Kettering Conversations: NIFI President Bill Muse Discusses "Why Nations Fail: The Origins of Power, Prosperity, and Poverty"

Daron Acemoglu and James A. Robinson (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Business. Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012) by MIT professor Daron Acemoglu and Harvard professor James A. Robinson is a lengthy examination set apart from other works describing indicators of economic success of nations by its emphasis on politics. Politics, in one way or another, has always been about the power to make choices. In the case of the authors’ examination, it is primarily about the type of political institutions, people’s access to them, and the unique historical events that created them. What follows weaves together a review of the book integrated with a conversation with National Issues Forums Institute President Bill Muse, who, acting as a catalyst for this review, was inspired to read Why Nations Fail because of its analysis at the intersection of politics and economics. In our discussion together he expressed surprise that economists hadn’t probed the prosperity of nations as a political examination before: “Why are some nations prosperous and others not? Why are some in poverty and others rich in economic and social power?” The authors position their nearly 500-page investigation as unique in relation to other widely recognized theories on prosperity, including:

  • The Geography Hypothesis: richer nations are those in more temperate climates where there also are less diseases and more productive agriculture;
  • The Culture Hypothesis: beliefs, values, and ethics shape a nation’s approach to economic work;
  • The Ignorance Hypothesis: some leaders simply don’t know how to make poor countries prosper so rich nations should “engineer” it for them. (This is the most popular thesis among economists propagated by political and economic institutions).

The authors posit an alternative theory based in the relationship between citizens and institutions. The countries that have prospered have been those that have created and maintained inclusive economic and political institutions. Bill Muse paraphrases the authors: “Inclusive institutions encourage participation of the great mass of people and en- able individuals to make choices they wish to make; perhaps the right to private property, law and order, public services, and a level playing field. There are incentives for individuals to work hard and be productive.” In addition to sufficient political pluralism, there is a degree of centralization that provides a measure of protection to these basic rights. Inclusive institutions also generate “Creative Destruction.” As Bill explains, “Creative Destruction” can be thought of in terms of the development of new technology. For in- stance, “now you can take a picture with your phone and send it all over the world in an instant—that has destroyed a substantial part of the business of the Eastman Kodak company and all the shops where you used to drive in to develop photos. The development of your ability to take pictures has destroyed previous technology and even businesses. Innovation makes previous technology worthless; this is necessary for progress.” Creative destruction is a key concept for the Acemoglu and Robinson. Not only are technology and businesses replaced, but also so is the political and economic power of elites. Fear of creative destruction by elites has always been a natural enemy to inclusive institutions, especially in more authoritarian contexts. Nations without inclusive economic and political institutions may have extractive ones. As the authors explain: “Extractive systems are those that take from the people their incentives and money and property and deposit it in the hand of an elite group to benefit their own selves. An extractive institution is designed by elites to perpetuate their own power at the expense of those in society” (81). Nations with extractive economic and political institutions can prosper for a short time if their elites have managed to implement a degree of centralization. That is key to keep law and order and allows them to remain in control of their own assets: mid-20th Century growth in Russia and recent Chinese prosperity are modern examples of how extractive political institutions can engineer their economic institutions to be more inclusive for a short time. The authors’ prediction is that China will run out of steam—similar to Russia’s collapse—if they don’t transition to more inclusive political institutions. Another similar example is that of the United States. Within the authors’ conceptual lens, the American Civil War was a clash of extractive Southern economic and political institutions with inclusive political institutions of the North. Economic theories, such as the Ignorance Hypothesis, assume politics can be circumvented by engineering prosperity. The authors’ theory assumes instead that people must address political questions head on. One name the authors have for their theory is “the politics of poverty and prosperity.” They sum it up this way: “It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works” (43). Their theory calls attention to the importance of political processes for flourishing. As Bill Muse says: “Inclusive systems of government are exactly what Kettering Foundation has been studying. We advocate that democracy is one form of an inclusive system and the most developed inclusive form. The world is replete with examples of the perils of extractive systems: deprivation of property, and in many cases the destruction of life.” In a society that operates on inclusive principles, there is a transfer of power from the central authorities to the citizens, through voting and also through their abilities to advance through their own talents and efforts; a sharing of benefits and power in the political system is the essence of this. In other cases, such as those of authoritarian governments, a few individuals are able to control a society and, when that happens, history has indicated that they tend to make decisions for their own benefit. So why don’t societies choose inclusive institutions? Wouldn’t we all want to prosper? Prosperity can’t be engineered, it must be a bottom-up process; otherwise, “fixes” that don’t address the root causes of economic and political institutions are bound to be temporary balms rather than sustained solutions. Sustained prosperity in a diverse array of states has a common root in dispersing political power and developing inclusive political institutions. How nations might succeed in the 21st Century is a matter beyond the grasp of much of this book, as they have less to point out about what might work and how it ought to be encouraged, one suggestion is to connect foreign aid to the promotion of political inclusion. Kettering Foundation’s Derek Barker has published literature examining the “colonization of civil society” which has problematized the dependency of civil society to donors and the tendency of civil society to focus on best practices, measurable standards, and scaling-up; this is akin to the authors’ own examination of “engineered” solutions whereby economic and political success is replicated (World Bank requirements for economic liberalization with little focus on political development is one example they use). If, as the authors say, the development of inclusive political institutions is the most important aspect for prosperity, then Kettering Foundation insights have much to offer to this conversation. -- Jack Becker & Bill Muse