Why Nations Fail – A book review

WhynationsfailBy Melisande Denis

Why are some countries rich, and why are others poor? What can account for economic disparities across the world? Analyzing three millennia of world history and focusing on case studies from extremely diverse countries, Daron Acemoglu and James A. Robinson address these questions in their book Why Nations Fail, The Origins of Power, Prosperity and Poverty. They argue that the wealth of a nation is dependent on its economic and political institutions: the more inclusive they are, the more prosperous the country will be. In other words, the key to sustained economic growth lies in open institutions that foster the participation of all the citizens.

The study of the city of Nogales, which is divided between the United States and Mexico, is the starting point of their argumentation: what can explain that, north of the border, American citizens enjoy much better standards of living (in terms of health, education, income or security), than Mexican inhabitants living in the southern part of the town? How can one border justify such a gap? D. Acemoglu and J. Robinson reckon that the major difference between the two countries is that American institutions have created a more conducive environment for economic growth than those of Mexico. Indeed, in the US, property rights are enforced, a level playing field is established, and investment in new technologies and skills is strongly encouraged: anyone willing to start a business in the US can do so without fearing arbitrary expropriation or unfair competition. State governments and the federal administration, which are democratically elected, are responsible for ensuring that equal chances are given to everyone; and, if they feel that they are being unfairly treated, citizens can rely on other institutions to defend their rights. Political institutions are centralized, designed to fight corruption, and enforce law and order across the country, hence fostering economic success. On the contrary, in Mexico, democracy is no second nature, and political institutions are more extractive: corruption is endemic and property rights are fragile. Creating a company in Mexico is a highly risky business, as monopolies and strong relations between politicians and large firms threaten smaller entrepreneurs’ interests. Institutions are partly designed to extract resources from the many by the few, and thus fail to provide incentives for economic activities. In short, inhabitants of the southern part of Nogales are poorer than those in the north because their institutions are not inclusive: the less people are encouraged to take part in business activities, the slower their economy will grow.

This is not to say that extractive institutions are inconsistent with economic growth: in order to have more to extract, political elites would, in theory, favor prosperity. But, as they extend their argumentation to different situations across time and space – ranging from the Soviet Union to the Kuba Kingdom in the actual DRC, through the recent rise of China – D. Acemoglu and J. Robinson argue that growth under this kind of institutions cannot be sustainable. Indeed, innovation is necessary for economic development, but with innovation comes creative destruction (meaning that older techniques and skills are replaced by new ones) which tends to destabilize established power relations. Elites thus fear innovation and tend to prevent it, and by doing so, hinder economic success. More than that, the fact that they benefit greatly at the expense of the rest of society means that power is highly coveted: political instability is often the rule in extractive environments, which prevents businesses from developing.

Economic disparities across the world depend thus on political institutions: the less inclusive they are, the more those in power are tempted to seek their own interests, and the more detrimental it is to their national economy. On the contrary, political institutions which distribute power in a pluralistic manner guarantee that various interests can compete, and that their economy will thrive. But why have some nations developed inclusive institutions, while others have not? As they review ruptures such as the Glorious Revolution in England, the signature of the American Constitution, or the Meiji Restoration in Japan, the authors reckon that these evolutions are mostly a matter of small differences. In fact, little divergences – such as the existence of broad coalitions that have a relative hold on power or the presence of some degree of centralization – have proven extremely meaningful during critical junctures. In the UK for instance, the fact that the Parliament had some influence over the monarchy in the fifteenth century (due to various historical circumstances) meant that the opening of the transatlantic trade could benefit a larger segment of the population, instead of only the Crown. And, as their economic power increased, they were gradually able to effect political change towards more inclusive institutions. Contingency and small differences are thus key elements of the book’s theory: had parliament not held this kind of power at this particular time, the Glorious Revolution might not have occurred this early.

This perspective necessarily constrains the predictive power of the authors’ approach, but D. Acemoglu and J. Robinson acknowledge and embrace the limit of their work, as they claim that it discredits any theory based on historical determinism. Prosperity and poverty are not given, but depend on the institutional drift of nations, which can hardly be anticipated. The major strength of their study is thus that it offers an innovative approach to the questions of economic development, which challenges formerly established theories. Indeed, the example of Nogales, one single city with very different levels of development, helps dismiss the geographical and cultural approaches (the former using climatic and territorial disparities to explain differences in development; the latter focusing on cultural factors, and claiming that some civilizations are ill-adapted to engineer economic growth). In the same way, the elites’ tendency to resist creative destruction challenges the ignorance theory, which considers that leaders do not foster development because they simply do not know how to do so: quite often, those in power are aware that their decisions are impairing national growth, but they decide to favor their own interests nonetheless. Why Nations Fail thus presents a creative theory to explain the origins of prosperity and poverty; and the variety of cases presented, which are highly readable and well-documented, makes the authors’ arguments all the more compelling.

Why Nations Fail, The Origins of Power, Prosperity and Poverty by Daron Acemoglu & James A. Robinson is available in UONGOZI Institute’s Resource Center.

Melisande Denis, currently interning at UONGOZI Institute, is pursuing a Master’s degree in European and International Studies at the University of Paris III: Sorbonne Nouvelle in France.

Book Review: ‘Nationalism’ – Rabindranath Tagore

tagoreOriginally published in 1917, Rabindranath Tagore’s ‘Nationalism’ remains an insightful critique of the concept of the ‘nation’ and ‘nationalism’. The essay was published at a time of a growing Indian nationalist movement, heartened by the successes of Japan in re-defining its relationship with the Western world. Tagore’s text is a warning to the Indian (and other colonised) nationalist movement to not adopt whole-sale the Western concept of nationalism without understanding its power, purpose and costs when it comes to implementing it in a non-Western context:

“It is like dressing our skeleton with another man’s skin, giving rise to eternal feuds between the skin and the bones at every movement.” (p. 4)

To modern readers, this text offers much by way of understanding what keeps a nation together (and working), and the impact of nations on individuals and (non-Western) societies.

To Tagore the nation is simply “the political and economic union of a people… organised for a mechanical purpose” (p. 38) where “the only common bond is usefulness” (p. 19). The nation, a Western construct, is unsuitable for India he argues, because of India’s ethnic diversity. Europe, which Tagore presented as a relatively homogeneous region, could more smoothly marshal the collective effort of her peoples because all of her people were essentially the same. India, and Asia more broadly, does not share this attribute as it is much more diverse – a ‘weakness’ to the nation – warns Tagore.

The nationalist movement in India would have to separate the useful aspects of nationalism and incorporate it into an already well-established Indian society (as Japan seemed to be succeeding at doing). The alternative would be to re-shape Indian society in order to be able to adopt the nation concept. In his view, India is not a nation but as a reaction to colonialism, an Indian nation may be necessary to restore India and her people to dignity:

“… we had to deal, not with kings, not with human races, but with a nation – we, who are no nation ourselves” (p. 38)

This is an important consideration for (public) leaders in Africa as we look to draw strength from our diversity, rather than allow our diversity to continue to challenge Africa’s aspirations.

A second critique of the nation concept is woven into the language of the text. The nation is presented as “scientific, not human” (p. 9) and modern progress as a “lumbering structure… riveted by the iron bolts of efficiency, which runs the wheels of ambition” (p. 31). To Tagore, the machine metaphor is extended to its effect on the nationals themselves who are “smothering their humanity under the immense weight of organisations” (p. 21). As a result “the moral man, the complete man, is more and more giving way, almost without knowing it, to make room for the political and commercial man, the man of limited purpose” (p. 45).The nation should be a tool for society and individuals, not the other way around – and leaders must be aware of this tension:

“In the so-called free countries the majority of the people are not free; they are driven by the minority to a goal which is not even known to them.” (p. 85)

Nationalism is not an attack on Europe or the West. It is however a caution against an uncritical adoption of a Western concept (to a non-Western context) that was making headways at the time and remains relevant today – in the era where business as usual impedes sustainable development.

This book review was written by Dr. Gwamaka Kifukwe, a Researcher at UONGOZI Institute and the host of UONGOZI Institute’s two TV programmes, ‘Meet the Leader’ and ‘In Focus’

Nationalism’ and many other materials are available at the UONGOZI Institute Resource Centre.

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