Daron Acemoglu

"Why Nations Fail"

"Why Nations Fail" is a nonfiction book published in 2012, co-written by Daron Acemoglu and James A. Robinson. The book delves into the question of why nations develop differently, with some achieving long-term success and stability while others fail. To explore this topic, the authors draw from insights in institutional economics, developmental economics, and economic history.



The book comprises fifteen chapters, each examining various factors responsible for the political and economic successes or failures of nation-states. Acemoglu and Robinson challenge existing explanations for prosperity and poverty, such as geography, climate, culture, religion, or the leadership of politicians. They argue that these explanations are inadequate or flawed.



To support their thesis, the authors analyze historical case studies of different countries. They focus on nations that share similarities in terms of geographical and cultural factors but experience varying levels of prosperity due to divergent political and institutional choices.



"Why Nations Fail" also explores the relationship between democracy and economic performance. The book questions what drives the establishment and sustenance of democracy and investigates how it influences a country's economic trajectory. The authors consider alternative theories that attempt to explain the varying levels of success among nations.

Upon its release, "Why Nations Fail" received generally positive reviews. However, several economists and political theorists contested some of the book's findings. Despite these criticisms, the work garnered recognition and awards. It won the Paddy Power and Total Politics Political Book Award in the International Affairs category. It was also shortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award and long-listed for the Lionel Gelber Prize. Additionally, it received an honorable mention for the Arthur Ross Book Award.



In summary, "Why Nations Fail" explores the divergent paths of nations and their levels of success or failure. It challenges traditional explanations for prosperity and poverty and examines the role of political and institutional choices in shaping a nation's trajectory. The book analyzes historical case studies and investigates the relationship between democracy and economic performance. Despite some criticism, it has garnered recognition and awards for its insightful exploration of these complex issues.



In "Why Nations Fail," the authors provide compelling examples to support their central thesis regarding the importance of inclusive economic and political institutions for economic prosperity. One such example is the partitioning of Korea in 1953 into North Korea and South Korea. This division has resulted in dramatic divergence in the economies of thetwo countries. South Korea has emerged as one of the wealthiest nations in Asia, while North Korea remains one of the poorest countries in the world. The stark contrast is attributed to North Korea's repressive government and the lack of economic opportunities it provides.



Another illustration presented in the book is the case of Nogales, two cities situated on the border - one in Arizona, United States, and the other in Sonora, Mexico. Despite their geographic proximity and shared

culture, the institutional environments in these cities differ significantly. As a result, the prosperity of people living in these two cities varies greatly. This example highlights how different institutional arrangements can lead to disparate outcomes, even within the same geographic area.



The authors emphasize that the inclusiveness of economic and political institutions is crucial for achieving economic prosperity. Inclusive institutions allow a wide range of individuals to participate in political decision-making processes. In contrast, countries with more exclusive institutions concentrate power in the hands of a small group of individuals who are resistant to change. The authors argue that functioning democracies and pluralistic states, which grant a voice to a broad section of society, establish the rule of law - an essential foundation for economic prosperity.



According to the authors' central thesis, the level of inclusiveness in economic and political institutions is a determining factor in a nation's economic success. Inclusive institutions foster an environment of openness, innovation, and equitable distribution of resources, while exclusive institutions impede progress and hinder economic growth. The authors contend that by understanding and addressing the role of institutions, societies can work towards creating a more prosperous and equitable future.



The authors of "Why Nations Fail" argue that inclusive institutions play a crucial role in promoting economic prosperity by providing incentives for nurturing and rewarding talent and creative ideas. On the other hand, they describe "extractive" institutions as those that allow the ruling elite to exploit and rule over others, extracting wealth from those who are not part of the privileged few.

The book highlights that nations with a history of extractive institutions, such as absolute monarchies and communist dictatorships, have not experienced prosperity. In such systems, entrepreneurs and citizens have less motivation to innovate and invest in their societies. The ruling elites, fearing the consequences of creative destruction - a concept coined by economist Joseph Schumpeter - tend to resist the process of tearing down ineffective institutions and replacing themwith new, productive ones. This resistance arises because creative destruction introduces new groups that compete for power, something that dictatorships strive to avoid at all costs.



To support their thesis, the authors examine various examples of autocratic countries that faced economic struggles but achieved newfound success after opening up their political processes. One prominent example is Great Britain following the Glorious Revolution of 1688. The replacement of absolute monarchy with a constitutional one is regarded by the authors as a pivotal move that laid the foundation for the Industrial Revolution - a significant turning point in British history.



By examining the transformative impact of transitioning from extractive to inclusive institutions, the authors illustrate the connection between political changes and economic outcomes. They argue that nations that have successfully shifted from extractive to inclusive institutions have created an environment that encourages innovation, investment, and competition, ultimately leading to sustained economic growth and prosperity.



The book "Why Nations Fail" utilizes its framework to examine the economic boom in China, which, despite its autocratic government, has experienced significant modernization in recent years. The authors argue that China's trajectory aligns with the book's argument. Under the reformist economic policies of Deng Xiaoping, who opened up China to the world after a repressive regime following the Cultural Revolution, the

country has undergone substantial economic transformation. This illustrates the pattern of liberalization leading to economic progress.



The authors emphasize that economic growth brings about changes in the distribution of economic resources and influences a country's politics. Therefore, they assert that despite China's current rapid growth, the sustainability of its economy hinges upon improving political inclusiveness and embracing economic and cultural opportunities.



Daron Acemoglu, a Turkish-born Armenian-American economist, holds the prestigious position of Elizabeth and James Killian Professor of Economics at MIT. Widely regarded as one of the most prominent modern economists, Acemoglu has authored numerous papers, including many in collaboration with James A. Robinson, his long-time partner. He has published three major books and has been recognized with various awards in economics, including the John Bates Clark Medal awarded by the American Economic Association.



James A. Robinson, a British economist and political scientist, serves as a professor at the Harris School of Public Policy Studies at the University of Chicago. With four major works to his name, Robinson has made significant contributions to the field.