Issues

Why nations fail

Monday May 14, 2018 Julian Williams

Drawing in part from http://whynationsfail.com/summary/, we ask why are some nations rich and others poor, divided by wealth and poverty, health and sickness, food and famine?

 

Why has Botswana become one of the fastest-growing countries in the world, while other African nations, such as Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence? Why are the people of North Korea among the poorest on earth while their brothers and sisters in South Korea are among the richest. Why did England and later the United States enjoy the benefits of the Industrial Revolution, and develop in prosperity to the present day whereas Latin and South America were marked by instability and repression to the 1990s.

 

Based on fifteen years of original research, Daron Acemoglu (MIT) and James Robinson (University of Chicago) bring together extraordinary historical evidence in their 2012 book: “Why Nations Fail”.  The audio book is available at https://www.youtube.com/watch?v=BzbnnnL9XVU.  Evidence spans the time from antiquity to the modern day and covers nations across many continents.

 

Why do nations fail? In a sentence, it is because successful nations support inclusive institutions (political and otherwise), whereas unsuccessful ones support extractive institutions. In this context inclusive institutions create inclusive markets where there is freedom for any individual to provide labour for just pay or to pursue entrepreneurship. Inclusive institutions support a level playing field. This includes providing access to education and jobs subsequent to education. There is an efficient allocation of labour and capital. By contrast, extractive institutions are designed to extract income and wealth from many of the population for the exclusive benefit of one group.

 

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In the authors’ view, achieving prosperity requires solution of the same political (not economic) problems prevalent across many failing nations. Economics assumes the problems can be solved. Economics is necessary to help us understand why institutional arrangements and incentives affect behavior and lead to inequality. However, it is the politics that determine these arrangements.

 

In a forthcoming article, I will present and expand on Jared Diamond’s thesis, articulated by the authors, that inequality in the modern world undoubtedly results from the uneven take-up and dissemination of technologies.