Review of Why Nations Fail: The Origins of Power, Prosperity and Poverty’

Posted: October 30, 2012 in Book Reviews
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The book ‘Why Nations Fail: The Origins of Power, Prosperity and Poverty’ is a voluminous book, covering a large span of human history over various continents. The book traces the evolution of human societies in South America, North America, Africa and Asia across the Neolithic period to the current state. Despite the broad historical circumstances, the book ties these  myriad experiences into a coherent narrative on why some nations succeed and others do not. The book debunks the role of culture and geography as destiny. Rather the crucial factor for the prosperity of nations is the role of political institutions of which there are two kind: extractive and inclusive. Generally speaking inclusive political institutions exist as broad coalitions representing different groups in society. Extractive political institutions in contrast are dominated by narrow interest groups. The reason why countries with extractive political institutions fail to prosper is because entrenched elites in extractive political institutions block any form of change vital to the development of society in order to preserve their power base. This often includes entrepreneurs who are vital in introducing more efficient technology due to the protection of their own economic interest which is tied to older economic arrangements. How these institutions develop are dependent on contingencies at the critical junctures of history. However, these small differences cause institutions to drift widely over time between different nations. This is especially so when the more developed nations colonize other nations in ways which preserve the extractive institutions of other nations. As such, even after independence, these extractive institutions are reproduced under different elites who continue to block change which would threaten their power base.

What I appreciate most in the book is the wealth and breadth of historical data in clear prose. The long perspective comparative approach also enables the authors to seethe out fundamental principles from contingencies. However when a man (or in this case two) says much, what he does not say is telling. Some of the historical examples seem truncated. The authors for example trace under development in the Middle East to extractive institutions formed in Ottoman times but is glaringly deficient on the role of the British, French and Americans. The role of colonization is given due critique in spaces, but critique of continued interference and complicity in the maintenance of extractive institutions is patchy at best. Notably the term neoliberalism is not used and missing from its index.

Also in identifying countries such as Britain and the US as inclusive, one can also argue that the authors are not critical on Western capitalist democracies. As we clearly see in the example of the previous years that such countries can generate the type of narrow power elites as any other society whose political power spills over to economic dominance and economic interests. The power of big pharmaceutical and oil companies in blocking out key areas of research, as well as the alliance of the party of elites with fundamentalist retrogrades who block scientific advancement would be a classic example of the authors’ main thesis. Perhaps to complement the gaps in the book, I recommend reading David Harvey’s ‘A Brief History of Neoliberalism’ as well as Erik Reinert’s How rich nations get rich’ as powerful complementary if not competing explanatory narratives on the development of prosperity and poverty among antions.

Despite my criticism however, I believe that Singapore as an example would make an interesting case study to the authors’ thesis.  Singapore has managed to gain a large degree of economic development through a narrow set of elites. However, it must be noted that the authors inserted several caveats in which extractive institutions can acquire growth. Using the example of the Soviet Union, the authors note that growth under such institutions can be acquired through allocating resources from inefficient to more efficient sectors i.e. industrialization. However, the authors note that such growth is unsustainable as the sort of creative destruction and technological innovation necessary to economic growth is lacking in countries with extractive political institutions. It is not surprising that another economist, Paul Krugman had compared Singapore to the Soviet Union in the sense that growth is acquired only under circumstance of added inputs of capital and labour rather than gains in productivity. There is another more ominous forewarning of why such extractive institutions are unsustainable: that under such circumstances the prize of victory and the cost of defeat gets so high that fighting over the levers to such institutions gets intensified. Of course the long term effect would take a long time to see, but the concern is that the institutional entrenchment would make it difficult for any shift to more inclusive institutions to occur, even with a change of political elites.

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