Why Nations Fail - The Origins of Power, Prosperity, and Poverty

Guest Reviewer: Charles C. Mann on Why Nations Fail 
Charles C. Mann, a correspondent for The Atlantic, Science, and Wired, has written for Fortune, The New York Times, Smithsonian, Technology Review, Vanity Fair, and The Washington Post, as well as for the TV network HBO and the series Law & Order. A three-time National Magazine Award finalist, he is the recipient of writing awards from the American Bar Association, the American Institute of Physics, the Alfred P. Sloan Foundation, and the Lannan Foundation. His 1491 won the National Academies Communication Award for the best book of the year. He lives in Amherst, Massachusetts.

A few years ago, while I was researching a book on the history of globalization, I suddenly realized that I was seeing the same two names on a lot of the smartest stuff I was reading. The names belonged to two economists, Daron Acemoglu and James Robinson. Much of their work focused on a single question: Why are poor places poor, and is there something we can do about it?

This is one of the most important questions imaginable in economics—indeed, in the world today. It is also one of the most politically fraught. In working on my book, I read numerous attempts by economists, historians and other researchers to explain why most of North America and Europe is wealthy and why most of Asia, Africa and Latin America is not. But these usually boiled down to claims that rich nations had won the game by cheating poor places or that poor places had inherently inferior cultures (or locations) which prevented them from rising. Conservative economists used the discussion as a chance to extol the wide-open markets they already believed in; liberal economists used it to make the attacks on unrestrained capitalism they were already making. And all too often both seemed wildly ignorant of history. I can’t recall encountering another subject on which so many people expended so much energy to generate so little light.

Acemoglu and Robinson were in another category entirely. They assembled what is, in effect, a gigantic, super-complete database of every country’s history, and used it to ask questions—wicked smart questions. They found unexpected answers—ones that may not satisfy partisans of either side, but have the ring of truth.

Why Nations Fail is full of astounding stories. I ended up carrying the book around, asking friends, “Did you know this?” The stories make it a pleasure to read. More important, though, Acemoglu and Robinson changed my perspective on how the world works. My suspicion is that I won’t be the only person to say this after reading Why Nations Fail.

 

--This text refers to the Hardcover edition.

"Should be required reading for politicians and anyone concerned with economic development." —Jared Diamond, New York Review of Books

"...bracing, garrulous, wildly ambitious and ultimately hopeful. It may, in fact, be a bit of a masterpiece."—Washington Post

“For economics and political-science students, surely, but also for the general reader who will appreciate how gracefully the authors wear their erudition.”—Kirkus Reviews
 
“Provocative stuff; backed by lots of brain power.”—Library Journal

“This is an intellectually rich book that develops an important thesis with verve. It should be widely read.” —Financial Times

“A probing . . . look at the roots of political and economic success . . . large and ambitious new book.” —The Daily

“Why Nations Fail is a splendid piece of scholarship and a showcase of economic rigor.” —The Wall Street Journal

"Ranging from imperial Rome to modern Botswana, this book will change the way people think about the wealth and poverty of nations...as ambitious as Jared Diamond's Guns, Germs, and Steel."
—Bloomberg BusinessWeek

“The main strength of this book is beyond the power of summary: it is packed, from beginning to end, with historical vignettes that are both erudite and fascinating. As Jared Diamond says on the cover: 'It will make you a spellbinder at parties.' But it will also make you think.” —The  Observer (UK)

"A brilliant book.” —Bloomberg (Jonathan Alter)

“Why Nations Fail is a wildly ambitious work that hopscotches through history and around the world to answer the very big question of why some countries get rich and others don’t.” —The New York Times (Chrystia Freeland)

"Why Nations Failis a truly awesome book. Acemoglu and Robinson tackle one of the most important problems in the social sciences—a question that has bedeviled leading thinkers for centuries—and offer an answer that is brilliant in its simplicity and power. A wonderfully readable mix of history, political science, and economics, this book will change the way we think about economic development. Why Nations Fail is a must-read book." —Steven Levitt, coauthor of Freakonomics 

"You will have three reasons to love this book. It’s about national income differences within the modern world, perhaps the biggest problem facing the world today. It’s peppered with fascinating stories that will make you a spellbinder at cocktail parties—such as why Botswana is prospering and Sierra Leone isn’t. And it’s a great read. Like me, you may succumb to reading it in one go, and then you may come back to it again and again." —Jared Diamond, Pulitzer Prize–winning author of the bestsellers Guns, Germs, and Steel and Collapse 

"A compelling and highly readable book. And [the] conclusion is a cheering one: the authoritarian ‘extractive’ institutions like the ones that drive growth in China today are bound to run out of steam. Without the inclusive institutions that first evolved in the West, sustainable growth is impossible, because only a truly free society can foster genuine innovation and the creative destruction that is its corollary." —Niall Ferguson, author of The Ascent of Money 

"Some time ago a little-known Scottish philosopher wrote a book on what makes nations succeed and what makes them fail. The Wealth of Nations is still being read today. With the same perspicacity and with the same broad historical perspective, Daron Acemoglu and James Robinson have retackled this same question for our own times. Two centuries from now our great-great- . . . -great grandchildren will be, similarly, reading Why Nations Fail." —George Akerlof, Nobel laureate in economics, 2001 

"Why Nations Fail is so good in so many ways that I despair of listing them all. It explains huge swathes of human history. It is equally at home in Asia, Africa and the Americas. It is fair to left and right and every flavor in between. It doesn’t pull punches but doesn’t insult just to gain attention. It illuminates the past as it gives us a new way to think about the present. It is that rare book in economics that convinces the reader that the authors want the best for ordinary people. It will provide scholars with years of argument and ordinary readers with years of did-you-know-that dinner conversation. It has some jokes, which are always welcome. It is an excellent book and should be purchased forthwith, so to encourage the authors to keep working." —Charles C. Mann, author of 1491 and 1493 

“Imagine sitting around a table listening to Jared Diamond, Joseph Schumpeter, and James Madison reflect on over two thousand years of political and economic history.  Imagine that they weave their ideas into a coherent theoretical framework based on limiting extraction, promoting creative destruction, and creating strong political institutions that share power and you begin to see the contribution of this brilliant and engagingly written book.”—Scott E. Page, University of Michigan and Santa Fre Institute

“This fascinating and readable book centers on the complex joint evolution of political and economic institutions, in good directions and bad. It strikes a delicate balance between the logic of political and economic behavior and the shifts in direction created by contingent historical events, large and small at ‘critical junctures.' Acemoglu and Robinson provide an enormous range of historical examples to show how such shifts can tilt toward favorable institutions, progressive innovation and economic success or toward repressive institutions and eventual decay or stagnation. Somehow they can generate both excitement and reflection.” —Robert Solow, Nobel Laureate in Economics, 1987

“It’s the politics, stupid! That is Acemoglu and Robinson’s simple yet compelling explanation for why so many countries fail to develop. From the absolutism of the Stuarts to the antebellum South, from Sierra Leone to Colombia, this magisterial work shows how powerful elites rig the rules to benefit themselves at the expense of the many.  Charting a careful course between the pessimists and optimists, the authors demonstrate history and geography need not be destiny. But they also document how sensible economic ideas and policies often achieve little in the absence of fundamental political change.”—Dani Rodrik, Kennedy School of Government, Harvard University

“Two of the world’s best and most erudite economists turn to the hardest  issue of all: why are some nations poor and others rich? Written with a deep knowledge of economics and political history, this is perhaps the most powerful statement made to date that ‘institutions matter.’  A provocative, instructive, yet thoroughly enthralling book.” —Joel Mokyr, Robert H. Strotz Professor of Arts and Sciences and Professor of Economics and History, Northwestern University

“A brilliant and uplifting book—yet also a deeply disturbing wake-up call. Acemoglu and Robinson lay out a convincing theory of almost everything to do with economic development. Countries rise when they put in place the right pro-growth political institutions and they fail—often spectacularly—when those institutions ossify or fail to adapt.  Powerful people always and everywhere seek to grab complete control over government, undermining broader social progress for their own greed. Keep those people in check with effective democracy or watch your nation fail.” —Simon Johnson, co-author of 13 Bankers and professor at MIT Sloan

“This important and insightful book, packed with historical examples, makes the case that inclusive political institutions in support of inclusive economic institutions is key to sustained prosperity. The book reviews how some good regimes got launched and then had a virtuous spiral, while bad regimes remain in a vicious spiral.  This is important analysis not to be missed.” —Peter Diamond, Nobel Laureate in Economics
 
“Acemoglu and Robinson have made an important contribution to the debate as to why similar-looking nations differ so greatly in their economic and political development. Through a broad multiplicity of historical examples, they show how institutional developments, sometimes based on very accidental circumstances, have had enormous consequences. The openness of a society, its willingness to permit creative destruction, and the rule of  appear to be decisive for economic development.” —Kenneth Arrow, Professor Emeritus, Stanford University, Nobel Laureate in Economics, 1972
 
“Acemoglu and Robinson—two of the world's leading experts on development—reveal why it is not geography, disease, or culture which explains why some nations are rich and some poor, but rather a matter of institutions and politics. This highly accessible book provides welcome insight to specialists and general readers alike.” —Francis Fukuyama, author of The End of History and the Last Man and The Origins of Political Order

“Some time ago a little known Scottish philosopher wrote a book on what makes nations succeed and what makes them fail.  The Wealth of Nations is still being read today.  With the same perspicacity and with the same broad historical perspective, Daron Acemoglu and James Robinson have re-tac...

To an economist like me, reading Why Nations Fail, by Daron Acemoglu and James Robinson, is akin to being set free from shackles worn since I began studying. However, first let me say that the book has many and serious shortcomings. Let me talk about these before I get into why this book set me free. Since I am going to strongly criticize aspects of the book, let me make clear that this is one of the best books on economics I have read in a long time.

Several criticisms have been leveled in other reviews against this book: it is simplistic and perhaps overly ambitious, the history is bad, it explains away competing explanations. They are all true.

The book is undoubtedly simplistic. Basically, the authors state that the institutions of a nation or society can be placed on a one dimensional continuum running from "extractive" to "inclusive" and this explains the history of humanity from the neolithic to the present day. A second leitmotif is that the economic and political institutions complement each other and that economically inclusive but politically extractive institutions cannot last for long (as well as the opposite). Finally, since political and economic institutions reinforce each other, they are quite difficult to change, leading to what the authors call "the iron law of oligarchy." Needless to say, this really oversimplifies the analysis of institutions and history. While Acemoglu and Robinson give many, many historical examples to illustrate their thesis, some are more convincing than others. They use a huge mallet to hammer all the facts into their mold, either ignoring or re-interpreting contrary evidence.

I am no historian, but I do know the history of the region in which I live, Latin America, reasonably well. When Latin American examples were used in the book, they were shallow and even wrong. For example, the authors talk quite a bit about the establishment of indigenous "serfdom", with terrible extractive institutions such as the encomienda and repartimiento, in much of Hispanic America. I agree the story they tell is quite important but they do not get it quite right. Acemoglu and Robinson tell the tale of these institutions as if they were simply set in place by colonizing Spaniards when the truth was much more complex, involving conflicts and constant negotiation between the Spanish colonizers, the Spanish Crown, and the conquered peoples themselves. The colonizers wanted to set up slavery instead of serfdom but were impeded from doing so by the Crown through the Leyes Nuevas. The story is told marvelously well in La Patria del Criollo by Severo Martinez Pelaez. The funny thing is that the correct narrative would fit well into the inclusive-extractive framework with a richness that comes from putting in two groups of elite actors with divergent interests, but Acemoglu and Robinson tell it so simplistically so as to miss out.

Likewise, the authors analyze, in different points of the book, Colombia and Brazil, with exceptional praise for Brazilian institutions while they heap abuse upon the Colombian ones. Brazil at the present time has, evidently, better institutions than a Colombia only (we hope) beginning to emerge from decades of civil war. But these two countries are much more alike than different. If you believe the tale told by Acemoglu and Robinson, they could have been comparing Japan and Burma, and not two nations with similar history, GDP, and institutions. While Colombia has seen many horrors and has a long road to travel, recent progress in reigning in lawlessness and chaos is undeniable. While Brazil has seen amazing institutional progress in the last fez decades, many of its cities suffer with murder rates higher than those of Colombian cities, de facto slave labor can be still found in some areas, and its income and especially property distributions are still among the most unequal in Latin America. Especially jarring is that, in other parts of the book, the authors place great emphasis on when institutions limit executive power, giving as an example the American system's unwillingness to allow FDR to pack the Supreme Court to get his way. The same happened in Colombia when Alvaro Uribe passed legislation allowing him to run for a third term and the Supreme Court shot it down with the broad support of Colombian society, including Uribe's allies.

The same can be said of their analysis of Mexico and Argentina: maybe not wrong, but terribly shallow. I know little of the Glorious Revolution, the Roman Empire, the Meiji Restoration, the history of Botswana, or much else of what the book is based upon. But if the standard is the same as the their Latin American examples, then much of the book based upon is poor history. In defense of the authors, it is difficult to draw the details with finesse when painting with a broad brush and the history of humanity from the neolithic to present day is about as broad as you can get in the social sciences.

A final criticism is that Acemoglu and Robinson do not give competing explanations for the backwardness of nations the credit they deserve. They explain away rather than seek dialogue. They classify competing explanations into the Geography Hypothesis, the Culture Hypothesis, and the Ignorance Hypothesis. One problem is that they ignore other competing explanations that go from scientific knowledge (see Margaret Jacob's Scientific Culture and the Making of the Industrial West) to various Marxist explanations based upon capital accumulation. While Acemoglu and Robinson obviously admire Jared Diamond's Guns, Germs, and Steel - which is very well-argued "geography is destiny" book - they ignore other important proponents of the Geography Hypothesis such as Kenneth Pommeranz. I feel their case would be made stronger if they argued that the two approaches were complementary and not adversarial. A relation between geography, technology, political institutions, and economic institutions would be a much stronger theory than institutions alone.

With regards to the Culture Hypothesis, they are (I believe) correct in criticizing it for being so fluid as to be virtually without content. But here my take is not entirely neutral as I particularly loathe the Culture Hypothesis.

But it is on the Ignorance Hypothesis that Acemoglu and Robinson fire their cannon with relish. Being intelligent economists in contact with the intellectual world of "development" I am sure they are very frustrated at the arrogance of policy advisors from the likes of the World Bank, United Nations, or IMF who believe they have the solution to all the developing world's problems "if only policymakers would listen to them." I am not unsympathetic to their disgust at these people but I think Acemoglu and Robinson throw the baby away with the dirty bath water. History is just too full of examples of disastrous policies (disastrous for those who implemented them, not only for the poor souls who inhabit their countries) for the Ignorance Hypothesis to be dismissed out of hand. The authors blame almost all, if not all, bad policies on the material interests of the elite whose position would be endangered by good policy.

A more subtle, and, in my opinion, much more serious, problem is that knowledge and interests are not independent. It is one thing for the elite to choose bad (bad for the many) policy if that policy can be dressed up in plausible and attractive intellectual robes and quite another if that policy is seen as nothing more than plundering of the many by the few (see Antonio Gramsci on role of the intellectual in allowing policy agendas to go forward or not). The "economic nationalism" that has destroyed so many African, Latin American, and Middle Eastern economies is not just pure extraction of wealth of the many by the few; it also dressed in a coherent economic theory espoused by a host of intelligent sociologists and economists (for a popular, if somewhat limited exposition, see The Open Veins of Latin America by Eduardo Galeano). This is why dismissal of the Ignorance Hypothesis is so dangerous: not only is knowledge power, but economic theories that are on your side are also power.

So the book has quite a few shortcomings. Why did I like it so much?

Because as economists we are taught from course one that you cannot have your cake and eat it too. The trade-off between efficiency and equity has been fed to us since before we were weaned. The result to an economist very interested