A theory rich enough to explain prosperity for most part

“Why Nations Fail” by Daron Acemoglu and James Robinson is getting lavish praise. Mostly, the book deserves it.
It asks why some countries are rich and others poor. The answer isn’t geography. It isn’t culture either. According to Acemoglu and Robinson, it’s politics. Get the politics right, and you’ll prosper.
It’s admirable to grapple with a question of such vast consequence and offer such a big, bold answer. The authors make getting there a rare intellectual treat. Nonetheless, I dare to be disappointed.
The book’s geographical and historical range is remarkable. It describes the varying economic and political impacts of the Black Death in Europe; the legacy of British colonialism in the United States and the shockingly different imprint it left on Africa; the contrast in the 1500s between, on the one hand, the Charruas and Querandi of what is now Argentina and, on the other, the Guarani of what is now Paraguay; political unrest in England in the 18th century; and political unrest in Egypt in 2011. One chapter is described as: “What Stalin, King Shyaam, the Neolithic Revolution and the Maya city-states all had in common and how this explains why China’s current economic growth cannot last.”
Better still, the truth the authors keep coming back to is one whose importance would be hard to exaggerate. Prosperity depends not on culture or geography or rulers’ expertise but on “institutions, institutions, institutions,” and on these above all: property rights, economic freedom, equality before the law, and trusted enforcement of contracts. Markets aren’t enough. For economies to prosper, governments must supply these institutions, and only governments can.
The trouble is, as an explanation of development, “institutions matter” may be true, but it isn’t new. To have a theory of development to call their own, the authors needed to go further. They do this by arguing in effect that politics is more fundamental than economics. The challenge isn’t so much to create the right economic institutions. It’s to create the right political institutions. Do that, and the right economic institutions will emerge. As for what those right political institutions might be, the authors’ answer is that they should be “inclusive” – meaning, essentially, more democratic rather than less. The best protection against the depredations of an elite through slavery, arbitrary confiscation, punitive taxation and history’s many other systems of extraction is inclusive politics. Empower the broad mass of people, and property rights, contract enforcement and freedom of choice will follow.
Still, the authors’ insistence that politics is the deeper force has a chasing-the-tail quality. Why did England move toward universal education and the beginnings of a welfare state? Politics: The masses were enfranchised in the Reform Acts of the 19th century.
But surely it was economics that made those reforms possible: The Industrial Revolution had given new power to a broader mass of the citizenry. Well, politics lay behind that, too: The Industrial Revolution happened when and where it did because the Glorious Revolution of the 17th century gave England a relatively pluralist political system. True, but that was because the English elite gained economic power from the expansion of the Atlantic trade during the 16th century. No doubt, but that was because the Tudor monarchs …
You get the idea.
The worst thing, though, is that word “inclusive.” No right-thinking person could be against anything inclusive. The term demands approval and deadens the critical faculties. What does it even mean? The book asks the idea to carry a truckload of analytical weight, but its content is never carefully unpacked. We know that property rights, the sine qua non of development, are in there. But that’s already a problem for inclusiveness. If I own my property, you don’t. To a critic of capitalism, one man’s inclusion is another man’s extraction.
For that matter, consider progressive taxation as a remedy for inequality. Up to a point, if the proceeds are spent on valuable public goods, it promotes growth as well as leveling incomes. But keep raising taxes and you do so much harm to incentives that the policy becomes self-defeating.
The late Mancur Olson, a pioneer of the “institutions matter” school, wrestled with this and with the political economy of democracy and despotism more generally. I was surprised Acemoglu and Robinson found his ideas unworthy of discussion.
What they call inclusive institutions, Olson called market-augmenting government – a less- seductive term, but more informative. Olson agreed that democracies are better guardians of economic freedom. But he also had a lot to say about rival economic interests within democratic systems, how they compete at the expense of others to redistribute income in their direction, and why some democracies therefore do better than others. This harder-headed perspective, I think, is more productive than “inclusion is good.”
Still, I want to end on a note of praise. The strength of “Why Nations Fail” is its ambition, its range and above all its fabulous richness of examples. The authors have brought off an extraordinary undertaking. •


Clive Crook is a Bloomberg View columnist.

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