Why nations fail. Why do nations fail? This intriguing question led me to purchase the book back in 2017. Daron Acemoglu, a professor of economics at the Massachusetts Institute of Technology (MIT), and James Robinson, a British Economist, are the co-authors. Despite being on my bookshelf for years, I recently picked it up for a read.

The book delves into the wealth disparities between Western Europe, North America, and Japan compared to Sub-Saharan African, South American, and South Asian countries. Does the failure of nations stem from geography, culture, or ignorance? Are Europeans inherently more intelligent than those in poorer countries? According to Daron Acemoglu, these theories are not the root causes.

Contrary to the geographic thesis proposed in the popular book “Guns, Germs, and Steel” by Jared Diamond, the authors of “Why Nations Fail” debunked this theory. Acemoglu points out that if geography, culture, or climate dictated a nation’s prosperity or poverty, there would be no stark differences between South Korea and North Korea. Despite their proximity and just a border separating them, South Korea thrives in richness, prosperity, and better living standards, education, and healthcare, while North Korea suffers from poverty and dictatorship.

If not geography, culture, or ignorance, what then determines a country’s prosperity or failure?

The crux of the book lies in the distinction between Inclusive economic and political institutions and Extractive economic and political institutions. Successful countries with stability, democracy, and economic soundness possess inclusive institutions, fostering pluralism, broad political participation, economic opportunities for everyone, innovation, entrepreneurship, property rights, rule of law, competition, and leader accountability—examples include Western democracies.

On the flip side, nations with extractive institutions concentrate power on a narrow elite, leading to instability, absolutism, and dictatorship. The elite maintains economic monopolies, leaving ordinary people without private property rights, political participation, and economic opportunities.

The controlling elite resists change, fearing that their power will be threatened by creative destruction, hindering the establishment of inclusive institutions that lead to democracy. Examples include historical European absolute monarchies, Ottoman monarchies, as well as contemporary sub-Saharan African and South Asian countries. European monarchies only prospered when they abandoned extractive institutions in the 18th and 19th centuries, gradually adopting inclusive institutions and democracy.

Countries with extractive institutions discourage innovation and change, as the narrow elite prefers maintaining the status quo. The Ottoman Empire banned the printing press, while the Austro-Hungarian Empire and the Russian monarchy resisted railways and the Industrial Revolution, fearing the loss of power associated with innovation.

The authors, who spent fifteen years researching and writing this book, assert that inclusive economic and political institutions are key to a nation’s prosperity. It is not geography, culture, or ignorance but the institutions that make the difference, as exemplified by the North and South Korea case. Conversely, extractive economic and political institutions lead to absolutism, poverty, and the collapse of countries, with today’s Sierra Leone serving as an illustration.

“Why Nations Fail” offers a historical perspective on the world’s institutional history from a political economy standpoint.

I found this book to be compelling. While heavy in terms of pages, it is an easy and entertaining read, presenting coherent and persuasive arguments. It comprehensively explores world history, touching on the Roman Empire, Maya city-states, Ottoman Empire, African Empires, European Empires, and nation-states to support its central thesis. Highly recommended.

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