Why Nations Fail
Why Nations Fail: The Origins of Power, Prosperity, and Poverty, first published in 2012, is a book by Turkish-American economist Daron Acemoglu and British-American economist James A. Robinson, who in 2024 jointly received the Nobel Memorial Prize in Economic Sciences for their contribution in comparative studies of prosperity between nations. The book applies insights from institutional economics, development economics, and economic history to understand why nations develop differently, with some succeeding in the accumulation of power and prosperity and others failing. The authors present a wide range of historical case studies from all over the world.
The authors maintain a website with a blog inactive since 2014 about the discussion of the book.Context
Background
The book is the result of a synthesis of many years of research by Daron Acemoglu, on the theory of economic growth, and James Robinson, on the economies of Africa and Latin America, as well as research by many other authors. It contains an interpretation of the history of various countries, both extinct and modern, from the standpoint of a new institutional school. The central idea of many of the authors' works is the defining role of institutions in the achievement of a high level of welfare by countries. An earlier book by the authors, The Economic Origins of Dictatorship and Democracy, is devoted to the same, but it did not contain a large number of various historical examples.Polemic against geographic economic theory
The authors enter into an "indirect polemical dispute with the authors of other theories explaining global inequality":
As well as various cultural theories: that of
They most harshly criticized geographical theory as "unable to explain not only global inequality, in general,” but also, the fact that many countries have been in stagnation for a long time, and then, at a certain point in time, began a rapid economic growth, although their geographical position did not change.Content
The book consists of 15 chapters;Comparative studies
Beginning with a description of the border towns Nogales, Arizona, and Nogales, Sonora, the authors question the reasons for the dramatic difference in living standards on either side of the Mexican-American border separating the two cities. The book focuses on how some countries have managed to achieve high levels of prosperity, while others have consistently failed at sustainable development.Causes
Sustainable development is accompanied by a constant change and improvement of technologies — a process called scientific and technological progress. In search of the reasons why this occurs in some countries and not in others the authors come to the conclusion that for scientific and technological progress, it is necessary to protect the property rights of a wide strata of society and the ability to receive income from their enterprises and innovations including from patents for inventions. But as soon as a citizen receives a patent, he immediately becomes interested in that no one else patented a more perfect version of his invention, so he can receive income from his patent, forever. Therefore, for sustainable development, a mechanism is needed that does not allow him to do this, because, together, with the patent, he receives a substantial wealth. The authors come to the conclusion that such a mechanism is pluralistic political institutions that allow wide sections of society to participate in governing the country. In this example, the inventor of the previous patent loses, but everyone else wins.Pluralistic institutions
With pluralistic political institutions, a decision is made that is beneficial to the majority, which means that the inventor of the previous one will not be able to prevent a patent for a new invention and, thus, there will be a continuous improvement of technologies. The interpretation of economic growth, as a constant change of goods and technologies, was first proposed by Joseph Schumpeter, who called this process creative destruction. In the form of an economic model, this concept was implemented by Philippe Aghion and Peter Howitt in the Aghion–Howitt model, where the incentive for the development of new products is the monopoly profit from their production, which ends after the invention of a better product. Since only pluralistic political institutions can guarantee that the owners of existing monopolies, using their economic power, will not be able to block the introduction of new technologies, they, according to the authors, are a necessary condition for the country's transition to sustainable development. Another prerequisite is a sufficient level of centralization of power in the country, because, in the absence of this, political pluralism can turn into chaos. The theoretical basis of the authors' work is presented in a joint article, with Simon Johnson, and the authors also note the great influence of Douglass North's work on their views.Analysis
The authors support their position by analyzing the economic development of many modern and already disappeared countries and societies: the USA; medieval England, the Glorious Revolution and the British Empire; France; the Venetian Republic; the Roman Republic, and the Roman Empire; Austria-Hungary; Russian Empire, USSR and modern Russia; Spain and its many former colonies: Argentina, Venezuela, Guatemala, Colombia, Mexico and Peru; Brazil; colonial period of the Caribbean region; Maya civilization; Natufian culture; the Ottoman Empire and modern Turkey; Japan; North Korea and South Korea; the Ming and Qing empires, and modern China; the sultanates of Tidore, Ternate and Bakan, the island state of Ambon and other communities on the territory of modern Indonesia, and the consequences of the impact of the Dutch East India Company on them; Australia; Somalia and Afghanistan; the kingdoms of Aksum and modern Ethiopia; South Africa, Zimbabwe and Botswana; the kingdoms of the Congo and Cuba, and the modern Democratic Republic of the Congo; the states of Oyo, Dahomey and Ashanti, and modern Ghana; Sierra Leone; modern Egypt and Uzbekistan. Reviewers unanimously note the wealth of historical examples in the book.Extractive and Inclusive institutions
The decisive role for the development of countries, according to the authors, is played by political and economic institutions — a set of formal and informal rules and mechanisms for coercing individuals to comply with these rules that exist in society. Acemoglu and Robinson divide institutions into two large groups: Political and economic. The first regulate the distribution of powers between the various authorities in the country and the procedure for the formation of these bodies, and the second regulate the property relations of citizens. The concept of Acemoglu and Robinson consists in opposing two archetypes: the so-called “extractive” and “inclusive” economic and political institutions, which, in both cases, reinforce and support each other.Inclusive institutions
Inclusive economic institutions protect the property rights of wide sections of society not just the elite, they do not allow unjustified alienation of property, and they allow all citizens to participate in economic relations, in order to make a profit. Under the conditions of such institutions, workers are interested in increasing labour productivity. The first examples of such institutions are the commenda in the Venetian Republic and patents for inventions. The long-term existence of such economic institutions, according to the authors, is impossible, without inclusive political institutions that allow wide sections of society to participate in governing the country and make decisions that are beneficial to the majority. These institutions are the foundation of all modern liberal democracies. In the absence of such institutions, when political power is usurped by a small stratum of society, sooner or later, it will use this power to gain economic power to attack the property rights of others, and, therefore, to destroy inclusive economic institutions.Extractive institutions
Extractive economic institutions exclude large segments of the population from the distribution of income from their own activities. They prevent everyone, except the elite, from benefiting from participation in economic relations, who, on the contrary, are allowed to even alienate the property of those who do not belong to the elite. Examples include slavery, serfdom, and encomienda. In the context of such institutions, workers have no incentive to increase labour productivity, since all or almost all of the additional income will be withdrawn by the elite. Such economic institutions are accompanied by extractive political institutions that exclude large sections of the population from governing the country and concentrate all political power in the hands of a narrow stratum of society. Examples are absolute monarchies and various types of dictatorial and totalitarian regimes, as well as authoritarian regimes, with external elements of democracy, which are so widespread in the modern world, where power is supported by power structures: the army, the police, and dependent courts. The very fact that there are elections in a country does not mean that its institutions cannot be classified as extractive: competition can be dishonest, candidates' opportunities and their access to the media are unequal, and voting is conducted with numerous violations, and in this case the elections are just a spectacle, the ending of which is known, in advance.