I started reading Why Nations Fail at the beginning of the year when I replaced my 10-year old Kindle. I wish they still made these things with a BlackBerry-style keyboard.
Anyways, I really enjoyed this book. It’s incredibly interesting with its huge gallery of historical examples while remaining approachable to economics dilettantes. The authors articulate a very powerful claim about global development that I have felt innately for a long time but been unable to argue nearly as precisely. Simply put, the book argues that societies that provide inclusive political and economic institutions—allowing broad participation, rights, and shared prosperity—are more likely to succeed, while those with extractive institutions, which concentrate power and wealth in the hands of a few, are prone to stagnation and failure.
The book goes into detail explaining how this theory is evident in various societies throughout history, while also swatting down other popular explanations for why some countries are wealthy and others are not—such as differences in climate, culture, or resources.
I’m writing this about a week after the authors Daron Acemoglu and James Robinson won the economics Nobel prize1 this year with collaborator Simon Johnson. I’ve seen criticism levied at the book’s supposed tunnel vision on solely attributing societal success or failure to the inclusiveness of its institutions, as well as the claim that the book ignores the effects of colonialism in helping Western countries achieve their modern day wealth.
I disagree with these these points.2 There is ample evidence to suggest that the long-run path of countries with similar starting conditions—similar geography, similar availability of resources, similar history of past colonization—end up with vastly different societal outcomes depending on their institutions. For instance, compare South and North Korea, former West and East Germany, Poland and Belarus, Taiwan and China, Finland and Russia, Israel and Syria, or Botswana and Zimbabwe.
China in particular is a funny case, because critics claim that it was able to rapidly develop into an economic superpower while remaining a single-party Communist state, thus invalidating the claim that liberal democracies are a necessary condition for sustainable economic growth. The ironic point, however, is that China achieved this rapid growth because it adopted liberal economic practices in the 1980’s which made it easier for foreign investors and domestic companies to start doing business. If China were to, you know, fully liberalize its economy and democratize then one can realistically imagine they would already be the dominant economic and cultural superpower on the planet.
To this point, we are currently witnessing China becoming more autocratic. As both the book and reality have repeatedly shown, such political systems eventually tend to drift towards stupid political side quests which sabotage economic development. And as we have seen post-pandemic, this self-inflicted kneecapping has only begun.
In any case, I am happy to see that there is renewed interest in this book after the announcement of this year’s Nobel recipient and the larger political economic theory behind it. Backtesting such a grand theory on the world, as the book does, is one thing, and being able to predict the future is another. I’ll revisit this post in 2074 to see if its legacy held up.
Yes I know it’s technically not a Nobel prize
On a related note, I find it frustrating when concepts such as democracy, liberalism, or capitalism are described as uniquely Western and therefore only compatible in Western societies. Both proponents and critics of these values sometimes are guilty of this. Like dude, relax, you can’t patent an ideology.