“States don’t fail overnight. The seeds of of their destruction are sown deep within their political institutions.”
Is it culture, weather, or Geography? What about war or some singular event that re-writes history? In their new book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, authors Daron Acemoglu and James Robinson argue that man, not nature, sows the seeds of his own destruction through political and economic institutions.
“Korea,” they write, “to take just one example, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forges a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities.”
1. Lack of property rights (e.g., North Korea)
North Korea’s economic institutions make it almost impossible for people to own property; the state owns everything, including nearly all land and capital. Agriculture is organized via collective farms. People work for the ruling Korean Workers’ Party, not themselves, which destroys their incentive to succeed.
2. Forced Labor (e.g., Uzbekistan)
Coercion is a surefire way to fail. Yet, until recently, at least in the scope of human history, most economies were based on the coercion of workers — think slavery, serfdom, and other forms of forced labor. In fact, the list of strategies for getting people to do what they don’t want to do is as long as the list of societies that relied on them. Forced labor is also responsible for the lack of innovation and technological progress in most of these societies, ranging from ancient Rome to the U.S. South.
3. A tilted playing field (e.g., South Africa)
In 1904 in South Africa, the mining industry created a caste system for jobs. From then on, only Europeans could be blacksmiths, brickmakers, boilermakers — basically any skilled job or profession. This “color bar,” as South Africans called it, was extended to the entire economy in 1926 and lasted until the 1980s, robbing black South Africans of any opportunity to use their skills and talents. They were condemned to work as unskilled laborers in the mines and in agriculture — and at very low wages, too, making it extremely profitable for the elite who owned the mines and farms.
4. The big men get greedy (e.g., Egypt)
When elites control an economy, they often use their power to create monopolies and block the entry of new people and firms. This was exactly how Egypt worked for three decades under Hosni Mubarak. The government and military owned vast swaths of the economy — by some estimates, as much as 40 percent. Even when they did “liberalize,” they privatized large parts of the economy right into the hands of Mubarak’s friends and those of his son Gamal.
5. Elites block new technologies (e.g., Austria and Russia)
New technologies are extremely disruptive. They sweep aside old business models and make existing skills and organizations obsolete. They redistribute not just income and wealth but also political power. This gives elites a big incentive to try to stop the march of progress. Good for them, but not for society.
Consider what happened in the 19th century, as railways were spreading across Britain and the United States. When a proposal to build a railway was put before Francis I, emperor of Austria, he was still haunted by the specter of the 1789 French Revolution and replied, “No, no, I will have nothing to do with it, lest the revolution might come into the country.” The same thing happened in Russia until the 1860s. With new technologies blocked, the tsarist regime was safe, at least for a while. As Britain and the United States grew rapidly, however, Austria and Russia failed to do so.
6. No law and order (e.g., Somalia)
One must-have for successful economies is an effective centralized state. Without this, there is no hope of providing order, an effective system of laws, mechanisms for resolving disputes, or basic public goods.
Yet large parts of the world today are still dominated by stateless societies. Although countries like Somalia or the new country of South Sudan do have internationally recognized governments, they exercise little power outside their capitals, and maybe not even there. Both countries have been built atop societies that historically never created a centralized state but were divided into clans where decisions were made by consensus among adult males. No clan was ever able to dominate or create a set of nationally respected laws or rules. There were no political positions, no administrators, no taxes, no government expenditures, no police, no lawyers — in other words, no government.
7. A weak central government (e.g., Colombia)
…its central government is unable or unwilling to exert control over probably half the country, which is dominated by left-wing guerrillas, most famously the FARC, and, increasingly, right-wing paramilitaries. The drug lords may be on the run, but the state’s absence from much of the country leads not only to lack of public services such as roads and health care, but also to lack of well-defined, institutionalized property rights.
8. Bad public services (e.g., Peru)
Calca and nearby Acomayo are two Peruvian provinces. Both are high in the mountains, and both are inhabited by the Quechua-speaking descendants of the Incas. Both grow the same crops, yet Acomayo is much poorer, with its inhabitants consuming about one-third less than those in Calca. … The road to Calca is paved, while the one to Acomayo is in terrible disrepair. To get beyond Acomayo you need a horse or a mule — not due to any differences in topography, but because there are no paved roads. In Calca, they sell their corn and beans on the market for money, while in Acomayo they grow the same crops for their own subsistence.
9. Political exploitation (e.g, Bolivia)
For the great mass of rural Bolivians, one elite had simply replaced another in what German sociologist Robert Michels called the “iron law of oligarchy.” Rural people still had insecure property rights and still had to sell their votes for access to land, credit, or work. The main difference was that instead of providing these services to the traditional landowners, they now provided them to the MNR.
10. Fighting over the spoils (e.g., Sierra Leone)
Intense extraction breeds instability and failure because, consistent with the iron law of oligarchy, it creates incentives for others to depose the existing elites and take over.
This is exactly what happened in Sierra Leone. Siaka Stevens and his All People’s Congress (APC) party ran the country from 1967 until 1985 as their personal fiefdom. Little changed when Stevens stepped aside, passing the baton to his protégé, Joseph Momoh, who just continued the plunder.
The trouble is that this sort of extraction creates deep-seated grievances and invites contests for power from would-be strongmen hoping to get their hands on the loot.
|Still curious? Why Nations Fail will change the way you look at—and understand—the world. Nassim Taleb just gave it a 5 star review.|