#whynationsfail

"Fear of creative destruction is often at the root of the opposition to inclusive economic and political institutions."

"An inquiry into the nature and causes of the wealth of nations" - or The wealth of Nations in short - by Adam Smith was published in 1776. It´s one of the most fundamental books within economics.

But if you´re interested in a more recent piece of work, here are two of my favorites:

Erik Reinert´s "How rich countries got rich and why poor countries stay poor"

and "Why Nations fail" by Daron Acemoglu and James A Robinson.

Why Nations Fail is a masterpiece. Acemoglu and Robinson marshall an astonishing breadth of evidence in support of their theory that states succeed when they build inclusive economic and political institutions, and few could fail to be convinced by their case. That they do so in prose which is always clear and is often very elegant is a considerable bonus.

It is a tribute to their achievement that I read all 460 pages so closely, and that my brain was firing throughout. I hope they will not object, therefore, if I offer some friendly criticisms of their work. None torpedo their central case, but the book would be better still if it dealt with them – perhaps a second edition might.

The authors rely heavily on two motors of history: contingency and critical junctures. That they include the former is gratifying; few theorists have much time for historical chance. Yet critical junctures are seriously undertheorized. If they offer a definition of them, it is a circular one: critical junctures are major events that provide opportunities for institutional change, or for the acceleration of those changes, and we may identify them by the changes they caused. This is not a falsifiable proposition.

In one case, they seem to rather overstretch the evidence. In a crucial passage on the Natufian civilisation, they seek to refute Jared Diamond’s geographical argument by demonstrating that the Natufians developed institutions before they farmed. It is a fascinating, exotic example, but archaeology at ten millenia’s remove is a business of tantalizing inference. The evidence, as they present it, hints at their interpretation, but it proves neither.

Similarly, several odd flaws creep in in the somewhat rushed closing chapters. Of course each case study has its particularities, but they are in a few cases not adequately recognised as the authors flit from one country to the next. Why, for instance, was a gang of Botswanan cattle-owning elites a sufficiently diverse coalition to bring on pluralism, when in other situations they would have been described as precisely the sort of narrow sectoral group who would have most to gain from throwing up barriers to entry? Why, in Colombia, do Uribe’s paramilitary friends represent a failure of centralisation, but his expansion of police control in FARC areas not mention a countervailing mention? No doubt specialists will be able to spot further examples. The authors cover a fearsome amount of material, but here they might do well to cover a little less.

One particular irritation is the authors’ tendency to refer to entire, diverse continents at once. Clearly in a book of this sort some generalisation will be necessary, but a work which sets out to refute geographic hypotheses of development should be more careful. The habit jars most in relation to Africa, because the assumption of homogeneity has been most pernicious there, but it is as common in their references to Latin America and Eastern Europe.

Acemoglu and Robinson make considerable play of the fact that some states were insufficiently centralised to provide basic security. In some of the cases they suggest, that is an illuminating point. Yet they occasionally fall into judging a country’s centralisation by its modern borders – as for instance they do with Somalia in Chapter 8. Yet many of the confederations in the area we call Somalia would have exhibited extremely high degrees of centralisation (others would not). What they seem to be hinting at is that a polity needs a certain degree of centralisation and a certain scale – as might for instance be borne out by the success of post-Bismarck Germany. They do not explicitly argue this.

Linked to that, and somewhat more egregious, is their uncritical use of nationhood, a slippery concept which remains undiscussed. In some cases, we might accept an elision between state and nation, but one of their examples is the American South. Perhaps arguments can be made for the nationhood of Dixie, but they are not made here, and it is certainly no foregone conclusion. They are on more complex political territory when they suggest that part of centralisation is the ability of the state to create a heterogeneous national culture, as (they explain) did Botswana after independence when it banned all but one local language. Perhaps this is vital, but it has some unpleasant implications for a great many oppressed minorities, and if the point is to be made then it deserves to be made properly.

Throughout the work, because I agree with it, I wanted them to answer the question ‘how much?’ I understand that more inclusive institutions are better, but how inclusive need they be to deliver sustained growth? It is rather an unreasonable question, given the book’s huge scope. But I rather suspect there are hints in the way they describe the Roman Republic as inclusive “at least by the standards of their time” and in the characterisation of post-1688 Britain as better able than France or Spain to exploit Atlantic trade. What they seem to be implying – but never make explicit – is that the benefits of good institutions are partly absolute, but also partly relative. The role of competition between polities is glossed over, even as they extol creative destruction within them. The issue recurs in their treatment of extractive institutions: the Soviet Union, they say, won more growth in part because it was relatively poorer, and had a lot of ‘easy’ catching up to do.

It seems to me that while the authors claim principally to be talking about absolute wealth, in fact they are often showing how institutions produce growth. This allows them to call the Western Roman Empire a failure, because having ditched its inclusive institutions, it collapsed after five centuries of slow growth or recession. No doubt China’s leaders will be greatly reassured, if this is the kind of failure they are warning of.

In fact, problems of time periods recur. If five centuries is an allowable time period, does Western Europe really deserve the economic laurels they bestow on it, four centuries after its rise? The Ethiopian Derg condemned for failing to produce inclusive institutions forty years since its establishment, but the French Revolution is applauded for producing them after decades of Terror, continental war, imperial control and counter-revolution.

Acemoglu & Robinson (2012) Why Nations Fail. London, Profile: 78-9.