Why nations fail summary

This means every group in society is being represented politically. This is why the authors refer to the Black Death as an example of a critical juncture. This is an event that is influential enough to overturn the sociopolitical balance of a nation or continent. Before the Black Death, most of the economic and political systems in Europe were extremely extractive.

Peasants would then take care of the land. They worked hard to make a living but paid most of what they earned in taxes. In addition, they had almost no freedoms. But when the Black Death hit, there were suddenly huge shortages in labor. The peasants in Western Europe seized this opportunity to demand lower taxes and more rights. Eastern European peasants were not so lucky, however. They were less organized, and landowners managed to take advantage of this and started hiking taxes higher and making the system even more extractive.

This is why the authors call the Black Death a critical juncture in history. For Western Europe, it spelled the end of extractive feudalism. But in the east, it grew worse. Institutional drift is the result of this difference that led to divergent paths. We saw a similar institutional drift when global trade expanded, and the British colonized the Americas. Sometimes it takes centuries, but a small number of critical junctures can mean institutional drift that creates drastically different economic landscapes between once-similar areas.

But what can countries do to fix the extractive institutions they have in place? We know that inclusive and extractive institutions can grow from critical junctures.

The cycle can be broken. In the 15th century, the Spanish basically used already existing systems of slavery to their own benefit and extracted mountains of gold and silver, leaving a legacy of elite-governance and a dearth of political rights for the majority. Eventually, however, the original settler company The Virginia company back in England realized the only way colonialism was going to work was to provide incentives for the settlers — So they offered them land in return for work.

It was this that set the basis for the democratic constitution and congress of the US, which then went on to create problems for the English government. The rest of chapter goes on to argue that the next years of history are crucial to understanding why the US is now so wealthy, and why most of Latin America is so poor. America has had years of political stability, where political institutions control economic institutions, at least to an extent the authors cite the breaking up of the Microsoft Monopoly as an example broadly making them work for everyone.

Other factors such as the patent system, credit systems, and education provide opportunities for anyone to make it rich and enjoy the benefits of the wealth. By contrast in Latin America Mexico , up until the s most countries saw political turmoil and a series of dictatorships where a series of small elites ruled for their own benefit. This instability has lead to the rise of monopoly power, and it acts as a disincentive for anyone to try and do well and become rich the next dictator might just take all your money away , also lack of finance and education prevents competition anyway.

Crucially, historical good fortune appears to be central to explaining why a country is rich now, so figuring out how a current poor country can develop is not that straight forward if a culture of monopoly, corruption and lack of political rights are the norm….. This chapter contrasts North and South Korea, divided along the 38th parallel after world war two. In the late s these had similar levels of development, today, however, their economies have diverged.

South Korea has living standards 10 times higher than North Korea, the former being similar to Portugal, the later similar to sub-Saharan African countries. People in North Korea also live ten years less than those in South Korea. In the South, private property and markets were encouraged albeit by dictators initially and thus investment and economic growth were encouraged.

At the same time, the government invested in education and new industries took advantage of a better educated population. In North Korea, private property and markets were banned, and a centrally planned economy instigated. This simply led to stagnation. Countries differ in their economic success becasue of their different institutions — the rules influencing how the economy works and the incentives that motivate people.

Crucial is private property rights — which needs to be backed by the state…. In South Korea, people know that they will be rewarded for their efforts, in North Korea, there is no incentive to innovate and invest because the state will expropriate the benefits of any such initiatives. Private enterprise uses and needs such institutions. Such as slave and colonial systems and the Tories in the UK today?

Education for the masses is crucial for innovation in an advanced technological world — This is what all developed nations have, and what many undeveloped nations lack.

Education needs to be well financed and parents need to have the incentive to send their kids to school. A state needs to be inclusive for economic growth to occur — that is, it needs to both be chosen by its citizens and have a centralized control over legitimate violence.

The simple fact is that where technological change is the engine of economic growth, this means social change, and with change there are winners and losers… Thus existing elites may resist changes that make institutions more inclusive even if this means greater prosperity for all, because it will mean less prosperity for them.

Think industrial revolutions in Europe. The Congo has not developed since independence because it has not been in the interests of the ruling elite to build a centralised state which includes all voices, or in their interests to use the state to provide public services which will benefit the masses — instead the institutions remain extractive.

As an independent polity, Congo experienced almost unbroken economic decline and poverty under the rule of Jospeh Mobutu between and Mobutu created a set of highly extractive economic institutions. The citizens were impoverished but Mobutu and the elite around him known as the Grosses Legumes or The Big Vegetables became fabulously wealthy. Mobutu built himself a palace at his birthplace, Gbadolite, with an airport large enough to land a supersonic Concord jet, a plane he frequently rented from Air France for travel to Europe.

In Europe he bought castles and owned large tracts of the Belgian capital Brussels. The simple truth is that if Mobutu had introduced more inclusive economic institutions he would not have been as rich. Growth can occur under extractive instiuttions — as in Russia and South Korea at first and China today but this is unlikely to be sustained unless both economic and political insitutions become inclusive.

The authors paint the vicious circle as starting off with extractive institutions established by a colonial power which builds on previous extractive institutions , which, on leaving, becomes even more extractive under corrupt post-colonial rulers, which in turn leads to civil war as competing factions fight for control over the extractive institutions — which then leads to a decent into chaos! Or in more detail… The British Colonial Authorities built extractive institutions which many post independence African politicians were only too happy to continue in order to enrich themselves.

The postcolonial rulers used their wealth to build personalized security forces which were answerable to them and also to rig elections — money thus became essential to maintain power, with only those who have money able to maintain power.

This creates incentives among the opposition to depose the existing leaders in order to gain power and wealth themselves, and to protect themselves from being killed off by the said existing leaders. Find this book The scholarly work of Daron Acemoglu and James Robinson is already widely known among economic historians, economists and political scientists. About the author blog admin. Pingback: The Role of the State in development: a dynamic and changing view hope21thcentury.

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