Daron Acemoglu & James A.Robinson
Once in a while, I’ll come across a remarkable book that makes my thinking on an issue wonderfully clear. A wonderful mind bend, that takes a few hours to benefit from, and that at the end brings clarity and understanding . This is one of those rare books.
This Nobel Prize winning pair answer why some countries are prosperous and safe and many others not.
And, most of the world is not prosperous.
How a country becomes successful
They come up with a powerful idea. For a country to prosper, citizens need ‘inclusive institutions’, which create virtuous circles of innovation, economic growth, and more widely held wealth.
They dispel the common myths that success is down geography, climate, and race.
Instead it comes down the institutions. The success or failure of countries depends on their political institutions, that create better incentives for businesses, people, and politicians.
Economic growth and prosperity are associated with inclusive and political institutions, while extractive institutions typically lead to stagnation and poverty.
Why progress and prosperity is not a given
You’d think embracing greater opportunity and prosperity for the many was the many was the obvious approach for all countries, especially if the country is poor. You would be wrong.
A lot of countries choose economic institutions that enrich the elites at the expense of the rest of the population. This makes sense for those elites. They can get away with it. And, if they can buy off enough groups, they can keep themselves in power. They know if they choose policies that encourage economic growth for all, they’ll loose out.
Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then structured by this elite to extract resources from rest of society. Extractiuve economic instiutions this naturally accompany extractive political instutions. In fact, they must inherently depends on extractive political institutions for their survival. (p.81)
If you choose prospertiy, you’ll embrace creative destruction, and replace old with new. Progress tends to be met with oppossition from elites. The Industrial Revolution was opposed by aristocrats, landowners, and those who benefited from monopolies and trading privileges. Aristocrats and landowners also lost their political dominance. It made sense for them to oppose progress. It is good that they lost in Western Europe. Industrialization was blocked by the aristocrats in the Astro-Hungarian and Russian Empires. They missed out on the greatest leap in human material progress that history has benefited from.
Those who benefit from the status quo are wealthy and well organised, and can effectively fight major changes that will take away their economic privileges and political power.
Progress is not guaranteed
There is a lot of luck involved. After the Black Death (1347–1351) wiped out nearly half the population in Europe, Western Europe got rid of feudalism, but most of Europe embraced serfdom for a many hundreds of years.
What do you need if you want a country to be richer, healthier, live longer and better educated?
I take the following conditions for success from the book:
- Centralised government
- Key services provided by the government: education, health care, roads, law and order
- Encourage the Harnessing of technology and innovation
- New skills for workers encouraged
- Enable creative destruction
- Incentives so that you can enjoy the fruits of your labour and investments
- Absence /low levels of government corruption
- Your output not entirely taxed away
- People speak free and openly with the leaders
- Bad rulers removed, talented promoted
- Weak elites and those that exist are are held in check
- No monopolies
- Level Playing field
- Free and fair elections and changes of governments
- Highly secure property rights
- Independent courts
- Free press
A Side Note: Does Aid Work?
The book raises a core question If a country does not the right set up for prosperity for the many – inclusive political and economic institutions – and keeps on the extractive path benefiting only a small elite, what can you do.
First, if you support countries with aid etc that don;t have inclusive economic and political systems in place you will be helping some. The elites. They’ll use your money to enrich themselves and perpetuate their power, at the expense of the vast majority of people in their country.
Your aid programme may work, in that you get 10 cents on the Euro into the hands of the people who need it. But, 90 cents are going into the pockets of the elites and the people you hired to disperse the money.
Some countries have made the change. Far less than you’d think.
PS. This is the first time I’ve come across a book that makes clear the vileness that was Colonialism. The book covers the long lasting damage that the Spanish, Dutch, British, Empires inflicted and the impacts to this day. I was brought up in the UK, and I had no idea who bad the political and economic system was in Southern Africa.
If you don’t read books, you may find this talk useful: