ‘inclusiveness’ will likely boil down to a list of criteria to check. Unfortunately, due to the authors’ too-broad approach to the issue, such measures to distinguish good policy from bad are unclear.
Another issue with critical junctures is the authors’ stance that history is contingent and ever-changing. When studying history, everything may seem random, but, as one can imagine, this stance is neither helpful nor hopeful. The causes of an event or several events may not necessarily lead to prosperity, which is probably true. For instance, Acemoglu and Robinson say that Botswana was “lucky” because their leader Seretse Khama was an honest and hardworking chief who built inclusive institutions based on inclusive tribal practices. The same cannot be said for Robert Mugabe of Zimbabwe, who was solely interested in enriching himself (p. 413). If inclusive institutions depend on luck, what are oppressed peoples worldwide to expect if they wish to have their nation transition to inclusive institutions from exclusive ones? Some groups, like those in Syria, have rebelled against authoritarianism for more than a decade to no avail, for instance.
Furthermore, the Botswana case study parallels other countries that transitioned to inclusive institutions, but because of the actions of an elite, rather than broad coalitions.
Consider two other examples presented in the book: Britain and Japan. Britain’s inclusive institutions come from the Magna Carta’s signing in 1215 by King John (p. 185). The Barons, an elite group close to the monarch who rebelled, were responsible, not a broad coalition. As for Japan, the Meiji Restoration only occurred through the efforts of the oppositional coalitions of Okubo Toshimichi against the Tokugawa family in 1868, meaning it was a coalition of elites from a fractured society (p. 294-295) and not society at large. The elites in these two examples indeed held representative roles to varying degrees, which may uphold the authors’ notion of broad coalitions. Still, it is unhelpful when analyzing countries today where slim minorities can rule with excessive force over a weak, often disorganized majority. Even if large swaths of a population are against a status quo or absolutist regime, it appears that there is a greater need to have powerful friends in high places to make the necessary steps towards inclusive policies.
Finally, the authors’ rebuttal to the “culture hypothesis,” which asserts that a nation’s development depends on its inhabitants’ values, ethics and beliefs, is unsatisfactory. They argue that the culture hypothesis is both true and false. It is true because social mores can influence institutions, but they claim it’s primarily wrong because the argument focuses too narrowly on religion or ethics and cannot explain why poverty persists (p. 57).
The authors mention the Middle East since it’s a favourite amongst proponents of this theory but argue that the Middle East’s poverty is mostly the result of the Ottoman Empire’s inherited, extractive institutions (p. 60-61). It’s true that the legacies of the Ottoman Empire and European colonialism negatively impacted the region. But the authors’ glaring omission of the vindication of women’s disenfranchisement and oppression justified by Sharia doctrine in Middle Eastern societies is deafening and heartbreaking. The authors’ stance is offensive to anyone who genuinely cares about human rights and inclusivity. Whether a Middle Eastern country is oil-rich or poor, no doubt barring and limiting women from fully participating economically, educationally and politically retards a country’s growth and cultural advancement. The sexist, extractive institutions in the Middle East, and the entire Muslim world for that matter, are predicated on literal interpretations of archaic religious texts and customs. Culture matters. And some cultures, clearly, require a reformation to attain the same prosperity as most developed nations.
Who should read this book?
The most important message from this book is that nations fail because of the extractive institutions, while those that prosper have inclusive institutions. This book is important because it offers a unique perspective to the geography hypothesis, a doctrine that has remained dominant for years.
It uses a wide array of case studies and never reads like a boring journal article or political science textbook. Despite its theories and unclear applications, Acemoglu and Robinson have provided a tome of information that every self-respecting amateur or professional policy analyst, economist, historian or development specialist should have on their bookshelf.
Read it, think about it, and learn from it.