Wednesday, 13 June 2012

Acemoglu & Robinson: Why Nations Fail

Daron Acemoglu & James A. Robinson (2012) Why Nations Fail: The Origins of Power, Prosperity, and Poverty CrownPublishers, New York; 544 pp.; ISBN 978-0-307-71921-8

Why are some nations rich and others poor? This is a question that perplexes experts in a number of disciplines and which has particular importance for the choice we make about whether to support development aid to poor countries and, if so, the forms that such aid should take. Theories about poverty and social collapse often focus on issues like conflict, conquest, cultural weaknesses, ecological changes or geographic location. Some historians settle for mapping genealogies of the events that have driven change for better or worse over time, without much appeal to grand theory. Why Nations Fail focuses on the nature of political and economic institutions as a way of explaining divergences in wealth and the fate of nations. It thus sits in company with theories of development that focus on ‘good governance’, though there is more on offer in this book.

Global theories of economic and political change necessarily draw on case studies, but often the instructive nuances and details of specific examples get lost in the theory making. That is true of this book, where the evidence is selective and where some characterisations are dubious. Was sixteenth century leadership in Indonesia really ‘absolutist’? In the minds of the rajas, perhaps. Did Venice go into decline simply because trade became an old boys network? The book completely ignores the impact of the Napoleonic invasion. And did seventeenth century England really have a free press? Lively perhaps, but censorship was alive and well. Such lapses unnecessarily detract from the central arguments of the book, and you don’t have to be a specialist to spot them.

In essence, Acemoglu & Robinson argue that political and economic institutions can be divided into ‘extractive’ and ‘inclusive’ types, and that only the latter leads to long term sustainable wealth. They also argue that both inclusive political and inclusive economic  institutions are needed to achieve this, and cite modern China as a case where the former is absent and where economic development is therefore unlikely to fulfil its promise.

But what do these terms ‘extractive’ and ‘inclusive’ mean in practical terms? The failure to clearly define them is the major weakness in this book. At various points we are given some clues as to what they might be: inclusive institutions allow broader participation in the economy, freer comment on political and economic affairs, and allow for ‘creative destruction’ in the economy. Extractive institutions sustain the power and wealth of a small elite and configure economic behaviour to that end. The authors use the term ‘creative destruction’ a lot, especially in the early chapters. So often, in fact, that you might want to keep a stiff drink handy. Don’t think of Marx or Schumpeter – most of the time the authors use it simply to mean the development and adoption of new technologies and work processes. But ‘creative destruction’ sounds so much more macho, and it will certainly please the neo-liberal economists.

Acemoglu & Robinson set up ‘extractive’ and ‘inclusive’ institutions as a dichotomy, but in Chapter 6 when discussing ancient Rome, they admit that institutions there were ‘partially inclusive and partially extractive’. Perhaps then we need to think of these two institutional types as extremes in a continuum. In their recipe for economic development in the final three chapters of the book, the authors argue that a transition from extractive to inclusive institutions is needed, again suggesting a continuum, but how such a transition would work other than through chance historical events is not self-evident.

Economic equality is not central to the arguments in this book, but ‘inclusive’ economic institutions seem to imply a greater degree of equality, or at the very least equality of opportunity. Inclusive political institutions likewise appear to rely on broad suffrage, open participation in the political process and enforcement of the rule of law. This is all well and good, but is not really saying anything new and the authors needed to engage a bit more with the concepts of equality and equity to flesh out what inclusive institutions are really about.

Acemoglu & Robinson reject cultural and ecological approaches to wealth creation and the failure of states, but what are political and economic institutions if not part of culture? And ecology might not be deterministic, but in the face of long-term and widespread lack of water, the death of a population from disease or the loss of land in an earthquake, any institutions can be overwhelmed.

Why Nations Fail is realistic about the persistence and appeal of authoritarian ‘extractive’ regimes. They often survive and prosper for long periods of time – and are often supported by rich ‘inclusive’ countries when it serves their interests. What is required for change is some ‘critical juncture’ to allow the extractive regime to be undone. The authors cite the plague in Europe, colonialism in Africa and the rise of Deng Xiao Ping in China as some examples, but it does seem a bleak and passive view of historical change. Living in an extractive regime? Just sit tight until something out of the ordinary happens.

The book is critical of development aid, though relies on a very small number of anecdotes to make a weak case. What has far greater import for development thinking and public policy more generally is the insight that changes in economic and political institutions depend on small differences in initial circumstances and unforeseen events and actions that amplify those differences over time. Very similar social systems can diverge markedly because of such contingency. This is consistent with what we know about complex systems and how they evolve, but it means that none of our planning inputs in development or public policy can really have predictable outcomes. If this is true, it throws into question the whole rationale of public policy planning and the way we do it now.

The corollary of this insight is that we cannot really talk about ‘development’ in the modernist, evolutionary sense where we are moving towards some social, political and economic ideal. Acemoglu & Robinson show that countries swing between extractive and inclusive institutions, and that accumulated wealth can be squandered or destroyed, just as abject poverty can be reversed. The key is the nature of politics and what drives political actors. The book needed to say much more about this and the role of political activism.

Extractive systems are supposed to fear innovation and new technology, but there are plenty of examples where authoritarian regimes embrace new technologies such as cyber espionage, electronic censorship, CCTV or fingerprinting, in order to exercise greater control and stifle change or dissent. We see this increasingly in the supposedly ‘inclusive’ societies like the UK and USA, which have seen a rapid rise in inequalities of wealth and increasing limits placed on social opportunity. Clearly many countries cannot easily be pigeon-holed as either ‘extractive’ or ‘inclusive’ and we need a finer analysis to understand any one nation. The book also fails to look at the relations between nation-states and how these might affect the degree of inclusiveness or extraction present in any state apparatus.

Why Nations Fail is an interesting, engaging and frustrating read. Both the flaws and insights in this book stimulate you to think about the nature of governance and planning. If this pushes us to define more clearly the key factors needed for wealth creation, and to recognise the limits of our power to bring these about, then it will have made a very useful contribution.

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