My web search on food insecurity around the world and its causes quickly became a quest to understand why some countries do much better than others. I have always wondered why some countries have immense wealth, stability, and freedom, while others remain stuck in cycles of poverty, corruption, and conflict.

During my research, I came across the intriguing book Why Nations Fail: The Origins of Power, Prosperity, and Poverty by renowned economists Daron Acemoglu and James A. Robinson. The book, utilizing decades of research and a rich array of historical case studies, makes a bold claim: it’s not geography, culture, or ignorance that holds nations back, rather it is their institutions.

Inclusive vs. Extractive Institutions

At the heart of the book is a very powerful idea: the quality of a country’s political and economic institutions determines its success or failure.

• Inclusive institutions are used to promote public participation, protect civil liberties, and fuel the growth of new technologies. Some examples include strong property rights, independent courts, fair elections, and free markets. Countries with inclusive institutions tend to grow and prosper.
• Extractive institutions are used by elite groups to consolidate power into their hands. These powerful elites use extractive institutions to steal money and power from the general public. Extractive institutions denounce innovation, suppress free elections, limit competition, and directly lead to political instability.

Countries with extractive institutions may experience short bursts of growth, but they usually can’t sustain it. This is because innovation and broad-based prosperity are stifled by elites who fear losing their grip on power.

Economics Fuels the Political Sphere

Acemoglu and Robinson provide the central idea that political institutions are used as a tool to shape economic institutions. Those with political power are able to control the economic sector and create their own rules.

When political power is consolidated into a small group of elites, economic institutions can easily be manipulated to benefit those in power. For real, lasting development, political power must be pluralistic and accountable. This will then allow inclusive economic institutions to follow.

History Matters!!!

The authors dive into fascinating historical examples:

• North vs. South Korea. Same geography, same people, yet one is rich and democratic, the other poor and authoritarian. The reason? Dramatically different institutions.
• Colonial Latin America vs. North America. Spanish colonies were built around exploitation, while British colonies (at least in the North) developed more inclusive institutions. The legacy of those choices is still visible today.
• The Glorious Revolution in England (1688). The revolution helped limit the monarchy’s power and paved the way for property rights, parliamentary rule, and eventually, the Industrial Revolution.

History directly shapes the path of institutional development, which is why deep reforms are often so difficult.

Myths Debunked

The authors then go on to debunk popular explanations for poverty:

• Geography? Nice theory, but plenty of rich countries have bad climates, and poor countries often sit on land that is rich of natural resources.
• Culture? Doesn’t stand. There’s no cultural reason why South Koreans are richer than North Koreans.
• Ignorance of good policy? No. Elites often know what policies could help, but they choose not to implement them because those policies would undermine their power.

The “Iron Law of Oligarchy”

Even when revolutions happen, they often just replace one elite with another. This is the “iron law of oligarchy” in action. The challenge is creating lasting institutional change, not just swapping rulers.

So, Why Don’t Nations Just Simply Reform?

It is very difficult for nations to reform due to the fact that those in power are most often directly benefiting from the existing circumstances. In turn, they have absolutely zero incentive to create meaningful or positive changes to the existing institutions. Positive institutional reforms mean giving up control and power. As a result, most powerful elites avoid action whenever possible.

This resistance to institutional change is why foreign aid, development programs, and market reforms often fail in developing nations. They are unable to create lasting change due to the underlying political motivations of those in power.

Final Thoughts

Acemoglu and Robinson craft an intricate argument on how and why long-term national success comes directly from inclusive institutions. These inclusive institutions are most often shaped by political motivations.

Acemoglu and Robinson claim that nations fail when political and economic power is consolidated into the hand of a small group of elites who have their own self-interest in mind. On the other hand, nations are able to succeed when power is broadly shared, with institutions that are designed to empower the masses of the nation.

WORKS CITED: