Political and Economic Institutions of Different Nations in Why Nations Fail Book

Published: 2021-06-17 10:02:48
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Acemoglu and Robinson: Why Nations Fail
In Why Nations Fail Acemoglu and Robinson follow in the footsteps of Easterly, Diamond, Sachs, Banerjee and Duflo in their attempts to explain why some nations fail while others succeed. Acemoglu and Robinson focus on the political and economic institutions of nations and how they were brought about by the response of different nations to critical junctures. In their opinion, nations with extractive institutions, with the elite or a small group of people controlling the wealth and power of the nation, usually fail while those with inclusive institutions, whereby power and wealth is spread more evenly across the population, usually succeed. However, in my opinion, Acemoglu and Robinson, like the authors before them, try to explain all the failures and success based on a specific aspects of nations instead of focusing and bringing the whole together. All these authors are right and wrong because their theories bring to light major problems but they refute and fail to consider other authors theories. Their theories put together present the perfect theory of why some nations fail while others succeed.
In Why Nations Fail, Acemoglu and Robinson strive to explain the gap between the wealthy and poor nations; the West, Japan and the rest of the world. Throughout the book, the authors emphasize part one of their theory, which explains the difference between inclusive and extractive institutions. Inclusive institutions contribute to the success of nations because “inclusive economic institutions create a more equitable distribution of resources, facilitating the persistence of inclusive political institutions” which “make power broadly distributed in society and constrain its arbitrary exercise.” Nations with inclusive institutions have long-term economic success because people have incentives to work hard, invent and innovate new ways of bringing about economic efficiency. The authors provide the example of England and how after the Glorious Revolutions, “the government adopted a set of economic institutions that provided incentives for investment, trade and innovation. It steadfastly enforced property rights, including patents granting property rights for ideas, thereby providing a major stimulus to innovation.” These changes in policies put England on the path toward inclusive institutions because power and wealth was more evenly distributed across the nation and people were more motivated to work harder. On the other hand, extractive institutions lead to failure of nations because the “political institutions enable the elites controlling the political power to choose economic institutions with few constraints or opposing forces and in turn, enrich the same elites and their economic wealth and power help consolidate their political dominance.” The elite, who control all the power extract resources from the nation, to feed and maintain their wealth, so people have no incentives to invent or innovate new technology because they know that they won’t benefit from their hard work. In chapter two, the authors state the example of the Kingdom of Kongo, whereby the Kongolese refused to adopt the superior technology introduced by the Portuguese because “they lacked any incentive to do. They faced high risk of all their output being expropriated and taxed by the all-powerful king Nzinga a Nkuwu.” Even though the authors state that no economic growth can exist under extractive institutions, they give two exceptions which state that first, “growth is possible when elites can directly allocate resources to high-productivity activities that they themselves can control.” This type of growth occurred in the Soviet Union, whereby resources where allocated from the agriculture sector and put into the industrial sector. This enabled the Soviet Union to experience rapid growth for some time before it began to decline. The Soviet Union’s economy became to decline because the elite banned any invention of new technology due to fear of creative destruction, which they thought would affect their wealth and power standing over the nation. Second, “growth under extractive political institutions arises when the institutions permit the development of somewhat, even if not completely, inclusive economic institutions.” This is the type of growth experienced by China today. China was able to introduce inclusive economic institutions by creating policies that gave people incentives to innovate and invent new technology, and start new businesses. While some economists predict that China will overpass Western Europe and the United States as an economic superpower in the years to come, Acemoglu and Robinson state that if China doesn’t move towards exclusively inclusive institutions, it is going to experience an economic decline similar to that of the Soviet Union.
The second part of Acemoglu and Robinson’s theory focuses on the explaining the existence (or nonexistence) of inclusive institutions in different nations. The authors state institutional drift as the cause of the varying institutions in many nations. They provide three factors that play a major role in the process of institutional drift: history, small differences and critical junctures. History contributes to the institutional drift because it’s the history of the nation that brings about small differences which in turn are amplified by critical junctures. The authors use this process to explain why the industrial revolution happened in England, and not in Spain or France. England, Spain and France were similar nations all ruled by monarchs and parliaments under extractive institutions. All of the nations were hit by same critical juncture of the Black Death. However, the small differences that led to inclusive institutions in England but stronger extractive institutions in Spain were brought about how the nations responded and reacted to the Black Death. In England, the power of the monarch was challenged by the parliament and the rest of nation, which was demanding less taxations and more say in political policies while in Spain, the monarch strengthened the extractive institutions using absolutism. While England was beginning to experience economic success due to its continued path towards more inclusive institutions, Spain’s economy was declining, despite the discovery of the America’s by Spanish explorers. Furthermore, England was able to gain an edge over Spain after defeating the Spanish Armada, which led to the decline of Spain and the beginning of the mighty British Empire.
In stating their theory of why nations fail, Acemoglu and Robinson refute the geography hypothesis advanced by both Diamond and Sachs. Diamond’s theory states that “the differential availability of animal and plant species created differential intensities of farming, which led to different paths of technological change and prosperity across different continents.” In other words, Diamond attributes the failure of nations to the inability of plant and animal species from Europe to adapt to the new environment of the Americas and Africa. In their opinion, the authors think that Diamond’s theory is inadequate to “explain variation within continents-as essential part of modern world inequality.” The authors think that Diamond’s theory fails to explain the gap between the rich and poor nations because it doesn’t factor in the history of prosperity and the technology. In my opinion, I think Diamond’s theory properly explains this gap, and it partially has something to do with the potential for animal and plant domestication because if Africa, America and Europe had the same animals and plant species, they would all either be rich or poor. But because the species reacted differently in different atmospheres, this may have contributed to Europe having the more productive group of species while the rest of the world had the more Americanized or Africanized species with somewhat differing characteristics.
On the other hand, Sachs theory states that “first, tropical diseases, particularly malaria, have very adverse consequences for health and therefore labor productivity; and second, that tropical soils do not allow for productive agriculture.” Sachs theory attributes the failure of nations to the climate, especially in the case of Africa. But, Acemoglu and Robinson refute this theory, stating that “world inequality, however, cannot be explained by climate or diseases or any version of the geography hypothesis.” I partially agree with Sachs in that climate and diseases do factor into the economic success of a nation because differing climates make it harder to introduce new species, which might contribute to the rise of the economy, in new nations when the climate is not favorable to the species. Also, if most of the population is ridden with diseases like malaria, cholera or typhoid, it makes hard for people to show up for work and put effort into what they do. On the other hand, I partially agree with Acemoglu and Robinson in that I Sachs’ theory is particularly based on why nations in Africa fail, not why nations besides Western Europe, and the United States, fail. Most Europeans countries have the same climate, yet those in Western Europe are more economically successful than those in Eastern Europe.
Furthermore, based on their statements, one can come to the conclusion that when it comes to foreign aid, the authors agree with Easterly while disagreeing with Banerjee and Duflo. In their opinion, foreign aid “is not a very effective means of dealing with the failure of nations around the world today” because “foreign aid will be ineffective, as it will be plundered and is unlikely to be delivered where it is supposed to go. In the worst-case scenario, it will prop up the regimes that are the very root of the problems of these societies.” In Easterly’s opinion, foreign aid has done more harm than good because instead of helping nations out of the poverty trap, aid agencies keep lending money to these failing nations without enforcing the conditions that come with loans. This leads to mounting debt for the nation, to the point that the agencies have to either forgive the debt or risk high inflation because in order to pay off the debt, the leaders will print more and more money. Also, instead of nations trying to survive on their own, they begin to lean on the foreign aid even though most of the aid doesn’t make it to the sectors in need of major help. However, Banerjee and Duflo state that foreign aid is key because “it can kick-start a virtuous cycle by helping poor countries invest in these critical areas and make them more productive.” I partially agreed with Banerjee and Duflo because I think that any amount of aid provided to countries can go a long way in, not eliminating poverty, but in decreasing poverty to the point that people have access to the essentials like food, water, medicine, clothes and shelter. But, after reading Acemoglu and Robinson, I found that I disagreed with Banerjee and Duflo because I think that as long as greedy and selfish people are in power and the foreign aid goes through them, the poor are not going to see any changes any time soon. Acemoglu and Robinson think that foreign aid works, but the way in which it works depends on how it’s distributed by the foreign aid agencies. Instead of putting money in the hands of the leaders, agencies should work with people to determine what the people so that the agencies can work to accomplish these needs. But, the problem sometimes is not the leaders but the agencies themselves. Acemoglu and Robinson give the example of how representatives were sent into Afghanistan to with the new government and help the Afghan people. However, when the representatives arrived in Afghanistan, instead of creating projects to help the people, they spent most of the money on their accommodations. I think that if this problem of greedy, ineffective foreign aid representatives and leaders can be solved, foreign aid will find a way to be effective in poor nations. This is one of the reasons that Acemoglu and Robinson are right, fix the problem and nations might be able to escape extractive institutions.

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