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A Review of “Why Nations Fail” by Daron Acemoglu and James A Robinson

A Review of “Why Nations Fail” by Daron Acemoglu and James A Robinson – pub. Profile Books, London 2012

The authors put forward a simple thesis, that those nations with “inclusive” institutions, that permit pluralism will prosper over the long term, in contrast to autocratic or, kleptocractic, governments run by elites, who seek only to exploit populations in order to enrich themselves. As they say, “This book is about the huge differences in incomes and standards of living that separate the rich countries of the world, such as the United States, Great Britain, and Germany, from the poor, such as those in sub-Saharan Africa, Central America, and South Asia.” Then, referring to Egypt, which was experiencing the “Arab Spring” as they were completing their manuscript, they add, “In this book we’ll argue that … Egypt is poor precisely because it has been ruled by a narrow elite that have organized society for their own benefit at the expense of the vast mass of the people.” In their opinion poor countries are poor “for the same reason that Egypt is poor,” and countries like Britain and the United States are wealthy because political rights were much more broadly distributed, and where governments were accountable to their citizens, allowing the general population to take advantage of available economic opportunities.

In making their argument they focus on the “Glorious Revolution” of 1688 in England, which removed the threat of absolutism and allowed the emergence of a pluralist society with equality before the law. They make the compelling case that without 1688 the Industrial Revolution would not have originated in England (Britain after 1704).

This is a readable book, and gives an interesting series of insights into the historical processes that determined the course of nations. I do agree on the critical importance of institutions and the fact that history is not predetermined, but often is the result of what they call “critical junctures”, moments when particular societies reacted in one way to unforeseen events like The Black Death, while other societies took different routes. They argue, for example that while in England one of the effects of The Black Death was to end serfdom, as labourers successfully demanded freedom to sell their labour to the highest bidder, in Eastern Europe the opposite effect occurred, and the hold of serfdom was increased, as landowners successfully took steps to strengthen power over their serfs.

I recommend this book, not least because it gives valuable insights into “exploitive” nations, particularly in Africa, which in countries like the DRC has given us the term “kleptocracy”. The authors also cover events, like the survival of traditional inclusive institutions in Bechuanaland (modern Botswana) which not well known. This particular case is important because it shows that African traditions can be inclusive and enable the development of prosperous nations, something that is too easy to forget when looking at the mess that is the DRC (Congo).

However, there are a number of areas which the authors do not cover, and which I hope they will address in a future work. Firstly, this book is largely about the role of institutions within nation states, the rule of law within the territory of the state. I think that developments in the last fifty years have weakened the power of states, and placed power into the hands of international bodies, such as the European Union, which too often appears to be run by unelected elites without concern for the opinions of citizens; the handling of the Greek financial crisis, which has impoverished many Greeks, has been done in the name of “Europe”, and it appears to the advantage of northern European creditor institutions. The international trade agreements have also reduced the power of national parliaments to make policy, and the complex tax arrangements of international corporations have reduced the power of national governments to raise tax on their activities. We have also seen the rise of global corporations who are beholden to no government. When HSBC PLC decided it disliked proposed UK legislature to reduce systemic risk in banking it threatened to relocate to another country, although developments in China made a return to Hong Kong less attractive than the bank at first thought and it will probably remain in London. Furthermore, as Thomas Piketty and others have pointed out, we have seen a tremendous increase in inequality, particularly in the United States, to the point where the influence of the ultra-wealthy on the American political process can be said to be a real threat to inclusive institutions. As Gilens and Page (2014) say, “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. Our results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.”

I think that there should have been a consideration of whether the United States (and Europe) is at a “critical juncture”, which threats its inclusive institutions and is permitting the emergence of an exploitive class of plutocrats. They note the failure of inclusive institutions in Venice, but need to consider whether this is actually happening in the modern United States; because if it is, and the work of Gilens and Page suggests that this is the case, they need to consider the implications and the way in which such developments can be opposed.

I do agree with them that China’s autocratic political institutions will ultimately act as a restraint on the development of a “knowledge economy”, and its continued growth, and we are starting to see the implications of this. What is interesting is whether the growing constraints in the United States, and the dominance of corporate or elite interests, will ultimately derail the progress of the American economy. One could foresee that such developments would ultimately result in civil conflict, because the American national culture is strongly opposed to such undemocratic developments. I think that the authors need to test their thesis against current developments. particularly in the United States.

As regards Europe, it may well be that a democratic (or bloody-minded) England may ultimately be better off leaving the increasingly undemocratic institutions of the European Union. There are a number of critical junctures to consider.

Finally, I think that it would be worth looking at the cultural differences between nations, for example the degree to which the national culture is hierarchical or equalitarian. But that will doubtless be the subject of another book.

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