Why Nations Fail: Summary and Review

Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson

Review

“It’s the institutions, stupid.” The success of citizens is predicated on institutions being “inclusive” rather than “extractive”.

This reminds me of The Dictator’s Handbook’s thesis, specifically the idea that “inclusive” institutions benefit all citizenry because their power and legitimacy comes from the active partipation of all citizenry (the keys to power are widespread), but “extractive” institutions are bad because the ruling elite can maintain power by exploiting natural resources or their citizens, so ordinary people are not required to keep their institutions running.

“Extractive” institutions can be set up purely by chance, for example the colonization of South America led to institutions whose sole purpose was to funnel wealth across the Atlantic, whereas the colonization of North America led to institutions that needed to create self-sustaining governance.

Extractive institutions can persist even when the original reason for extortion has stopped. For example, countries/regions who originally developed institutions to take wealth from one subset of the population and give it to another (slavery in South America and the southern U.S.) still today have less inclusive institutions than their counterparts (South America vs. North America, southern U.S. vs. northern U.S.)

The book’s clearest argument for this thesis is to rule out other explanations of prosperity or poverty of nations, that of geography, climate, or culture, in the example of Nogales, Arizona as compared to Nogales, Mexico, and North Korea compared to South Korea. These regions have the same geography, climate, and people, and differ only in their governance.