Why Nations Fail
Helping Weaker Nations in Famine, Affluence and Morality and Why Nations Fail
Peter Singer claims in Famine, Affluence and Morality that those who are comparatively well-off by global standards have a strong ethical duty to contribute a much larger proportion of their income than they currently do to global anti-poverty charities. In this paper, I argue this claim with an objection from Daren Acemoglu and James A. Robinson’s novel, Why Nations Fail, that weaker nations must shift their focus from extractive economic institutions to inclusive in order to stimulate growth in the society.
Singer starts his argument by referring to the poverty of nine million Bengali refugees, mostly as a result of their civil war. But his conclusion explains that it is up to people throughout the world to avoid such large-scale misery by providing support through anti-poverty charities. Not enough money has been donated to support agencies, nor did people put pressure on their governments to force them to provide more aid. His assumption that suffering and death from lack of food, shelter, and medical care are bad to supports his point that if it is in our power to prevent something bad from happening, without thereby sacrificing anything of comparable moral importance, we ought, morally, to do it (Singer 231). Singer uses this point to urge that people who are wealthy by global standards should donate more and consider that an individual has the same duty to help those who are far away as those who are nearby.
In the book Why Nations Fail, Acemoglu and Robinson tackle the notion of extractive and inclusive institutions. Nations in poverty tend to have extractive economic intuitions that don’t give incentives to create value for the community, while inclusive systems provide an unbiased system of law and allow people to choose their own career paths. As stated in the book, “To be inclusive, economic institutions must feature secure private property, an unbiased system of law, and a provision of public services that provides a level playing field in which people can exchange and contract” (p. 144). Private ownership inspires citizens to achieve long term success. Providing food and shelter to citizens is necessary in nations struggling, but also providing individuals with the freedom of opportunity and equal distribution of resources can motivate the economy positively, thus driving a nation. Anti-poverty charities provide relief temporarily but influencing economic and political institutions can affect a nation positively for future generations.
This objection raised by Acemoglu and Robinson has a long-term focus on a nation rather than a short-term focus. Singer’s argument of wealthy individuals donating more to anti-charities provides nations with relief in the use of food, shelter, and medical care. A valid response that Singer could provide to the objection raised by Acemoglu and Robinson is that people are suffering from starvation and diseases and focusing on economic changes doesn’t provide reassurance for their current well-being. Shifting institutions from exclusive to inclusive can give hope for change in a nation struggling but does not offer the immediate relief to the citizens.
Singer has more of a short-term focus by contributing to the health of individuals but has little focus on the nations structure that could be shifted to assure more opportunity to the economy. Singer, Acemoglu, and Robinson all agree that nations struggling must be provided relief and opportunity. These writers have different beliefs on how this relief is provided; through antipoverty charities and changing economic institutions. The objection of shifting economic institutions succeeds in undermining Singers claim of the wealthy contributing more. Yes, people that are suffering must receive proper support quickly, but also focusing on the economy of the nation can help these people have hope for changes in the future. Singer may not reject the objection raised by Acemoglu and Robinson but will still emphasize the importance that the wealthy have the power to provide more to relief funds.
To conclude this argument, one must understand the effect of each writer’s relief mechanisms because each are necessary and vital to a struggling nation. Acemoglu and Robinson are accurate with their objection of economic institutions, but Singer’s notion of donating more to anti-poverty charities is justifiable as well. Singer should keep his focus on the struggling citizens in these nations but also consider of the future economic position of the nation.
The Book Why Nations Fail and Its Main Ideas
Based on the highly recognized work of Dereham Acemoglu and James Robinson, the book called Why Nations Fail, the origins of power, prosperity and poverty are discussed. Acemoglu, being an economist, realized that he could not find a straightforward answer to this mysterious question only as an economist so, without doubt, he started taking politics into consideration. So, with that, he had to seek the help of a highly recognized Harvard political scientist by the name of James A. Robinson, and together they decided to blend these two principles. This project took them almost fifteen years of very deep research, and the results were presented in their book “Why Nations Fail” that was published in 2012. It challenged the rules of both the economic and the political worlds to blend them into one, by introducing new evidence that would show that the economic success of a nation will always depend on the functionality of both the economic and political institutions as one entity. Thus, the introduction of the inclusive, extensive rule of law, free media, economic inclusivity, and critical junctures was made.
The essay will dwell more on explaining and defining these terms and how they intertwine. History shows that the nations with inclusive systems are prosperous and are likely to get even richer with time, yet the opposite can be said for the extractive nations. To connect between and political institutions, a breakdown of the two is needed. With that, case studies will also be applied to show how all of these theorize work together or what happens if they are missing in a nation.
Inclusive and Extractive Institutions
The analysis of reasons why nations fail starts with two basics. The nation is either inclusive or extractive one. Once this has been set, one might go and add other factors that may contribute to the rise and fall of nations. If the nation is propelled forward towards the inclusive system, changes start to appear as well as the state starts to give positive feedback (Acemoglu and Robinson 2012:60). It is almost like a loop to keep the nation on that position toward prosperity. Nations that are inclusive are the likes of Great Britain and the United States of America. They have been in that loop for decades now. These nations have certain characteristics, so they do not derail from their tracks. Here the state tries to prevent a monopoly in the state and try to create a more equal economic society. Yet there are nations that oppose the idea that only the inclusive system prospers. Yes, it is the plausible and more proven system through the history but with some of growing powers like China that seem to come up with new ways that look extractive.
The extractive institutions are also propelled by dependency on those who have power trying to block the creative explosion that comes from change thus creating a vicious cycle. These nations are ruled by greedy leaders and the markets are usually non-inclusive meaning that they gain only for themselves not to help the state or the nation to grow.
In the book “Why Nations Fail” the authors are very careful to indicate the importance of historical relevancy in their explanation of institutional subtleties and responses to critical junctures and new opportunities. Critical junctures are the turning points in history, and these are not noticed when they are happening but after they have passed we can see them as examples, being they like the black death as it eliminated the feudal system, that helped with creativity explosion that sparked the industrial revolution. This might even be called the domino effect that most of the critical junctures are interconnected.
Incentives and Opportunities
Incentives and opportunities play a major role for a state to stay in the loop of riches although the idea of cultural or geographical factors contributes to the riches of most of the Western European countries forty times over compared to some countries in the south, mid and north Africa where the influence is relative. (Acemoglu and Robinson 2012:51). “In the end the incentives to innovate, to invest, and to educate are crucial. Institutions provide a framework for these incentives. They continue to say that it creates fair and leveled field on which people can build, when that takes place, it is guaranteed that economic growth takes place.”
For these “inclusive institutions” there is always an exception rather than the norm. Throughout history, these contemporary societies were ruled by extractive institutions (Acemoglu and Robinson 2012:67). States that provide neither incentives nor opportunities to people … are purely designed to extract resources from the many by the few.” The difference in those institutions is key to his explanation for why some states or nations are much poorer when compared to others.
Acemoglu and Robinson also indicate why the importance of chance and luck, and the role of the individual actors, somewhat the age of ‘great men and fools’ was so popular at the end of the 19th and the beginning of the 20th centuries when individuals either raised their nation higher or destroyed it.
In Africa, Botswana is a good example, as it was fortunate to have a leader like Seretse Khama, who opted to move towards a more inclusive institution, that brought growth to his nation, unlike his neighbor Robert Mugabe in Zimbabwe who only forbid a free trade instead of doing the opposite. Zimbabwe is a good example of the failed state starting from its markets that were never inclusive becoming a monopoly instead. The richer only got richer and the poor got even poorer and while the rich where prospering they sucked their country to bits.
As to their leader Robert Mugabe, he never followed the rule of law. This is whereby the court of law is above everyone even the leaders so that no one can do as they please and to create an equal and fair environment for all the citizens of a country. But in Zimbabwe, it was more of a dictatorship – the media was controlled by the government and there was no freedom of speech. Zimbabwe had all the characteristics of a failed stated and an extractive institution (Acemoglu and Robinson 2012:25). The authors state that “for the economy to thrive in a country, it must be politically stable as well because one cannot thrive without the other’.
Why Nations Fail: the Comprehensive Analysis of Political and Economical Reasons for National Success Or Failure
There are various questions that economists have resorted to when trying to promote the development of a country through the elimination of poverty. Questions that address the persistent poverty in developing countries, reasons why some nations are poorer than others, and the characteristics that lead to poverty, always come up when finding ways of addressing the issue. Certain elements such as climate change, geographical location, culture, leadership styles have been put forward as the main reasons behind poverty trap although Acemoglu and Robinson’s book on ‘Why Nations Fail: The Origins of Power, Prosperity, and Poverty’ dismisses the above. According to Acemoglu and Robinson, the relationship between economic development and the political institutions within a country, have an undeniable positive correlation.
Why Nations Fail is a discussion of poverty, power, and prosperity. Countries have different economic success levels because they have placed different laws, institutions, and incentives. There are countries that have promoted efficient usage of talents and skills among their citizens, for example, South Korea and the United States. They have also encouraged their citizens to have freedom of expression, speech, and access to information whenever there are certain national or political activities, for example, during elections. More so, they have various institutions in place that ensure that their citizens’ security is strong.
Acemoglu and Robinson argue, therefore, about the reason that the success or failure of a country’s economy is manmade due to institutional configurations. To support their facts, the authors start to compare the difference between Nogales in Mexico with its namesake in Arizona. The authors describe that though the US- Mexican border between the two cities stretches thin, one city has different characteristics compared to the other in overall health, population density, security, culture, and living standards. The authors, thus, argue that the difference between these two cities is based on the different sets of institutions between them.
Successful countries always follow inclusive regimes through encouraging their citizens by rewarding them individually. Citizens from such countries enjoy secure property rights, freedom to contract, public services, and rule of law. The government and the state of the said countries have enforced law and order that discourages corruption, theft, and other vices. Every citizen with such an environment equally enjoys what the state provides.
On the other hand, countries of Latin America and North Korea, for example, have extractive institutions that end up discouraging their citizens leading to a low level of productive enterprises. Citizens from such countries also experience insecurity because of risky property rights. In addition, they also experience poorly maintained public services, and they lack the freedom of voting during a public election. Also, such countries are usually controlled by a certain group of organizations or people, who also get their wealth from a larger group. A small, more powerful group or those who have a higher elite status are the ones who benefit from the state economy.
In order to have a strong economic institution, a country should ensure that there is a strong sense of political freedom. Free choice when selecting leaders during public elections should be practiced. There should also be a distribution of political power, for example, during taxation and when formulating laws for a nation to succeed.
In addition, the success or failure of a country’s economy is also influenced by the country’s historic failures and successes. An example outlined in the book explains that countries that have been colonized, are usually affected in the future while those who are the colonizers tend to be richer (for example the Spanish Crown). The authors also mention another example that shows history’s effect on a country’s economy through the divergence between western and eastern Europe. In the 14th century, there was a plague that ended up taking the lives of a large number of citizens and as a result, there were inadequate labor skills on the market or rather a labor shortage.
The book also mentions the different theories from various economists and researchers that explain economic poverty and underdevelopment. One theory which is discussed, argues that climate changes affect a country’s economy based on where the country is geographically located. Other economists have also argued that culture affects a country’s economy. For example, there are countries whose citizens are not productive because they may not want to work hard. This theory is in line with Max Weber’s Protestant ethic argument. Another theory argues that the elites of a country should be able to provide adequate knowledge and economic advice for it to develop. There is also the issue of social mobility that has always been linked with poverty in some African countries.
However, according to the authors, the above theories are not credible because they have argued that the success or failure of a country’s economy is manmade due to institutional configurations. They illustrate that further by bringing forward the difference between the East and West Germany, Nogales, and the two Koreas. They could not be explained by culture, elite ignorance, climate, or location but are explained by the institutions of politics and the outcomes of the economies. The African colonizers who maintained extractive political institutions were the ones who plunged the continent further into poverty.
States and the way political leaders have organized the economic and political institutions are key in developing the economy of a country. Whenever the citizens are secure and stable, they are likely to be more motivated to use economic opportunities because the government has shown them its accountability and responsibility.
The points that are raised in the theory of the book present a powerful analysis of the topics that are discussed as the authors have used historical examples to support their claims. The reader thus has an advantage of learning and acquiring in-depth knowledge of history from different countries. This is because of the various examples that have been used from the ancient world like the Romans, France, and the western revolutions, China, Somalia, and the Aztecs.
The reader also has the advantage of gaining sufficient knowledge of the political and economic growth processes and also has an adequate understanding of some of the challenges that face developing countries. The authors have simplified the book for the reader enabling them to enjoy it and at the same time engaging him in various discussions (Vukovi?).
Also, issues that are related to transitional institutions have been mentioned by the authors. This is because they affect the past and the future of any economy of a country. For example, the United Nations or the European Union are vital organizations in today’s world. Also, there is the issue of competition between nations and countries which also should be taken into consideration when talking about development (Boldrin, Levine, and Modica).
On the other hand, the authors tend to repeat themselves when they are elaborating on their thesis. Also, Angelou argues that the authors have not completely tackled all of the factors that make nations fall. Other issues like violence in states also contribute to negative economic growth. For example, the failure of Carthage as a state could be credited by the violent destruction caused by the Roman Republic because it had used its many resources to trump it in the first place. This means that it did not fail because of the inclusive theory as stated by the authors (Angelou).
Bearing in mind that currently, the world is globalized, issues like technology, economic risks, and international dynamics also play a major role when it comes to development. These factors have not been listed or explained by the authors in the book meaning that the authors did not exhaust all of the variables. However, the authors did mention the issue of how technology and innovation contribute to development when they were discussing the Ottoman Empire.There are times when a global economy imbalance affects the economy of countries that have already adopted the inclusive institution theory (Angelou). Many European countries failed because of the global economic imbalance that occurred in 1992.
The authors have also failed to adequately demonstrate the causality between success and inclusiveness (Angelou). There are researchers who argue that there are countries that still failed despite adapting towards institution inclusiveness because the adaptation of that theory still fails to assure a nation that it will have a responsible government (Angelou). Sometimes, the inclusion of the public in politics will still lead to the wrong decision by a nation, which will in turn result in its economic downfall. Though not perfect, this book offers comprehensive and compelling arguments within the narrative of social science to suggest possible means in tackling the issue of development of nations with the hope that it inspires change.
Understanding of Institutional Theory in Why Nations Fail
Institutional Theory of Economic Divergence
The Institutional theory of economic divergence, as defined by Darorsn Acemoglu and James Robinson in their book Why Nations Fail: The Origins of Power, Prosperity and Poverty, states that small changes lead to critical junctures which results in economic divergences. The authors believe that their theory helps explain why some nations experience economic growth, others have a stagnate economy and others experience rapid growth but after a while economic growth declines. As history shows, a small difference in a nation can lead to either positive or negative consequences in a critical juncture, which might boom and change the international drift of the nation. These differences can also determine whether a nation becomes an extractive or an inclusive institution. The major aspect that the authors believe factor into the institutional theory is good institutions. Under good institutions, the aspects of geography, extractive and inclusive institutions help demonstrate the institutional theory.
The strongest argument of the institutional theory is that under extractive institutions, nations are able to experience rapid economic growth. This is due to the fact the institutions use existing technology and allocation of resources to increase production. Since most of the poor nations have extractive institutions, it gives them hope that they might be able to turn around their economy. In my opinion, even though this is the strongest argument of the theory, it’s also the weakest. I don’t think that authors should have stated that even with extractive institutions, nations can still turn their economies around because instead of extractive leaders looking for ways to boost their power and wealth while also boosting the economy of the nation, they continue to extract more wealth from the nation thinking that they are helping the nation. It might have worked for the Soviet Union; it may work for China but I don’t think that at any point in the future, extractive institutions will provide rapid growth, similar to that of the Soviet Union or China, for the poor nations. In my opinion, instead of dedicating an entire chapter to why extractive institutions might work, they should have discussed why extractive institutions need to be addressed as soon as possible in poor nations if they have a chance of ever closing the gap between rich and poor nations.
The authors state that “while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has.” In my opinion, this is a very weak argument because I think that economic institutions determine the political institutions. The curse of natural resources plays a major role in this argument because it shows that when nations have a lot of natural resources, they draw greedy people to the country. Greedy leaders of different groups of people develop, and start infighting because they all want to control the resources and benefit from them. The best examples are the wars between many groups of people in Sierra Leone, and South Africa who fought for control of diamond mines. Many people were killed in these wars while also attracting foreign attention from kings and queens in nations like Spain and England. When leaders take control of a nation when their main interest in the resources of wealth, it definitely determines how the leader uses economic policies to determine the political policies. In today’s world, where the economy has become the determinant of a nation’s superiority, more and more leaders seem to be focused on making the economy better. They believe that the economy will correct other aspects of the nation, mainly the political aspects. For example, looking at the past presidential election, the economy was one of the main topics that determined who Americans were voting for. Everyone knew that Mitt Romney’s main concern was the economy, considering he is a successful businessman. In my opinion, I thought Romney has no political or social policy and from time to time, he emphasized his status as a successful businessman and how he could turn the economy around. I believe that Romney thought that as long as he fixed the economy, every other aspect of the nation would fix itself too.
According to Jared Diamond, one of the weaknesses of the institutional theory lies in the historical origins of the inclusive economic and political institutions. The authors state history as one of the aspects of the institutional theory due to the small differences and critical junctures that cause international drift. I agree with Diamond in critical because even though the authors introduce the topic, they don’t go into depth or answer the question of where extractive and inclusive institutions came from. Instead they give examples of which go around in circles and still don’t address the question. For example, they state that the Industrial and Glorious revolutions started in England when they could have started other nations like France or Spain, and this was due to inclusive institutions. They all discuss how Venice and Rome both had inclusive institutions but due to the reversal of both extractive and inclusive institutions, the inclusive institutions turned into extractive institutions. When the nations tried to have partially extractive and partially inclusive institutions, they failed because the extractive policies overshadowed the inclusive policies and showed that they couldn’t co-exist. But still, that didn’t answer the question of where these institutions came or started from.
In addition to the question of the beginning of extractive and inclusive institutions, Diamond also states a big issue that was throughout the explanation of the institutional theory: the presence of unsupported facts. Most of the examples that the authors provided, especially those from the old periods, it seemed that authors were making assumptions in order to support their theory. In my opinion, I had difficulty following examples that weren’t supported by research. Referring back to the question of why the industrial and glorious revolutions started in England, the authors keep stating the fact that the revolutions started in England but they don’t provide supported facts. Instead, they keep providing theories and assumptions of why they think the revolutions started there. The theories they provided didn’t convince me as a reader why England was able to jump in front of other nations in the industrial race. All the theories they provided show why the revolutions could have started in France or Spain and could have spread to the rest of the world.
In Jared Diamond’s opinion, institutions are part of the explanation for the national differences in prosperity but they account for only fifty percent of the explanation. In his opinion, the other fifty percent of the explanation is given by the tropical location of the African countries and their geographical latitude. These two factors put African (Tropical) countries at a disadvantage because they have more diseases due to the climate that sustains bacterium out of the body and they are landlocked with no easy access to water trade. Successful countries like England, the United States, France, China and Japan have easy access to water trade because they are surrounded by water bodies and they also have climate that makes it hard for bacteria to survive outside of the body.
In conclusion, I think that the institutional theory fails to provide sufficient evidence to explain the gap between rich nations and poor nations. This is mostly due to the fact that the authors use assumptions and theories to explain theories, which provide no answers and more questions. When it comes to the assumption that political institutions create the economic institutions, I strongly disagree with the authors because I think that when it comes to extractive institutions, the economic institutions are the ones that determine the natural of the political institutions, especially in poor nations. If a nation starts out with an inclusive institution, due to the easy reversal of the institutions, depending on the next leader to the throne, his policies determine which institution leads to what institution. Like for Romney, if he had won the election, his economic institutions would have determined the political institutions because the economy was his main platform.
Why Nations Fail According to Daron Acemoglu and James Robinson
As Daron Acemoglu and James Robinson explain in their book Why Nations Fail, Botswana broke the mold and escaped the kind of state failure that other African states were facing elsewhere between the 1890s and 1990s. Botswana succeeded in doing this because it fundamentally changed its structure.
Botswana wasn’t always an enriched country. At independence, Botswana was one of the poorest countries in the world and was surrounded by white regimes. Over a total of forty-five years, Botswana would rise above and become a flourishing county. This occurred because Botswana developed inclusive economic and political institutions after independence. Botswana was able to seize a critical juncture, postcolonial independence, and set up inclusive institutions. Botswana leaders exhibited inclusiveness which perpetuated its success as a nation.
The reason Botswana was able to turn around their economy and begin perpetuating success is because they reacted positively to their critical juncture. Their critical juncture, in this case, was the end of colonial rule. When faced with the opportunity to change their structure, Botswana created open markets, the right to vote, and enforced property rights. Botswana was fortunate to have leaders such as Seretse Khama and Quett Masire, who worked to enrich their nation and not themselves.
Egypt, Sierra Leone, and Zimbabwe were less fortunate than Botswana. These nations adopted extractive institutions which lead to their demise. The political systems of these nations fail to restrain the elites from enriching themselves at the expense of many. These leaders were just a symptom of the exclusive political and economic institutions, but each did there share in impoverishing its people.
In Egypt, Hosni Mubarak led the country into a destructive cycle after the removal of the monarchy. His policies made it where the majority of the population had little economic opportunities. In Sierra Leone, its leader Stevens intensified extractive institutions by introducing a system of social stratification, centralized power, and restricted commerce. When Stevens resigned, he appointed Joseph Momoh to replace him which led to poorer conditions in Sierra Leone. Under Joseph Momoh rule, roads became unfit, schools disintegrated, and broadcasting stopped completely when the radio tower fail and never got replaced. Zimbabwe’s leader, Robert Mugabe, rigged the lottery so that he would win. The fact Mugabe could even win the lottery if he so desired showed how much control he had in the country of Zimbabwe.
The nations of Egypt, Zimbabwe, and Sierra Leone failed as nation states because of the result of the structure of their institution. Unlike successful nations who build their structure on the foundation of an inclusive institution, these three nations built their structure on the foundation of exclusiveness. Unlike Botswana, Egypt, Zimbabwe, and Sierra Leone responded negatively to their critical juncture leading them into a vicious cycle. These nations entered a vicious cycle which led to their failure.
Extractive institutions keep poor countries poor and prevent them from embarking on a path to economic growth. The extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction. Politicians extract resources or any type of independent economic activity that threatens them because they fear creative destruction. These factors work together to pave a way for complete state failure which destroys law and order, and destroys basic incentives.
According to Daron Acemoglu and James Robinson, nations fail because their extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Even though extractive institutions can generate some growth, they will usually not generate sustained economic growth, and certainly not the type of growth is accompanied by creative destruction. As Acemoglu and Robinson would gather, nations fail because they didn’t respond well to their critical junctures and as a result are locked into their vicious circle of exclusiveness.
An Analysis of the Different Economic Bodies and Their Impact in Different Countries in the Book, Why Nations Fail, Written By Doran Acemoglu and James Robinson
Why Nations Fail
Why some nations fail while others succeed have become a mysterious question to many. However, in their book named Why Nations Fail, authors Acemoglu and Robinson have finally revealed to their readers what truly causes nations to fail, which are extractive economic institutions that certain governments have. This paper will be exploring the current type of economic institutions in three different nations by using knowledge from the book Why Nations Fail, as well as historical facts to support the given statements. The countries’ economic institutions that will be explored are Venezuela, Mexico, and Haiti. These countries will also be put into comparison with the United States, a country that has inclusive economic institutions.
Venezuela has been experiencing an economic decline for a long time. According to the article, “Venezuela is in its third year of recession and according to the International Monetary Fund, its economy is expected to contract 10% this year” (Gillespie, 2016). The main cause of this recession can be tracked down to the leader of the government in Venezuela, Chavez, who focuses government spending excessively on extractive economic institutions. In the book Why Nations Fail by Acemoglu and Robinson, it’s stated that it’s the economic institutions that are the foundation of economic development which is evident through the fact that economic institutions allow people to trade and build their own businesses comfortably.
The topic of economic institutions being the heart of economic growth takes us to the topic of trade. Venezuela, as aforementioned, was a thriving country only a decade ago. This was mainly due to Venezuela being an oil-rich country. The point of trade is for the countries to specialize in whatever they’re doing best and export that while importing what they lack in. The problem with Venezuela was although they were successfully specializing in producing oil, they weren’t really producing anything else or importing any goods from other countries. Additionally, Venezuela wasn’t exporting any of the tremendous amount of oil it’s producing. Through the article, one can discover that Venezuela’s main oil company, which is run by the government, is the main reason why any of these exports or imports aren’t taking place. This again is evidence how extractive economic institutions can ruin a nation.
Because of the economic recession and the lack of trade in Venezuela, inflation has become a tangible problem. Prices are soaring high, and Venezuela has a staggering increase in inflation in 2016 with a 475% (Gillespie, 2016). Not only are prices high, but producers aren’t able to produce because of the lack of trade. This ultimately results in food shortages and suffering citizens. While the citizens of United States can freely go into any Publix or Winn Dixie and shop at their leisure, the citizens of Venezuela wait in long lines outside of super markets only to find out that the last bottle of milk had already been bought 2 hours ago. The food shortages are causing the mortality rates of Venezuela to go up, with more and more children and elderly being malnourished.
Mexico is the second country that is under the exploration of economic institutions. As explained in Why Nations Fail, the reason that Mexico currently has extractive economic institutions is because it’s a country founded up on extractive economic institutions. Historical facts and how a country began its government have a lot to do with its current economic institutions. For example, the reason Mexico is the way it is has to do with how Spanish conquistadors invaded that region and discovered large amounts of gold. Realizing the gold’s worth and seeing how it can be useful to them, they used the region’s natives, forcefully, to mine more gold and silver for them so they can be better off. There an extractive economic institution was created; the Spanish conquistadors were extracting the native’s wealth from them by using the native’ labor to make themselves better off.
Even right now Mexico has many extractive institutions. For example, in the 2013 article, Why Nations Fail & What Can be Done by David Sasaki, it speaks of how the infamous telecommunications monopolist of Mexico, Carlos Slim, have cost Mexico $129 billion (Sasaki, 2013). Although Mexico has one of the slowest and most costly internet speeds, they “lose $130 billion and Carlos Slim personally gains $80 billion” (Sasaki, 2013). Carlos Slim’s actions are the epitome of extractive economic institutions, and it because of people like Chavez and Slim and the Spanish conquistadors that are the ones who make sure that extractive economic institutions will continue on.
As can be seen, the root of why nations fail lies within their economic institutions. Nations that are successful have mainly inclusive economic institutions. China, a country with extractive economic institutions had a horrible economy only until recently ago. The only reason their economy improved is because they decided to accept technology and trade with foreign countries, instead of pushing them away and secluding themselves. However, China still does have extractive economic institutions, and if other countries don’t wish to trade with them anymore, their economy will return to where it started. As can be seen with Venezuela, Haiti, and Mexico, extractive economic institutions take away from the general public to help the elite. These type of institutions aren’t only bad for the nation, but are immoral and unethical as it leaves people in a chaotic turmoil.
Doran Acemoglu’s And James Robinson’s Interpretation of the Role of Economic Institutions in the Development of a Country as Depicted in Their Book, Why Nations Fail
The level of economic imbalance around the globe, in the past and today, is sincerely astonishing. Although Qatar has the highest GDP per capita in the world, with a staggering $129,700 per capita, Somalia, which is only a 3-hour flight from Qatar (“Distance from Qatar to Somalia”, 2017), has a GDP per capita of $400 (“The World Factbook – Central Intelligence Agency”, 2017). Wealthy nations provide their societies with a better life quality. The authors point out how those who have the privilege in living in these wealthy nations take everything around them for granted including the food they eat, the clothes on their body, and the roof over their heads. As can be seen with the differences in their GDP and distance, it’s easy to tell that distance isn’t the factor these differences are founded upon. But rather, the different types economic institutions the government is built upon. This paper will be exploring Daron Acemoglu and James A. Robinson’s book Why Nations Fail by analyzing their utilization of extractive and inclusive institutions throughout their work while also determining their consistency of it.
According to Acemoglu and Robinson, economic institutions are the foundation of economic development which is evident through the fact that economic institutions allow people to commerce and build their own business comfortably. Also, economic institutions generate inducements for the society so people can devote their time and money into longer lived investments, they ensure that society is upkept with the latest technology while also making sure people are being informed and educated in order to have a set of skills and knowledge, which in turn provides a better life quality. Furthermore, political institutions are the one that ascertains if economic institutions are successful in what they’re doing.
The authors of this book explain such institutions to be either extractive or inclusive. Acemoglu and Robinson states that “inclusive economic institutions are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish” (Acemoglu & Robinson, 2012). Countries with inclusive economic institutions are basically countries with a free market. Ultimately, when one wants to define economy, the most correct definition would be a nation and society making the most out of its scarce resources, which is what inclusive economic institutions seem to be doing. Countries with high GDP per capita, such as Qatar and United States, are countries that have inclusive economic institutions. When a nation has inclusive economic institutions, the political and economic say is up to the people and business’ hands rather than the economy being centrally planned and government controlled.
In contrast, extractive institutions could be stated as the opposite of inclusive institutions. According to Acemoglu and Robinson, “extractive because such institutions are designed to extract incomes and wealth from one subset of society to benefit a different subset” (Acemoglu & Robinson, 2012). A great current example of a nation with extractive institutions is Venezuela. Although previously a prominent and wealthy nation due to its oil, right now the people of Venezuela are in worries of being able to eat. Their stores are empty, the people are hungry, and the reason for all this blame is their economic and political institutions. Their economic institutions have made it so that Venezuela’s people can’t trade freely as do those who live in nations with inclusive economic institutions. Nations with extractive institutions face “scarcity, inflation, devaluation, and general rise in poverty” as Venezuela is facing right now (Nagel, 2014). While the middle class and the poor are desperately trying to find out how they will have their next meal, there are families in Venezuela who are bathing in luxury and money (Simons, 2016). Extractive institutions aren’t helpful to their general society because they don’t generate methods for their people to earn money. The elite within nations who have extractive institutions are the ones better off. Additionally, the wealthy most likely will center their life around protecting their own wealth and power even if it means the sacrifice of many, many people in the population, which is what’s happening in Venezuela thanks to their leader, Chavez. On the other hand, if Venezuela implemented inclusive institutions within their economy, they could have a form of creative destruction where the people of the society are more in touch with the rest of the world and the technologies and improvements that come along with being in touch with the rest of the world.
The book opens up with a great example showing the gravity of having inclusive economic institutions in a nation. Nogales, a city that’s both in the state of Arizona as well as in the country of Mexico, have differences between them that account solely to the fact that United States has more inclusive institutions than Mexico. The Arizona side of Nogales is a town with minimal criminal activity, a good level of education where the majority holds a high school diploma, and where the people are generally happy, whereas everything is much worse on the Mexican side of the city. An example even on a grander scale can be seen within North and South Korea. In some cases, in Korea let alone sharing the same geography and city, some people share the same family line. Although they’re from the same family, or although they spent their childhood together, those who are in South Korea are much happier than those who are in North Korea. Again, this is due to North Korea being made of extractive institutions whereas South Korea remains a country with inclusive institutions.
Throughout their work, Acemoglu and Robinson emphasizes how history plays a huge factor in whether nations have intrinsic or extractive institutions. Nations implement institutions based off on the type of institutions they have had so far, as well as the specific historical situation they happen to be in. Going back to the example given by the authors, the reason why the Arizona side of Nogales has more inclusive institutions than the Mexican side of Nogales is due to how they had different histories. In Mexico, it was the Spanish conquistadors who are responsible for building the economy. “The Spanish conquest also restricted the economy of Mexican cities and regions. Most of the economic activities initiated by the Spanish were of an extractive character. In colonial Mexico, it was these very extractive economic activities that developed cities, most of them in the Northern region” (Vazquez-Castillo, 2004). An example of the Spanish performing extractive economic activities would be how they used many natives to extract silver for them from Potosi with a mita of “low-wage and forced labor” (“From the Conquest Through Independence”, 2008).
In contrast to Mexico’s history with the Spanish conquistadors, United States, when colonized, didn’t have any gold or silver for the colonizers to become wealthy off of. In United States, there weren’t native populations as dense as those in Mexico, and ultimately, there wasn’t much of a hierarchy in regards to society. When colonizers did try to instill their own political and economic hierarchy to United States, it wouldn’t work out because those in the bottom of the hierarchy refused to be in the position they were. Thus, a new method had to be developed in order to split the land within the States which in all eventuality caused United States to have inclusive economic and political institutions which assists in economic development and economic comfort that’s focused on the majority of the people. However, due to the way Mexico was colonized, their nation focuses on satisfying those few who are more fortunate than others. It’s an economy that is more efficient than equal. They don’t care what size of the economic pie each individual gets.
After reading their work, one can understand that Acemoglu and Robinson’s reasoning on the significance of inclusive economic institutions and the important role they play in society, is powerful. However, the pros and cons of the authors’ exploration of the topic can be revealed through its relativeness to other ideologies on economic imbalance. The authors’ reasoning can be seen as a cure to the ignorance hypothesis. Additionally, the different set of examples the authors offer, with their in-depth analyses and historical facts, provide a great way in understanding inclusive and extractive economic and political institutions, and how these institutions are developed as well as their impact on the society.
As can be seen, the authors of the book Why Nations Fail, Acemoglu and Robinson, provide a coherent and consistent account of the different types of economic institutions. Inclusive and extractive institutions aren’t only spoken of in this book, but seem to be theme of it since the authors repetitively emphasize the importance of the type of institution within an economy. The reader of this book can walk away with knowing the differences between inclusive and extractive economic institutions as well as how these institutions have played certain roles in different economies since the authors also provide a look back into history. The historical realities the authors offer definitely do fit the authors’ framework. Last, but not least, by providing those historical realities and historical facts, Acemoglu and Robinson answers questions that have had their readers baffled for years. The authors successfully get across the message of why some nations are succeeding while others are failing by analyzing the institutions within those nations, and providing in-depth examples.
Doran Acemoglu’s And James Robinson’s View of Nation’s Prosperity as Illustrated in Their Book, Why Nations Fail
Why Nations Fail
The remarkable book Why Nations Fail, written by Doran Acemoglu and James Robinson, provides an insightful look into the revolving theories during the past centuries in how to make nations successful and why these theories fail. These theories, namely, the geographical hypothesis, the cultural hypothesis, and the ignorance hypothesis, are theories that lack any relativity with a nation’s economic institutions. The authors, by giving an in-depth analyzation of inclusive and extractive institutions, were able to show how other theories failed whereas their theory would succeed. Geographical, cultural, and ignorance hypothesis are all hypothesis that have been proven wrong within this book as well as many instances in history, and thus, should be abandoned. Nations worldwide need to adhere to the theory of economic development discussed in Acemoglu and Robinson’s book, and instill this into their societies in order to have a successful nation.
The authors state that there are three widely accepted theories that state why nations fail. However, each of these theories themselves fail to focus on what the problem is really about. The first example of this can be see within the geography hypothesis. According to Acemoglu and Robinson, “geography hypothesis claims that the great divide between rich and poor countries is created by geographical differences” (Acemoglu & Robinson, 2012). However, at this point the reader already knows this theory is at fault since the authors opened up the book with an example to oppose this theory. In the introduction of the book, the reader is described circumstances on both the United States side of the city Nogales, and the Mexican side of the city Nogales. The Arizona (United States) side of the wall has a high level of living quality with low crime rates, high average income, majority of society with at least high school diplomas, high life expectancy, as well as the help they get from the government such as medical insurance and senior benefits. On the other side of the wall lies Nogales still, however, within the borders of Mexico now. Although the authors state that this part of Mexico is a region that’s well-off, their average income is still one-third of that of their neighbors on the other side of the wall. Also, contrary to their neighbors, they risk theft and crime every day in their houses and businesses, their life expectancy is low, and education isn’t emphasized. The medical and seniority benefits are nonexistent. On top of all this, the citizens have to sometimes worry about their electricity, and source of water, something that all Americans take granted. Thus, Acemoglu and Robinson’s initial example goes on to prove how the geographical location has absolutely nothing to do with the success or failure of an economy.
In addition to that geographic factor, the geographical hypothesis also makes the climate of a nation an element in why that nation succeeds or fail. The climate hypothesis claims that nations that are tropical and with hotter climate have a lower living quality compared to nations with four seasons. This, apparently, is due to the heat and humidity which leads to laziness and ultimately unproductivity. However, whoever came up with the geographical hypothesis completely put out the factor of trade. Trade is what makes global economy happen in the first place. The reason why places like Australia and Qatar, who have hot climates, are thriving is because they’re in international trading. Trading allows nations to produce whatever they specialize in, and export that, while importing whatever they lack. By trading, usually everyone involved is better off, that is if they are trading in what they specialize. Thus, the climate hypothesis within the geographical hypothesis, also has no foundation or evidence to support it.
The second theory, which is the cultural hypothesis, relies on information from a German sociologist Max Weber, and states that “the Protestant Reformation and the Protestant ethic it spurred played a key role in facilitating the rise of modern industrial society in Western Europe. The culture hypothesis no longer relies solely on religion, but stresses other types of beliefs, values, and ethics as well” (Acemoglu & Robinson, 2012). What the sociologist Weber meant here is that the industrial society was successful largely due to the existence of the Protestant believers compared to those of a Catholic faith which basically translates into Weber stating that some nations are more successful than others due to their unique cultural characteristics. However, any citizen in the United States can disagree with that. United States, a thriving nation with one of the highest GDP per capita, has a nation mixed with so many different cultures and nationalities. The success, though, of the United States isn’t due to them having so many different cultures just as Somalia’s poorness isn’t due to them just being Somalian. On the contrary, United States is succeeding because they have so many inclusive institutions within their nations that are considerate of people and businesses making incomes easily. They’re succeeding because their government isn’t ripping their peoples’ right to trade and have a free market. Ultimately, there’s no cultural contribution to why United States is succeeding. Additionally, majority of the countries, except those that are communist or held by extremist Islamic law, have a mix of cultures within their country now anyway. Every culture has been mixing up together more than ever before. Thanks to improved technology and transportation, people can travel around the globe more, and choose where they want to live, which ultimately leads to the mix of cultures.
The fault within the cultural hypothesis can also be seen in North Korea and South Korea. Even though the two nations are separated now, they once weren’t, and thus, the cultural background between the two countries is virtually the same. The cultures being nearly the same doesn’t stop North Korea from being one of the poorest countries whereas South Korea sets the bar high by being on the higher side of the spectrum of high-income nations. The difference in the living standards between these two nations is that in North Korea the government is in the hands of the leader, the ones who are the richest are placed first instead of having equality for everybody, and most importantly, there aren’t any inclusive economic institutions to assist the people in their everyday life and their economic comfort. Instead, North Korea is made of extractive institutions that take away from any creative destruction, and/or technological improvement.
Last, but not least, is the ignorance hypothesis. The ignorance hypothesis asserts that “world inequality exists because we or our rulers do not know how to make poor countries rich” (Acemoglu & Robinson, 2012). This theory goes on to represent the idea that poor countries in fact have good leaders that do want make improvements to the country, but don’t know how to do so. This is by far the theory with absolutely no evidence to support it. At least, during the cultural or geographical hypotheses, someone arguing for it could give a few examples where culture or geography did have a small factor in the helping a nation succeed. However, with the ignorance hypotheses, that chance goes out the door. Acemoglu and Robinson strongly argue against this claim by stating that as long as there’s the existence of extractive institutions within a nation, there’s the high possibility of the nation creating exclusive gains for the wealthiest within that country.
How then, asks the reader of this essay, does a nation become successful? Acemoglu and Robinson with historical evidence to support their arguments as well as logical reasoning has successfully proven why the geographical, cultural, and ignorance hypothesis have no truth to them and don’t apply to the real world. However, Acemoglu and Robinson didn’t only criticize these hypotheses, but also provided their own hypothesis to challenge the ones they criticized. According to the authors, it’s the type of economic and political institutions within a nation that sets nations apart.
Successful nations tend to have inclusive economic institutions that assist in providing people and businesses to generate their income easily while being able to be a part of a free market. On the other hand, nations with extractive economic institutions, such as those in North Korea and many of the sub-African countries, have societies with much lower living qualities. This is because the extractive economic institutions are controlling everything in the society, and are taking from the general public in order to make the wealthy even more affluent. Acemoglu and Robinson goes onto argue that inclusive economic institutions allows a higher level of productivity within a nation. And even without the book, this makes logical sense, because the existence of inclusive economic institutions allows a free market where there’s trade. Trade allows for a nation to be introduced to improved technology and ideas. These new technology and ideas in turn generate more productivity for the nation which in turn can create more inventions and ideas by getting rid of the old ones. This theory proposed by them is called creative destruction, and it is thanks to this very theory that some nations have been doing well from the very beginning.
As it is evident from Doran Acemoglu and James Robinson’s influential book Why Nations Fail, the theories that have been believed for so long have clear faults with them and thus can’t be trusted. However, if from now nations focus on implementing inclusive economic institutions in their society as well as pave a path for creative destruction, those nations will have a high chance of succeeding in the very near future. The wake-up call Acemoglu and Robinson has shown the world shouldn’t be shut down, but instead embraces all around the globe.