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Have you ever asked yourself why some nations are poor and others are not? Have you ever asked yourself why do some nations enjoy prosperity and others rot in poverty and inequality for ages? Have you ever asked yourself why, in the first place, there is such thing as “poor nations” and “rich nations” when clearly we live on the same planet? Was it because other nations are geographically located in areas where natural resources are abundant? Was it because of socio-cultural factors that some nations have a high poverty rate and others are not? Was it because of the ignorance of the leaders of each nation that led to the wealth gap among nations?
For the past centuries, philosophers and other notable figures and experts have been sacrificing a lot of their brain cells to come up with reasonable and unifying answers to these questions. The proponents of the geography hypothesis believe that geography, climate, and ecology of a society’s location shape both its technology and the incentives of its inhabitants. American scientist Jared Diamond, in his theory, relies on the notion that some countries were able to develop, expand, and conquer much of the world because of geographical luck (Pbs.org, 2015).
On the other hand, the proponents of the culture hypothesis believe that culture affects economic activity through the choices that people make about how to allocate scarce resources – either through budget constraints or utility functions. Other theorists also argue how the “social capital” makes some countries poor, how religion affects the forms of governments, and how ethics contributes to the industrial revolution. All in all, cultural theorists posit that religion and culture matters for prosperity.
The proponents of the ignorance theory assert that world inequality is primarily due to the leaders of each nation because they don’t know how to make their county rich. This idea is highly influenced by the English economist Lionel Robbins who said that “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses (Shizgal, 2012).
After carefully analyzing the rationales of these three hypotheses about world inequality, the authors Messrs. Acemoglu and Robinson counterattack them one by one with arguments from human history and the contemporary state of arts of different nations, and postulated “institutionalism” – not geography, culture, or ignorance – as the reason why nations fail.
According to Yourdictionary.com, institutionalism is “a belief where the emphasis is placed on the usefulness of established institutions, often at the expense of the individual.” In the book, the authors juxtapose on the historical developments of South and North Korea and suggested that the answers to questions about world inequality lie at the quality of institutions of each nation; either they have inclusive economic institutions or extractive economic institutions. The former “creates inclusive markets, with the help of inclusive political institutions, which not only give people freedom to pursue vocations in life that best suit their talents but also provide a level playing field that gives them the opportunity to do so,” whereas the latter creates markets under the hands of the elites with the goal of enriching themselves through profit extraction, at the expense of the society.
Institutionalism is not a new concept in political science or in economics. Douglass North, who laid down the theoretical framework of this hypothesis, states that “the primary source of economic growth is the institutional/organizational structure of a political economy.” He also added, “Third world countries are poor because the institutional constraints define a set of payoffs to political/economic activity that does not encourage productive activity.”
Like other books, “Why Nations Fail” has its own weaknesses. First, the determination of the authors to use “institutionalism” as the only reason for world inequality and failure to acknowledge the interplay of other factors that contributes to it. Second, the authors failed to poorly define the concept of institution which is the heart and soul of the book. Third, the book is full of repetitions which I think was done intentionally so readers would grasp the main idea of the book.
Despite the shortcomings, “Why Nations Fail” is an absolutely puzzling, brilliant, well-researched, and captivating book that contains the entire human history condensed into one big massive compilation to better understand poverty and prosperity in the world.
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