Why Nations Fail

according to Acemoglu and Robinson

Daron Acemoglu is an MIT economist and James A Robinson at the University of Chicago. They published "Why Nations Fail" in 2012. This helps explain why some countries remain underdeveloped when others have developed.

They review the historical evolution of institutions and development in the context of global economic history. Institutions are, according to them, the main source of difference between nations: Congo is richer in natural resources than Switzerland. A border town between two countries like Nogales has levels of wages and crime that differ markedly on either side of the border wall that separates the Mexican and American parts from the city.

In their study of economic and political development, they distinguish two types of institutions:

• Extractive: privileges, absolutism, serfdom, slavery

• inclusive: rule of law, parliaments, democracy, property rights

Education and technological progress are often prevented by extractive systems. They block the changes in the established order to avoid any questioning or demanding push.

Aztecs: more extractive than Spaniards?

Elements of History

• Venice: Between the 10th and 13th centuries, the Republic of Venice was inclusive, young shipowners took risks and shared the benefits of trade with their financial contributors. The election of the DOGE and the Council were accessible to the new rich, the Grand Council became hereditary in 1297 and Venice turned into a museum in the two centuries that followed.

• Rome: The Republic is egalitarian in 500 BC. It started a crisis while the patrician class stood out from the plebs, with populist tribunes in 150 BC, the agitation continued and was resolved 100 years later with the imperial period starting with Caesar and Auguste.

• Serfdom divergence between Western and Eastern Europe: the feudal era introduces serfdom throughout Europe. In the 14th century, bubonic plague killed more than half of the population, which changed the balance of power. The serfs in England and Western Europe will see their freedom increase. We observe the same thing, then a reverse movement in Eastern Europe, where the chores and restrictions of the serfs increased throughout the 15th and 16th centuries. If there are historical shocks like the common plague, there is no historical determinism. Changes happen at critical junctures which are visible only a posteriori.

• The Maya civilization which left pre-Columbian pyramids is characterized by extractive institutions, and wars between cities to obtain slaves and make human sacrifices.

• Latin America is marked by a murderous exploitation by the Spanish of the Indian populations and then of slaves imported from Africa. The economy is captive of monopolies and privileges provided by the King of Spain, then a junta maintains his political and economic grip.

• England had low monarchical power against the Lords. The parliament obtained a growing power from the Magna Carta (1215) to the glorious Revolution (1688). The nobility defends the rule of law because it allows them to oppose the royal power. The enrichment of the capitalist class and the extension of the electoral franchise to universal suffrage reflect social movements that intensified as the search for industrial profit concentrated the population in the cities.

• In France, the king buys by exemption from taxes the nobility and the clergy. This allows him to maintain absolutism. This leads to the revolution and the abolition of privileges. A coalition from the foreigner tries to extinguish the claim fire but the conscription produces an army of an ever seen size. Napoleon conquers and reforms. He sets up a modern civil code that will be kept on the continent. The French political situation did not stabilize until 1871 with the 3rd Republic.

• Australia, USA: these are colonies where England first tried to organize the exploitation of its settlers. The population is so small in the face of significant natural resources that liberalization allows faster development, which is in the short-term interest of local elites even if the crown tries to prevent such developments: prohibition of the right of property of criminals sent to Australia, attempted serving in the first colony of Jamestown. These English settlement colonies started from inclusive institutions and evolved even more quickly in this sense than the metropolis.

• Ethiopia: it is an absolute Christian monarchy with millennial traditions whose extractive institutions prevented development until the 20th century.

• Congo, Nigeria: these are artificial countries that existed after colonization. In some jurisdictions, the king or the chief of the clan has any property and redistributes it with each death, which reduces incentives to work. Also, incessant tribal wars mean that men under 35 are focused on the art of war. The slave trade with the Arabs and Europeans corrupted the institutions further: the traditional courts ended up giving, whatever the crime or evidence of guilt of the accused, the most lucrative condemnation to be sold as a slave.

• Botswana: It is a country in black Africa that has not undergone colonial administration because it was not used as a strategic interest, and its tribal leaders were able to negotiate with England at the right time. The performance of this country is much better than Nigeria or Congo.

• India: the author explains that England's growth was 2% higher per year than India’s during the Industrial Revolution. The mechanization of textile production displaced Indian artisanal production, while import/export monopolies were set up.

• Ottoman: While the printing houses opened throughout Europe in the 15th century. and led to the Reformation and the wars of religion. The Caliphe prohibits it. Printing is only authorized from 1720, a single printer obtained a license, he would be subject to the censorship of numerous "religious experts" and only published 17 books in 40 years. He then decided to close shop.

• Japan, China: Japan had a feudal organization with a shogun whose power was limited. The crisis of the arrival of the gunboat of Commodore Perry pushes the Japanese nobility to modernize the country on an imperialist model. Japan develops its arms industry. Imperial China is much more centralized, this prevents adaptation by social discontinuity. The Qing bought their weaponry instead of producing it, and it was eventually replaced by Maoists in 1949, which, according to the author, proved to be even more extractive than the Qing until the arrival of Deng Xiaoping.

Social stability: two possible equilibria

According to the authors, inclusive institutions induce economic progress, a virtuous cycle, while extractive institutions block development and enclose society in a vicious circle.

Virtuous cycles: institutional myopia

To illustrate the characteristics of virtuous cycles, ACEMOGLU has different critical switches from historical trajectories in the strengthening or weakening of the rule of law.

• In England, owners who had expropriated the commons saw their property being vandalized and their game massacred by dissatisfied who blackened their faces with coal before striking at night. The Black Act prohibits such a practice and punishes by hanging any person who blackens their face. Finally, a trial by jury does not apply a punishment considered too heavy because it would have instrumentalized justice in the service of power. The rule of law takes on an autonomous existence in England. Strengthening these inclusive institutions was always in the interest of the dominant factions, but this interest is gradually changing while the electoral suffrage is extended.

• In the United States, the author describes the constant progress of the government between 1880 and 1910 to limit the power of trusts. In 1937, when he was re-elected and had the legislative power, Roosevelt tried to impose the retirement on the Supreme Court which he deems too conservative, and which, according to him, encroached with the legislative by its partisan use of constitutional vetos. Here as in England, the majority opposes its proposal, which would have weakened the judiciary.

• Finally, in Argentina, Perron an officer who had taken power during a putsch in 43, and who was elected in 1946 thanks to his alliance with the unions decided to get rid of the Supreme Court and to name new justices. This strongly weakens the rule of law in Argentina, which will be harmed by the following putsch and during the democratic transitions under Carlos Menem.

The decisions made at these critical junctures had limited objectives. Their long-term consequences are very different from the intention of the protagonists.

Vicious circles: history repeats itself

• In Guatemala, a system The forced work system of Encomienda was set up in the 16th century by the Spanish. Mountain lands have no value and are left in joint possession of the Indians or belong to the government, while the elite takes care of the exploitation of the workforce. In 1871, a large reform was pushed by the liberal faction of the elite, to enhance the ground conducive to the cultivation of coffee. The Indians are expropriated. Now the president, and the minister of Development are all descendants of Conquistador. Political dominance has fueled economic dominance for 4 centuries.

• In the South of the United States, the planters did not have to fight because a person was exempted from conscription for every 20 slaves that the family-owned. After the war of secession, a number of laws were voted to subjugate blacks and ensure that planting continued to operate, to limit access to vote and education. This movement will be called into question after the participation of blacks in the world wars, with the civic movement in 61-64. Political change did not take place directly after 1860 because the planters managed to convert their economic advantage into a political advantage during the reconstruction.

• In Sierra Leone, the English colonizers strengthened the authority of village chiefs by making their hereditary office, after that, they created a purchase board for cafe supposed to protect the farmers of price fluctuation, and the purchasing board will gradually became extractive. When alluvial diamonds are discovered, whose prospecting requires only a sieve and not a capitalist immobilization like the mines, they sell its exploitation to De Beers which must create the most important paramilitary force in the country. This contrasts with Australia or California, which sold gold prospection rights during their gold rush. The postcolonial government of Siaka Stevens will be even more extractive. The purchase board, and diamond contracts are used for more extraction. Elected to succeed his opposition, he immediately dismantled the railroads built by the English and resold the rails to spite the ethnic group that produced the majority of economic products in the country and supported the previous government. A political shock and decolonization can lead to even more extractive institutions.

• In Ethiopia in 1973, Emperor Haile Selassie of the millennium-old Solomonide dynasty was unpopular: he did not care about the populace's living conditions and famines. The Derg, a communist movement of the Ethiopian army, aids popular revolts that attack the notables. When they have taken enough power, they arrest the emperor. The new head of state, Mengistu, settles in the throne room, and the sergeant uniforms are replaced by elegant costumes. Combat comrades who spoke to him with hands in their pockets must now address him following a deference protocol. The extraction continues, but the famines that arrived because of lack of care are now organized for political ends. A political shock such as the disappearance of an imperial dynasty of 7 centuries and its replacement by "men of the people" with a collectivist ideology can lead to more extraction.

Slavery, the colonial and racist history of the 19th century is an opportunity for some Europeans to wallow in guilt, while others insist on the barbarism of pre-colonial cultures. We see that the problem is not specifically European. The circumstances change and the exploiters remain the same in Guatemala and the Mississippi, in Sierra Leone and Ethiopia, new actors enter and the farce continues.

Perspectives: development, imperialist extraction, democracy

The book makes it possible to better understand the question of development, the emergence of inclusive institutions, and to understand the nature and the impact of imperialist extraction. This work presents property rights as fundamental for the development of a country's resources. Politically, the right gives from the Enlightenment a meritocratic origin to the property whereas the left has condemned since 1830 an exploitation by an elite.

For emerging countries, the solution seems to be to follow the path taken by the countries that have succeeded, that is, with strong and well-distributed property rights in the population.

Botswana which is presented in this work as a governance model does not compare well to emerging countries: mortality below 5 years is similar to Venezuela and India whose inhabitants are 3 times poorer, and 3 times higher than for Mexico and China, countries that have a similar GDP/hab and have made much better progress in public health.

For developed countries, Acemoglu seems to think that the Keynesian Liberal Democratic Social Framework implemented since the post-war period is optimal, but can the situation be improved?

Beyond the vague words imbued with symbols such as democracy, the rule of law, and justice, whose perception changes with society, the author invites us to ponder whether the institutions of the country are inclusive or extractive, and thus favorable to development.

Two factions have opposite visions: the socialists consider that reactionary forces favorable to the status quo ante still make limit development and that it is necessary to redistribute more. The Liberals consider that social measures are already so strong that they promote extraction by the State-sponsored rent-seekers at the expense of the private wealth producers.