Why Nations Fail (WNF) by
Professors Daron Acemoglu
and James Robinson (AR) has
deservedly gained right of entry to the
pantheon of Big Books on economic
development.
Like the pantheon’s other occupants
– most recently Jared Diamond’s
Guns, Germs and Steel (GGS) and Ian
Morris’ Why the West Rules for Now
(WWR) – WNF tackles one of the
biggest questions facing humanity:
why some countries are rich and others
poor. It is daringly ambitious in the
parsimony of the answer; its scholarship
is serious while avoiding the modern
bane of narrow erudition; and
above all, it offers a deep and plausible
insight about development.
GGS was dazzlingly pioneering.
WWRhad the additional virtue of heavy
subject matter being leavened by light
and fluid prose, thanks to frequent
appearances by Asimov, Kipling,
Dickens, and the likes. And, WNF does
not draw upon as breathtakingly broad
a range of disciplines as those in either
GGS or WWR. This stems from the different
timescales of enquiry. Professor
Diamond starts the development clock
around 13,000 BC and Professor Morris
more than a million years ago. But the
AR story begins “only” about 700-800
years ago, necessarily ruling out evidence
from genetics, evolution, paleobiology,
archaeology, which form the
staple in both GGS and WWR.
WNFis both a derivative and development
of an academic paper that AR
co-authored in 2000 with Professor
Simon Johnson (MIT) (full disclosure:
Professor Johnson is my colleague and
co-author). In “The Colonial Origins of
Comparative Development”, one of the
most-widely cited and justly influential
academic papers on economic
development in the last 15 years, the
trio argued that the quality of economic
institutions was the key long-run
determinant of economic prosperity
(measured broadly in terms of per capita
GDP). Good economic institutions
protected property rights and guaranteed
sanctity of contract, which are the
key pre-requisites for private sector
investment and entrepreneurship.
In WNF, though, AR go one step further
in arguing that economic institutions
in turn are determined by politics.
The more concentrated is political power,
the more a small group in society
tries to extract wealth for itself to the
detriment of the rest: this is a world of
“extractive” institutions. And, conversely
dispersed political power as in
democracies is conducive to contestability
and competition, which creates
the conditions for broadly-shared prosperity
(a world of “inclusive” institutions).
Thus, their parsimonious explanation
for the disparities in wealth
across the world is: political institutions.
Invoking the very Occam’s razor
spirit that imbues the book, WNF can
be explained in the figure above (see
graph). Economic development (proxied
by per capita GDP) is measured on
the y-axis and an index of political
institutions (higher values denote
more representative or inclusive ones)
on the x-axis. The choice of axes is very
important because WNF asserts that
causation runs from politics (the independent
variable on the x-axis) to economic
development (the dependent
variable). The authors are unsympathetic
to causation running the other
way. That is, they reject the modernisation
hypothesis, which asserts that
improvements in standards of living
will lead to more democratic politics,
stemming, for example, from increased
demand for political freedom and participation.
For AR, political institutions
bear the deep imprints of history, and
although they are not immutable, their
susceptibility to change induced by
economic development is limited.
The upward-sloping line in the figure
reflects a strong relationship (on average)
between political institutions and
economic development, validating the
central argument of WNF. However,
China and India stand out as outliers
(they are far away from the line). And,
the interesting thing is that each of these
countries is an exception to, or even a
challenge to, the AR thesis, but in opposite
ways. India (which is way below the
line shown in the graph) is too economically
underdeveloped, given the quality
of its political institutions and China
(well above the line) is too rich, given
that it is still so undemocratic.
AR can mount two defences. First,
they could contend that all countries
should be treated equally because every
political unit is one experiment, one
data point (regardless of size). After all,
their thesis holds true for a vast majority
of countries (that is why the line is
upward sloping), and they must be
granted some leeway, given they have
daringly embraced a mono-causal
explanation of what a complex relationship.
Second, AR would contend
that theirs is a claim about the medium-
to long-run horizons, which are
never clearly specified but which rule
out criticisms based on relationships
observed for say 20-30 years.
Reproducing the graph for 1980 would
show that China was not an outlier
(although India was). Wait for another
say 20 years, AR might plead, and the
anomalies in the figure will fade away or
at least move in the direction predicted
in their book.
This defence is more problematic.
Suppose that we were to revisit the book
in 2030. What would have to happen to
China and India for them to be consistent
with the relationship predicted by
AR? India in 20 years would have to slide
into authoritarian chaos and become
the equivalent of countries such as
Venezuela today politically; or it would
have to boom to become the equivalent
of countries such as China in terms of
standards of living. And conversely,
China would either have to become a
near-Jeffersonian democracy or suffer a
dramatic collapse in output (i.e. post
negative growth). None of these four
outcomes is impossible, but none is likely
either.
One could make a stronger critique
of AR. Even if China and India were to
move rapidly in the direction predicted
by them over the next 20 years, it would
still beg the question of how China managed
to sustain 30-50 years of historically
unprecedented rapid growth (and
poverty reduction) under repressive
political conditions, and how India
squandered 30-40 years of democracy
with its Hindu rate of growth. Of course,
there are answers, but the point is that
they would have to be different from,
and even orthogonal to, AR’s central
thesis.
In other words, the inability of
Acemoglu and Robinson to explain the
development trajectories of these two
large countries is a fault not of their rich
and excellent book, but of the sui generis,
uncooperating realities of Chinese
and Indian history.
Professors Daron Acemoglu
and James Robinson (AR) has
deservedly gained right of entry to the
pantheon of Big Books on economic
development.
Like the pantheon’s other occupants
– most recently Jared Diamond’s
Guns, Germs and Steel (GGS) and Ian
Morris’ Why the West Rules for Now
(WWR) – WNF tackles one of the
biggest questions facing humanity:
why some countries are rich and others
poor. It is daringly ambitious in the
parsimony of the answer; its scholarship
is serious while avoiding the modern
bane of narrow erudition; and
above all, it offers a deep and plausible
insight about development.
GGS was dazzlingly pioneering.
WWRhad the additional virtue of heavy
subject matter being leavened by light
and fluid prose, thanks to frequent
appearances by Asimov, Kipling,
Dickens, and the likes. And, WNF does
not draw upon as breathtakingly broad
a range of disciplines as those in either
GGS or WWR. This stems from the different
timescales of enquiry. Professor
Diamond starts the development clock
around 13,000 BC and Professor Morris
more than a million years ago. But the
AR story begins “only” about 700-800
years ago, necessarily ruling out evidence
from genetics, evolution, paleobiology,
archaeology, which form the
staple in both GGS and WWR.
WNFis both a derivative and development
of an academic paper that AR
co-authored in 2000 with Professor
Simon Johnson (MIT) (full disclosure:
Professor Johnson is my colleague and
co-author). In “The Colonial Origins of
Comparative Development”, one of the
most-widely cited and justly influential
academic papers on economic
development in the last 15 years, the
trio argued that the quality of economic
institutions was the key long-run
determinant of economic prosperity
(measured broadly in terms of per capita
GDP). Good economic institutions
protected property rights and guaranteed
sanctity of contract, which are the
key pre-requisites for private sector
investment and entrepreneurship.
In WNF, though, AR go one step further
in arguing that economic institutions
in turn are determined by politics.
The more concentrated is political power,
the more a small group in society
tries to extract wealth for itself to the
detriment of the rest: this is a world of
“extractive” institutions. And, conversely
dispersed political power as in
democracies is conducive to contestability
and competition, which creates
the conditions for broadly-shared prosperity
(a world of “inclusive” institutions).
Thus, their parsimonious explanation
for the disparities in wealth
across the world is: political institutions.
Invoking the very Occam’s razor
spirit that imbues the book, WNF can
be explained in the figure above (see
graph). Economic development (proxied
by per capita GDP) is measured on
the y-axis and an index of political
institutions (higher values denote
more representative or inclusive ones)
on the x-axis. The choice of axes is very
important because WNF asserts that
causation runs from politics (the independent
variable on the x-axis) to economic
development (the dependent
variable). The authors are unsympathetic
to causation running the other
way. That is, they reject the modernisation
hypothesis, which asserts that
improvements in standards of living
will lead to more democratic politics,
stemming, for example, from increased
demand for political freedom and participation.
For AR, political institutions
bear the deep imprints of history, and
although they are not immutable, their
susceptibility to change induced by
economic development is limited.
The upward-sloping line in the figure
reflects a strong relationship (on average)
between political institutions and
economic development, validating the
central argument of WNF. However,
China and India stand out as outliers
(they are far away from the line). And,
the interesting thing is that each of these
countries is an exception to, or even a
challenge to, the AR thesis, but in opposite
ways. India (which is way below the
line shown in the graph) is too economically
underdeveloped, given the quality
of its political institutions and China
(well above the line) is too rich, given
that it is still so undemocratic.
AR can mount two defences. First,
they could contend that all countries
should be treated equally because every
political unit is one experiment, one
data point (regardless of size). After all,
their thesis holds true for a vast majority
of countries (that is why the line is
upward sloping), and they must be
granted some leeway, given they have
daringly embraced a mono-causal
explanation of what a complex relationship.
Second, AR would contend
that theirs is a claim about the medium-
to long-run horizons, which are
never clearly specified but which rule
out criticisms based on relationships
observed for say 20-30 years.
Reproducing the graph for 1980 would
show that China was not an outlier
(although India was). Wait for another
say 20 years, AR might plead, and the
anomalies in the figure will fade away or
at least move in the direction predicted
in their book.
This defence is more problematic.
Suppose that we were to revisit the book
in 2030. What would have to happen to
China and India for them to be consistent
with the relationship predicted by
AR? India in 20 years would have to slide
into authoritarian chaos and become
the equivalent of countries such as
Venezuela today politically; or it would
have to boom to become the equivalent
of countries such as China in terms of
standards of living. And conversely,
China would either have to become a
near-Jeffersonian democracy or suffer a
dramatic collapse in output (i.e. post
negative growth). None of these four
outcomes is impossible, but none is likely
either.
One could make a stronger critique
of AR. Even if China and India were to
move rapidly in the direction predicted
by them over the next 20 years, it would
still beg the question of how China managed
to sustain 30-50 years of historically
unprecedented rapid growth (and
poverty reduction) under repressive
political conditions, and how India
squandered 30-40 years of democracy
with its Hindu rate of growth. Of course,
there are answers, but the point is that
they would have to be different from,
and even orthogonal to, AR’s central
thesis.
In other words, the inability of
Acemoglu and Robinson to explain the
development trajectories of these two
large countries is a fault not of their rich
and excellent book, but of the sui generis,
uncooperating realities of Chinese
and Indian history.
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