Belated review of “Why Nations Fail”

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The book by Acemoglou and Robinson is now quite famous book and certainly does not demand yet another review. The debate between the authors and Jeffrey Sachs is also well known (see http://bit.ly/1Ed4maK for the latest and here for an independent assessment). The book proposes a seemingly simple model for the evolution of humanity since “the Neolithic Revolution” (pg. 429). In a nutshell, political institutions are the key determinants in the  evolution of power, prosperity and poverty.

More specifically, inclusive political institutions path the way of inclusive economic institutions creating a virtuous cycle where prosperity, democracy, innovation, media, etc. can flourish and then be sustained in the long run. In turn, extractive political institutions drive extractive economic institutions and lead to a vicious cycle of poverty, inequality, dictatorships, etc., and, needless to say are not sustainable in the long run.  A key element here is played  by  the Schumpeterian notion of “creative destruction” which allows those in power to harness innovation and put it a the service of their people.  Inclusive institutions we are told are better positioned to make this happen.

Furthermore, the authors argue that it is not possible to have inclusive political institutions supporting extractive economic ones, nor extractive political institutions fostering inclusive economic ones. But this raises issues on the dynamics of change. So how do we go from one situation to the other, from extractive to inclusive? Three factors are mentioned: institutional “drift”, critical junctures and contingency. Revolutions and conflict play a role here but as I see it there is no clear theory of change here.

What are “inclusive political institutions”?  “We refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions and extractive political institutions” (pg. 81). Furthermore, ” inclusive political institutions…distribute political power widely in a pluralistic manner and are able to achieve some amount of political centralization so as to establish law and order, the foundations of secure property rights, and and inclusive market economy” (pg. 430).  In other words, when they foster capitalism and democracy at the same time.

My main criticisms of this theory are the following:

1. It is ahistorical. For our authors there is only ONE history which leads to the end of history. In other words, their model attempts to explain any society regardless of its internal organization as they move from traditional, absolutist and extractive situations to the development and deepening of capitalist which is the final stage of evolution. Note the quote above on the Neolithic Revolution: Capitalism has existed since?

2. It is reductionist as it uses one variable to try to explain very complex historical processes. Although the authors acknowledge this fact, they still suggest that their theory has great explanatory power which us useful for “clarifying the main forces at work”. The additional problem here is that the evidence provided is very selective and anecdotal.

3. In spite of their claims, the theory cannot clearly explain transitions from one state to the other. Thinks about contingency as an explanatory variable. While the authors rightly highlight the importance of history and the relevance of institutions, their model is very weak when it comes to explaining transitions such as the case of South Korea which by the way used extractive political institutions to generate growth and later on democracy.

4. The model cannot distinguish between transitions from non-capitalist to capitalist societies and transitions from authoritarian to democratic political regimes. It seems to mix the two. However, note that ancient Greece for example was a democracy of sorts based on a non-capitalist system. And capitalism only developed almost 20 centuries later. Here, Tilly’s model depicted in his book Democracy offers a much better explanation. Yet, Tilly is not even mention in this book.

5. There is no clear explanation for the emergence of centralized and powerful states which are required for the development of inclusive political institutions. While anecdotal examples are provided, the model does not provide the necessary ingredients to perceive and assess such process. Again, here we can go back to Tilly and friends if we want an answer.

6. As a result, the model cannot explain transitions within capitalists democracies such as degrees of democracy, emerging issues such as inequality or any other variation once societies have both inclusive political and economic institutions.

Cheers, Raúl

Acemoglou, Daron & James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishers. ISBN: 978-0-307-71921-8.