A review of ‘Why Nations Fail’

I am starting a new section, which will be reviews of books I’ve read, and my thoughts on them. It is somewhat fitting that my first review will be a book titled ‘Why Nations Fail: the origins of power, prosperity and poverty’.

I am from Nigeria. A poor country. A poor country that is poor in spite of having – on the face of it – the basics needed for success. Why is this so? This question hounds me, because I look with envy – though this has decreased ever so slightly as the years have gone by – at countries like the US, UK, Germany, France, Japan and so on. I look with even more envy at countries like Brazil, South Korea, China, countries who were behind Nigeria at independence, but are economic miracles. Why are we different from them? What is wrong with us?

You see, you cannot prescribe a solution for an illness the cause of which you do not know, or have improperly diagnosed. If you treat typhoid fever as malaria – which is all too common in my homeland – the patient often dies. So, the first and perhaps greatest problem is to answer the question: why do nations fail?

There are various theories that have attempted to answer this question before, and three schools of thought dominate: geography, culture, and ignorance. The authors go on to debunk each of these theories as well as their various strains. They then go ahead to propose their own, which comes to two words: extractive and inclusive.

The central premise of ‘Why Nations Fail’ is that countries which become prosperous adopt inclusive economic and political institutions, and that these institutions are mutually reinforcing in a virtuous cycle. On the other hand, countries which end up poor, or worse, as failed states, adopt extractive political and economic institutions, which are also mutually reinforcing in a vicious cycle.

Inclusivity means the empowerment of a broad section of society, enabling increasing numbers of people to take part in a nation’s economic and political life, free of restrictions by the elite. Such broad participation ensures that no one group is able to dominate without checks to their power, which inevitably leads to its abuse. Broad political participation will lead – though not without conflict, however mild – to economic policies that allow ‘new men’ emerge. These ‘new men’ will then stake their claim politically, making it even more difficult for political power to be concentrated in the hands of a few.

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The authors – James Robinson and Darron Acemoglu – make the case that you cannot divorce a country’s politics from it’s economics, and they give several examples of this. Much of the world was at one time or another under extractive political and economic institutions, that is, a case where political and economic power was concentrated in the hands of a few people, who then did with it as they wished. As a result, they could crush dissent and keep their people in check. What changed in the nations that eventually became prosperous was how they reacted to a number of key events in their history, like the ‘Black Death’ which wiped out a decent percentage of the human race in 14th century, the start of Atlantic trade, internal uprisings, and so on.

They also make the point that these changes were by no means preordained, and depended on a broad coalition of society coming together at different times, in different countries, under different scenarios, to demand their rights. In many countries, change did come, but it was not for the better, merely a case of one elite group fighting for control with another group, only to continue with the same extractive institutions that their predecessors left behind, and perhaps worse.

This is apparently the case in Africa, much of South America and the Middle East. The extractive institutions put in place by the Spanish, English, and the Ottoman Empire were only taken over by mostly small groups, who then carried on where the colonists left off, leading to a vicious cycle and what sociologist Robert Michels calls the iron law of oligarchy.

It explains why this cycle is hard to get rid of: the more power is concentrated in the hands of a leadership, the more they have to lose by opening up the political and economic space, and the harder they will fight to keep control. Another important point is that it is not that there will be no economic growth under extractive institutions, because after all there has to be something there to be looted. It is that any economic growth achieved under this system is short lived relative to the prosperity of inclusive societies.

In chapter 5, the story of the Soviet Union was looked at. Their economy grew at 6 percent a year for over 3 decades, prompting journalist Lincoln Steffens to proclaim: ‘I have seen the future, and it works’. Indeed it did, but only for while, before crumbling when it ran into an inevitable brick wall because their system didn’t allow for innovation, and eventually creative destruction. That story also brings to mind China, and their own remarkable three decade run. While Robinson and Acemoglu rightly praise Deng Xiaoping, Hu Jintao and other Chinese leaders for making their nation an economic power, they opine that the political stranglehold of the Communist Party on China’s politics will ultimately put a lid on China’s growth potential, and perhaps that is already happening.

Just the same way all extractive institutions are not equal, democracy does not equal inclusivity or pluralism. Venezuela has been democratic since 1958, but is so in name only, as are other nations that have crude oil and happen to hold elections.

As one flips the pages in ‘Why Nations Fail’, this line at the end of the second chapter becomes chillingly obvious: ‘poor countries are poor because those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose‘. The book is filled with instances of elites who deliberately sabotage their country’s economy in order to maintain their grip on power. It is then clear that despite the protestations of anyone to the contrary, this is what is happening in Nigeria as well.

However, it is not all doom and gloom. There are countries that have managed to escape the vicious cycle. Japan, Brazil and Botswana had people who came together to form a broad coalition to effect lasting change, without any group trying to get power for themselves. History is not destiny. What is required is a deliberate mobilisation across all sectors of society in order to demand better. Such change will also not happen overnight. In Britain for instance, their first step to pluralism started in 1215 with the signing of the Magna Carta. The next big step was the Civil War, which ended in 1651, and the Glorious Revolution in 1688. This is a span of over 400 years. These set the stage for the Industrial Revolution which started in Britain, and was exported round the world. Of course, change agents in poor countries today need not wait that long, and it should give hope to revolutionaries in the Arab world and Sub-Saharan Africa that change will come eventually if they build a broad coalition, organise it, and are patient. Revolution is a process, and will remain so.

Why Nations Fail is a culmination of fifteen years of collaborative research between the authors and dozens of others, which they name. It certainly feels like it. This is a book on economic history that will prove to be indispensable in shaping the practice of development economics in the years to come. It fills many gaps, and answers many questions. It will help me sleep a little better at night.

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