'Why Nations Fail' co-author Daron Acemoglu suggests that centralized power, rule of law, and open competition are the keys to national success.
L: Peter Tenzer/Random House
Why do some societies prosper and others grind along in poverty?
Jared Diamond’s “Guns, Germs, and Steel,” popularized the geography-is-destiny view. Others see culture as key: Think Protestant (or Confucian) work ethic. Still others look to technical know-how: Send in the Peace Corps!
“Why Nations Fail” makes a serious case that none of that matters. MIT economist Daron Acemoglu and political scientist James Robinson of Harvard post a simple and sweeping theory that they credibly apply to every society on every continent from the dawn of time through the next 20 years. More or less. Here’s the crib-notes version: Many societies can grow rich. Those who sustain growth need a strong central government that can enforce rule of law and an inclusive system that shares political power widely. Inclusiveness is key. Societies run by elites will block the innovation and creative destruction that powers growth.
Why? Because that’s the kind of change that also redistributes power and wealth to new people. Elites – whether feudal nobility or communist party cadres – create what the authors call “extractive” economies. Political power, rights, and economic opportunity are closely controlled.
This is why, they explain, Nogales, Arizona enjoys first-world prosperity and Nogales, Mexico doesn’t. Same geography and climate, very nearly the same ethnicity and culture. The critical difference lies solely in the political institutions on either side of the border.
“Why Nations Fail” packs an incredible range of historical detail. But the real import of an explanatory theory like this is what it tells us about how to build prosperity now.
China, for example, is not doing this right. It’s an extractive system run by party elites for their own benefit with weak rule of law and unreliable property rights. That will cap the arc of its growth. The US is highly innovative with a competitive political system. But there are worrying signs.