The book “Why Nations Fail – the Origins of Power, Prosperity, and Poverty” is an outcome of over fifteen years of collaborative research by Acemoglu and Robinson in explaining the inequalities we see in the world. It is a comprehensive account of changing societies around the world affecting and resulting in the world we see today with its inequalities.
The journey begins from the earliest times when humankind started agriculture, and through the numerous civilizations around the world till the modern times. One is taken to civilizations like those of the Romans and the Incas, the colonial era in the Americas, Africa, South and South East Asia, the feudal era in Europe and Asia, and their transformation to democracies and republics that we see today. Throughout, the authors test existing socioeconomic theories (cultural, geographical, and ignorance) to explain the growing inequalities in power and wealth in these societies, and find that these do not apply.
The authors then explain the theory of extractive and inclusive institutions as the answer for; why some nations fail while others succeed, and why some societies prosper while others face extreme poverty.
Inclusive economic institutions leading to prosperity are an outcome of societies where inclusive political institutions emerge. It welcomes incentives for the people embracing innovations and property rights. Inclusive economic and political institutions emerge in democratic societies and ensures these nations prosper through market economy as we see in North America, most of western Europe, Japan, South Korea, Australia and similar democracies.
Extractive political institutions, as seen in the colonial periods in Africa, Tsarist Russia, and feudal Eastern Europe lead to extractive economic institutions. Innovations or changes are feared by the elite few, denying economic incentives for the lower rung in the society. These push people towards creative destruction in various forms like the: Glorious Revolution in England, French Revolution, Civil Rights Movement in America, Mexican Revolution, Egyptian Revolution, or the Meiji Restoration in Japan.
Depending on which forces prevail, such transformations could lead to: virtuous circles where extractive institutions are replaced with inclusive institutions, or vicious circles where extractive institutions are replaced with other forms of extractive institutions. The nations that experienced vicious circles with one extractive form after the other, irrespective of their glorious past, are poorer than others. With the exception of a few countries, these include countries in Latin America, Eastern Europe, and Africa.
The book is a must read for those responsible in steering the country. These include bureaucrats, politicians, and those involved in framing acts, rules, and policies. Much of expertise in socio-economic field could be gained through academic textbooks, however, books such as this, ensures understanding the intricacies of how institutions affect societies or how societies come about setting up such institutions. The take-away of the book is really that it is the institutions that we set up which determines the future in becoming more prosperous or landing up in extreme poverty. Through choices of institutions, rich societies end with extreme poverty and poor societies with the right institutions embark on road to prosperity. Even as these may be thumb-rule in understanding simple societies, there are other factors explained as creative destruction and critical junctures, which could lead to setting a society in trajectory of a virtuous circle or that of a vicious circle.
NOTE: Daron Acemoglu is Elizabeth and James Killian Professor (Economics) at MIT, and James A. Robinson is a political scientist and economist at Harvard University.