Review of Daron Acemoglu and James Robinson’s Why Nations Fail: The Origin of Power, Prosperity and Poverty

The post-COVID-19 world is meted with challenges—dealing with economic crises in parts of Asia and Africa, the resurgence of the Taliban in Afghanistan, the ongoing Russian invasion of Ukraine, and subsequent oil crises and food shortages globally. This era will allow some societies to emerge through crisis, while others would merely succumb to pressures of economic and political instability.

Against this backdrop, I revisit Daron Acemoglu and James Robinson’s brilliant thesis, Why Nations Fail: The Origins of Power, Prosperity and Poverty, first published in 2012. The book argues that institutions are the primary determinant of a country’s economic and political success.

“Why Nations Fail”: A brief summary

The book begins with a reflection on the city of Nogales, which is cut in half by a fence dividing Nogales, Arizona, as a US territory and Nogales, Sonora, as a Mexican territory. Even when Nogales continues to sustain a shared history and host the same people with similar geographical conditions, one part belonging to the United States is vibrant, and the other belonging to Mexico is poor.

Why? They ask. Why do some societies prosper while others are plagued by poverty and greed? In other words, they ask: why are some societies affluent, while others are poor, despite the same cultural and geographic conditions?

Summary: why are some rich and others poor?

In the Nogales example, they implicitly negate three dominant hypotheses – geography hypothesis, culture hypothesis, and ignorance hypothesis. For instance, in rejecting the geography hypothesis—which posits that a country’s natural endowments and physical geography are the main determinants of economic outcomes—they employ the example of North and South Korea.

While North Korea has been mired by poverty, illiteracy, economic deprivation, and autocratic structure, South Korea has emerged as a leading global manufacturer of mobile phones, technological advancement, and economic prosperity, sustaining political accountability. However, in these two societies, you may argue that they both share the same geographic and cultural conditions.

Acemoglu and Robinson conclude that while geographic and cultural conditions are essential in shaping society, their influence on the societal trajectory (the path a society takes in the long run) is limited. They argue institutions matter. These institutions make or break societies.

The role of “politics” in sustaining a society

They write that it is important to understand economic dynamics and its polity to make sense of world inequality. This entails asking how economic goods are distributed and who benefits from them. Who controls who should benefit from such goods? And whose voice matters? Do these questions only find their answers through understanding how societies (nation-states) are organised politically?

The authors note: “Poor countries are poor because those with power make choices that create poverty. They get it wrong not by mistake or ignorance, but on purpose.” At this point, we need to make sense of the kind of political transformation in societies. These political transformations (ideally, to transfer power from elites to the masses) are never the same for all societies.

How do repressive elites sustain societies?

In some, these transformations are hijacked by the political elites, who try to make institutions weak enough for them to benefit. Let’s go back to the North Korean example. Under Kim Il Sung, North Korea introduced the Juche system (a rigid, centrally planned economy) following the Soviet model.

However, this model caused recurring famines. The repressive regime was antithetical to all innovation and adoption of technology, and they had no intention of reforming the system. Therefore, North Korea continues to remain a repressive system. Acemoglu and Robinson write:

[In societies such as this], those controlling political power will eventually find it more beneficial to use their power to limit competition, to increase their share of the pie, or even steal and loot from others rather than support economic progress.

(Acemoglu and Robinson, 2012).

Since political elites in these societies keep them in conditions that benefit them the most, these societies will invariably fall into the trap of poverty, illiteracy, and economic inequality. They narrow political power distribution so narrow for any change that there is no way out. Therefore, the authors of this work posit political institutions play an essential role in societies.

Political institutions are a key determinant of why nations fail

If you want to explain why two countries have different socioeconomic conditions, look at the kind of institutions they have in place. But what does it mean? Acemoglu and Robinson argue that a country can have one of two institutions: inclusive or extractive political institutions.

Inclusive political and economic institutions provide a level playing field for everyone in economic growth. They are characterised by a strict rule of power, property rights, a free and competitive market, incentivising innovation, and providing space for overall human development. The authors argue that the United States has developed inclusive institutions, which has allowed it to be the wealthiest country in the world.

Extractive institutions do precisely the opposite of inclusive institutions. These institutions are elite-centric. They do not sustain a robust system of checks and balances. Extractive institutions are authoritarian. They sustain political power in the hands of certain small political elites. They use repressive tactics to maintain extractive institutions. As a result, these societies tend to be poor. Some examples of extractive institutions include monopolies, nepotism, and crony capitalism. The authors cite Zimbabwe as an example to explain extractive institutions, which have benefited the ruling elites at the expense of ordinary people.

Critical junctions in “Why Nations Fail”

The term “critical juncture” has been in fashion for a while now in social sciences. But, this book first introduced the term to me. Critical juncture refers to “moments of significant institutional change” due to a socio-political crisis, a shift in power dynamics, or the rise of new technologies that reshape our societies. The term “critical juncture” merely means a significant change has occurred in society.

However, we must not mistake them for occurring on their own; rather, we should consider them a result of a combination of factors mentioned above. For instance, the American Revolution in the mid-1770s combined several factors.

There was a growing dissatisfaction among colonists about British rule. There was also an emergence of a new set of ideas due to the Enlightenment. Furthermore, communication technologies made it easier for the colonists to revolt against their bosses.

The role of critical junctures

The authors argue that critical junctures are essential in pushing for inclusive systems from an extractive structure. They may occur in revolutions and the gradual decay of extractive institutions. But, all of them will not be successful.

The authors refer to the collapse of the Soviet Union in 1991 and the emergence of new democracies throughout the world as a favourable critical juncture. Other examples include the Civil Rights Movement in the United States and the subsequent dismantling of Jim Crow laws.

In the same US, during the Great Depression of 1928, a small elite held all important institutions (such as Banks and corporations), stifling competition and innovation. This was extractive. Look at the societies that emerged out of colour revolutions. Many of these countries have failed. It is no guarantee that a critical juncture will inevitably lead to a good change. However, the role of critical junctures cannot be dismissed. They always play a significant role in either creating extractive or inclusive structures.

Colonialism and Path Dependence in “Why Nations Fail”

One of the main highlights of this book is the kind of treatment it provides for historical conditions that contribute to institutional structure. Path dependence is the idea that “a country’s institutional trajectory is influenced by its past”. Today’s institutions are influenced by their past institutions.

For example, colonialism has significantly influenced how postcolonial societies have been structured. Colonialism—the process through which a powerful country controlled a less powerful country—has often led to the establishment of extractive institutions, which concentrated all the resources in the hands of a small elite. The colonial powers often sustained these systems to benefit significantly from such mechanisms.  

Colonialism created a specific path dependence in these societies. Even as they became independent, they could not escape the structures provided by colonial powers. As a result, the postcolonial states in the African continent have been mired by political instabilities. Since the structure that sustained the colonial powers to rule over the colonies was extractive, the elites, after their independence, had no incentives to replace these extractive institutions but to maintain them. Therefore, the legacy of colonialism often best explains the role of path dependencies in sustaining a good society.

Implications for policy and practice

Why Nations Fail does brilliant work in providing policy implications for national development. They suggest that countries must adopt robust, inclusive institutions. Policymakers must work towards promoting institutional change—and create institutions that sustain the environment for reforms. The authors have also pointed out that many societies are mired by corruption. Corruption must be curbed. They have further promoted education, human development, and robust civil society.

Critiquing the book: “Why Nations Fail”

It is not the first time someone has written a work on the role of institutions in sustaining societies. In his modernity thesis, Samuel Huntington points to the role of institutions. Several others have done so over the years. What makes this book special is the theoretical and empirical analysis this work provides. However, it is not short of criticism.

One crucial criticism comes from geography and cultural proponents, who still argue that cultural and geographical aspects are the primary determinants of economic growth. Furthermore, this book gives a cursory role to foreign aid. While foreign aid is necessary, these authors argue that these societies must be encouraged to change their institutions. However, at times, this may seem counterproductive.

The IMF and World Trade Organisation reforms can sometimes impede these societies’ growth, increasing inequality. With market reforms, the farmers in agricultural societies are at the mercy of big firms. Sometimes, the major firms (foreign and domestic), in collaboration with political elites, may merely cause an impediment to growth in such societies.

Moreover, institutions are not often as simplistic as the authors of this book present. Multifarious, complex relations sustain them. It is difficult to argue whether an institution is extractive or inclusive. For instance, the United States, an extremely open society, is known for massive surveillance of citizens after the 9/11 attacks. Does technology make societies inclusive? Or do they act as tools for sustaining new extractive institutions?

By Way of Conclusion

Despite these critiques, it is essential to note that Why Nations Fail remains a valuable contribution to how societies sustain themselves and what makes them affluent and weak. This book lays out how institutions play a key role in shaping societies. Their argument that “nations today fail because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate” merits reading. As political science students, we must read this book.