Daron Acemoglu and James A. Robinson wrote “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” just over a decade ago. It is a great book. Admittedly they don’t really need my opinion given they were given the Nobel Prize for their work, so I doubt that they were sitting around worrying what I thought about it. That said, for all its excellent detail it did get me thinking about how hard big picture thinking is. Most notably they use concepts, such as small differences and critical junctures, which make a lot of sense but are hard to prove in any satisfactory way.
Why Are Some Countries More Successful?
The question the authors tackle is a massive one. Why are some countries better for their citizens than others? This is an area that has seen a number of major books. Most obviously Jared Diamond’s Guns, Germ, and Steel. They explain why the previous ideas don’t really work. Like any book they need to set up a bit of a conflict so maybe they are a little harsh at points to Diamond. It is fair that Diamond’s ideas are not specific enough to explain why countries are more successful — his ideas were a bit more on why Eurasia developed more than more isolated communities. Obviously, there are a lot of countries in Eurasia, so it doesn’t narrow things down as much as we’d like. They do bring their thinking forward to more specific examples of countries.
I really appreciate them getting away from some terrible thinking. I remember explanations we were given on a trip to Mexico on my MBA program. These explanations, lets be polite, focused on culture. (Such explanations often seem to dissolve into racism and bigotry when you push hard, see The Danger of Data Mining).
Extractive And Inclusive Institutions
Acemoglu and Robinson provide a lot of detail, it is a very impressive view of the economic development of a number of countries. They note how interconnected politics and economics are. So economic strength drives political power which helps cement the economic strength. Countries do badly when they are run in an extractive fashion. In these a local despot or colonial overlord hogs all the political power and uses it extract wealth with makes them stronger given they have control of all the resources. Things get worse as the poor can’t progress whatever they do as they can’t keep any surplus they produce. It is a vicious circle (cycle).
Countries do well when they are inclusive, when economic benefits are widely distributed. This means that political power tends to be more widely distributed. This wide political power base prevents the most egregious abuses of wealth accumulation which encourages more economic and political progress. It is a virtuous circle (cycle).
They explain why some places are richer than others.
The reason that Nogales, Arizona, [US] is much richer than Nogales, Sonora, [Mexico] is simple: it is because of the very different institutions on the two sides of the border, which create very different incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora. The United States is also far richer today than either Mexico or Peru because of the way its institutions, both economic and political, shape the incentives of businesses, individuals. and politicians.
Acemoglu and Robinson, 2013, page 42
Small Differences And Critical Junctures
How then can we get to a situation where political and economic power are widely distributed so we can create more economic growth and have more widely distributed political power? How do we get on a virtuous circle?
This is where big picture thinking that makes sense can be hard to justify in a satisfactory manner, i.e., that can provide a prediction. The authors go through many examples and point to small differences and critical junctures playing a major role. For example, England had a slightly more inclusive system in the 17th century which led to more dispersed political power. When the world changed, and opportunities arose this led to more inclusive wealth distribution (in England at least) which led to more widely dispersed political power and eventually a pretty decent democracy which further encouraged wealth creation.
The challenge for the theory is spotting the small differences and the critical junctures (major events like the Black Death or Industrial revolution) when they are happening. Big picture thinking is important, but it is much harder to apply and test than a rather smaller idea about how to place the logo in an advert.
The overall message is a good one. We need the rule of law, we need dispersed political power, and we certainly don’t want the super-rich to hog all the political power if we want to progress. Maybe now we need that message more than ever.
For more on big picture thinking see Big Questions and Transformative Innovations, An Important Part of the Puzzle.
Read: Daron Acemoglu and James A. Robinson (2013) “Why Nations Fail by Daron Acemoglu, James A. Robinson: 9780307719225 | PenguinRandomHouse.com: Books“, Penguin Random House
