“Why Nations Fail: The Origins of Power, Prosperity and Poverty”
By Daron Acemoglu and James A. Robinson
To find out how screwed up a country can be, sometimes you just need to get breakfast. A couple years ago in Bangui, the capital of the Central African Republic (C.A.R.), the only eggs I found for sale were marked as imported from Cameroon, some six hundred miles away, and they cost more than the cage-free organic variety on offer at my local yuppie mart here in America. Raising chickens is easy and cheap: At these prices, someone should have been able to make good money producing eggs locally. But C.A.R., like many countries, is disordered at a deep level, and the old laws of microeconomics apply there only in the same sense that the law of gravity applies on the moon.
“Why Nations Fail,” the large and ambitious new book by Daron Acemoglu and James A. Robinson, aims to explain this disorder and come up with a general theory of how places with reasonably similar cultural and natural-resource endowments end up either poor or prosperous. They point to Nogales, the city that straddles the U.S.-Mexico border near Tucson. Ethnically, the two sides of the city are identical twins. But the American side swims comfortably in cash, and the Mexican side is poor and violent. This same mismatch is visible across countless other political borders: North Korean kids are malnourished because they have no food; South Korean kids are malnourished because they skip meals to play Starcraft. Haiti exports refugees; the Dominican Republic exports shortstops. (For more on this check out “Natural Experiments of History,” the fascinating volume Robinson co-edited with Jared Diamond last year.)
Acemoglu and Robinson are both economists, but here their subject is what we might think of as the *pre*-economic background to prosperity. They begin, sensibly, from the assumption that a correctly functioning free market will create wealth. The great mystery is why every country hasn’t simply adopted the ways of the free market and become as rich as Americans or Germans. The authors entertain a number of familiar hypotheses — is wealth due to having more fertile land? more oil? some “cultural” X-factor? — and ultimately advance a fairly simple theory of institutional soundness as a guide to wealth. Sound institutions, they say, are the ones that include people in the economy, rather than simply robbing or enslaving them.
If this sounds like a low bar to set, Robinson and Acemoglu have a 400-page history lesson that will teach you just how rare sound institutions are. The authors cover nearly every place on earth. This is no exaggeration: I do not recall having read a book as wide in its geographical range, from Australia to Meso-America to the Congo, and from 500 B.C. to the present.
What they find is a familiar theme and variations. Nations drag themselves painstakingly out of the lowest stages of poverty, until their leaders or elites start taking the wealth for themselves. The nations that end up in a permanent cycle characterized by this extractive-style economy are “instrinsically limited,” the authors say, and “when the limits are hit, growth stops” – as it did in the Soviet Union, and as they predict it will in China. The nations whose institutions break that cycle and develop inclusive institutions, often by assembling a critical mass of discontents at an important moment in the nation’s history, are the ones that grow prosperous.
In an early example, they invite the reader to compare how the world’s two richest men, Bill Gates and Mexican mogul Carlos Slim, got rich. Gates founded Microsoft and launched a global personal computing revolution. By contrast, Slim — whose grip on Mexico’s telecom industry is so great that they say every Mexican, rich or poor, ends up putting a peso in his pocket every day — made his fortune by manipulating a privatization scheme and benefiting from the incumbency effects of being a wealthy and powerful man in a place where extreme wealth and power are vastly more self-perpetuating than in the United States. A country that rewards innovation gets rich, and a country that allows its elite to snatch pesos indiscriminately from the pockets of campesinos stays poor. And what distinguishes the former from the latter is a set of political institutions that allow campesinos to cry foul, and keep the Slims of the world from permanently rigging the economy in their favor.
The bad news, unless you happen to be in a rich country (or unless you are Carlos Slim), is that institutions that slap the hands of the pickpockets arise out of long historical processes. In the case of the English-speaking world, the authors point to the Glorious Revolution of 1688 as the seminal event in ensuring that institutions arose that kept incumbents under control, and allowed the disruptive innovations of the Industrial Revolution and beyond. In Botswana, a relatively prosperous diamond-economy in southern Africa, the healthy institutions come in part from longstanding tribal structures that kept the powers of tribal chiefs in check. For nations not lucky enough to have had a 1688 revolution, or a legacy of Tswana tribal governance, the authors admit they have no simple prescriptions.
On two topics, Robinson and Acemoglu’s otherwise splendid book remains unsatisfying. First is the “origins” issue promised in the subtitle. How these processes get started, and why they happened in England in 1688 but not in Bangui today, is not fully explained. Once non-extractive institutions exist in a self-perpetuating way, their role in creating prosperity is clear and undeniable. But where do these first, unbegotten salutary institutions come from? Having a political crisis provides a good catalyst for change of some sort, but why positive change in one place but not another? “Some luck is key,” the authors note unhelpfully.
Second is the issue of China, whose analysis here feels inadequate, considering the massive swing in that country’s fortunes during the lifetime of the authors. As they correctly note, during the Great Leap Forward the Chinese economy was a net wealth-destroyer, with peasants dismantling valuable farm equipment for valueless scrap metal, to meet absurd steel quotas. Now GDP growth is steadily positive. Robinson and Acemoglu characterize the Chinese economic miracle as insufficiently inclusive, and they predict that its authoritarian model will run into growth barriers soon. That may well be so, but their confidence probably calls for another massive book to argue thoroughly. Meanwhile, to keep China in the “fail” column because simply its institutions remain extractive is to dismiss rather blithely the most remarkable development feat in the last 50 years. T. Lifting a billion Chinese out of poverty is not, as they might say in Bangui, chicken feed.