Why Do Nations Fail?

Date Published:

Mar 18, 2012

Abstract:

Several centuries ago, there was a nation that rose to become a world power on the strength of its innovation and its dedication to capitalist enterprise. It became a major center of trade, a financial powerhouse whose name was well known across the planet. It was blessed with an unusual society that rewarded talent and hard work, not social position—one of the few places where a person who had nothing could realistically dream of a far better life. And then this vibrant place, the envy of the world, suddenly collapsed. Its economy shrank; its people left.

The place was Venice, and if it is hard to imagine the charming tourist destination was once one of the richest places on the Earth, then that is precisely what MIT economist Daron Acemoglu wants me to understand. I had come to the Sloan School of Management cafeteria, its tall windows framing the Charles River, for coffee and a discussion of his favorite topic—why nations fail. It is a question that has intrigued people for thousands of years, but now Acemoglu and Harvard’s James Robinson offer an answer in an ambitious new book. Their theory, the fruit of a long intellectual partnership and research that digs back to the origins of agriculture, explains why some countries succeed and others do not, why some are awash in prosperity, while others are consumed by poverty and suffering. It explains how a city-state like Venice can rise to prominence, then quickly fail. And it offers a chastening message about the prospects for our own country.

So why do nations fail? Acemoglu has a one-word answer: “Politics.’’

What this means, he explains, is that nations succeed in the long term when they are able to share power broadly. They either develop inclusive institutions or “extractive institutions,’’ designed to plunder wealth for the few.

Throughout history, says Acemoglu, “the great struggle is between the masses and elites who seek to capture the government and put it to their own uses.’’

It is a less obvious answer, with more surprising implications, than is immediately apparent.

To begin with, consider the factors that the two reject. Geography, for example, has long been a favorite explanation for the success of nations. Some places are blessed with natural advantages, while others are not. Certainly, sitting on coveted goods brings great wealth: witness Saudi Arabia or, for that matter, Russia. But over the long reach of history, geography fails to explain which nations have staying power. One can make a convincing list of all the geographical benefits that have accrued to the United States, but when Europeans first arrived in the 15th century, it was South America, not North, that was rich and (relatively) thickly settled.

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