The Essence of ‘Why Nations Fail’
‘Why Nations Fail: The Origins of Power, Prosperity, and Poverty’ is an outcome of the path-breaking research on the crucial role of institutions – defined as “the rules influencing how the economy works, and the incentives that motivate people” – and their impact. My review of Why Nations Fail will explore the explainations provided in the book of the contemporary rationales of the states.
Daron Acemoglu and James A. Robinson have addressed all the failed concepts according to them in the book, “theories that don’t work” with the help of realistic case studies and examples from history. First of all, Jeffry Sachs’s approach to economic geography has been criticized and negated. Moving on, the cultural hypothesis related to the economic prosperity of the states is badly trodden; Max Weber’s protestant ethic and the spirit of capitalism.
Following that, they have deconstructed the ignorance hypothesis, a concept that makes the leaders and rulers responsible for ignoring the economic restraints of their states. They have rejected these two concepts as an explanation for the gap between the poor and rich countries. They have also negated the significance of the cultural exchange programs like financial aids or trade as a solution to the global turbulence in the economy.
Neither the location nor the cultural paradigms of any state define its count in rich or poor countries. So where does the difference come from? According to the authors, the simple answer to this question is, “institutions, institutions, and institutions.”
Reviewing the Examples
The book argues that a state’s prosperity depends on the institutions being operated. The writers take the case of the city of Nogales as an explanation. It lies on the border between the United States and Mexico. The city is administered by Mexico in its south and by the US in the north. Despite the same geographical and cultural domains, the northern part with US inclusive institutions is way more prosperous than the southern part with extractive ones.
The basic case of the book is simple yet fundamental that the nations with extractive political and economic institutions are more likely to remain poor, while the rich states enjoy inclusive institutions. Politics is paramount. A little economic development is possible under extractive institutions, but that is unimpressive, the Soviet Union or the later Roman Empire, for instance.
Similarly, the two Koreas sharing common geography and culture have seen huge diversity in economic development and institutions. They say, “when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth.” The extractive Spanish policies curbed the economic growth in colonial America and the same policies failed in North America because of their inclusive institutions. So, it is certainly hard to dispute the claim that the institutions are a key.
Botswana, for instance, under the leadership of Seretse Khama, unlike Robert Mugabe in Zimbabwe or Mobutu in the Congo, has enjoyed fruits of inclusive institutions. Some nations like North Korea, Sierra Leone, Haiti, and Somalia have all suffered the extraction of wealth and power from the poor to the hands of a few narrow elites. So, the formula is crisp: “Inclusive governments and institutions mean prosperity, growth and sustained development; extractive governments and institutions mean poverty, privation, and stagnation even over the centuries.”
China, however, has uniqueness in this regard. It has an extractive political system but an inclusive economic and industrial system within respective institutions. The authors have quoted the Sino political system as: “the party controls the armed forces; the party controls cadres, and the party controls the news.”
In the Context of Pakistan
Pakistan, unfortunately, has been occupied by a narrow elite class for decades which has extracted the benefits from the bones of the people to keep their banks full, that is, an extractive system of institutions. Today we see no proper democracy, no coherent education system, a politicized economic system, and an economized political system.
The downtrodden condition of the institutions of the country has made it compulsory for the state to take stringent measures to help the country progress. Pakistan lacks stability in its institutions and there is a dire need for changes in its institutions. The flourished countries always work on their human resource. For instance, Bill Gates came up with an idea, and the system of the US (inclusive) sponsored him to bring a revolution in the IT world.
On the contrary, we have lost gems to our corrupt and extractive systems. The institutions of Pakistan can be made inclusive only if the power is circulated at grass root levels and the human resource is considered the great of all. The inclusive policies for security, health, education, economy, and politics are compulsory for Pakistan to survive in the new world order and the game of international affairs.
Before I conclude my review, it must be noted that ‘Why Nations Fail’ is not perfect. The authors have exaggerated the importance of institutions and overlooked some of the major factors that can contribute to the destruction or construction of nations such as terrorism, education, religious theologies, etcetera.
Similarly, the global economic imbalances, even with inclusive institutions can plunge the nations into chaos. For instance, the rise of fascism in Europe back in the 1920s. Their comments on the Middle East are persuasive to an extent, but they refer to the the Ottoman Empire as “highly absolutist” despite the diversity and relatively inclusive sociopolitical arrangements it had.
In a Nutshell
To cap it all, a thesis can be created, albeit crudely, in a short article. Yet the legacy of this book is beyond the power of summary; it is fully loaded, from the beginning till the end, with erudite and fascinating historical instances. One might expect it to be a bleak, numbing read. Trust me, it’s not. It is one insighttful and entertaining read.
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