'Why Nations Fail': Can elites choke American prosperity?
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The prime example is the political power of the financial industry, illustrated by the skill in which it came through the last financial crash without the significant rule changes that usually follow big crashes.
“The financial crisis has come and gone, to some degree, but the problematic organization and the problematic influence of the financial industry hasn’t gone."
Before an economy can become very “extractive,” that is, controlled by a group for its own benefit, the group first needs to consolidate political power.
A historical object lesson for the US might be the Venetian Republic during the Middle Ages. At the time, Venice was arguably the richest place on earth. A kind of financial innovation made it not only a trading hub but a generator of upward mobility for spreading new wealth to new players.
After centuries of growth, wealthy families eventually found ways to close political power off from newcomers and used it to close off newcomers from the economy as well. That, according to “Why Nations Fail,” is “how Venice became a museum.”
“In Venice,” explains Acemoglu, “things started unraveling not when economic inequality increased but when political inequality increased – when a particular group of merchant families worked to seal the system to start monopolizing political power.”
Despite the rise of money in politics in the US today, there are still plenty of signs of pluralism and competition as well.
“There is an open media,” says Acemoglu, “not controlled by anybody or by an interest. And though the US public has become somewhat apolitical, we have seen with the Tea Party and Occupy movement that there is a lot of political energy, and it is hard to contain that energy even if people wanted to suppress it.”
Further conversations with Daron Acemoglu, coauthor of “Why Nations Fail”:
Marshall Ingwerson is the Monitor's managing editor.