Book review: 'Why Nations Fail'

Why Nations Fail
Daron Acemoglu & James A Robinson
Hachette India
529 pages
Rs599

It’s a situation right out of an eighties Bollywood potboiler. Two brothers are separated in wartime. One avoids being drafted into the army, and stays back in his country. The other, an army doctor, is taken north by the invading hordes. They meet 50 years later and marvel at the different paths their lives have taken.

But in Why Nations Fail: The Origins of Power, Prosperity And Poverty, the brothers are Korean, and their divergent lives are used to support the book’s central thesis — that political and economic institutions determine the success or failure of a country. The brother in South Korea has a car, a telephone, wads of cash and a warm coat. But the North Korean brother has no car, no money, a threadbare coat and can only use the phone at the Foreign Ministry.

Why have some nations prospered and created positive living conditions for their citizens, while others have failed? Why Nations Fail discusses three central points to answer this question. First, ‘inclusive institutions’ where power is broadly distributed are necessary for economic growth. Second, political institutions are the guiding force for economic institutions, and therefore trump them in importance. Third, a majority of nations “get it wrong”, and this is the unfortunate norm.

One of the core reasons behind getting it wrong traced by the book is the “fear of creative destruction” by a section of the population — that the disruptive force of new technologies or a more even distribution of power will harm their self-interest. The book posits that only when inspired leadership meets conditions that allow for inclusive institutions to be in everyone’s — including the elite’s — interests, will prosperity ensue.

The style is simple, and the anecdotes engaging. For example, in 16th century Kongo, an African kingdom, “taxes were arbitrary; one was collected every time the king’s beret fell off”. The contrasts drawn, such as the one between the two Korean brothers, are used convincingly — Nogales as a town in both Mexico and USA and Bill Gates versus another billionaire Carlos Slim are a couple. But the book’s best argument, whether the authors realise it or not, is in the physics-like approach to historical change.

Changes such as the Black Death’s spread across Western Europe which wiped out half the labour force and hence forever changed their economies, are drawn deftly. But the problem with such a hypothesis is that it is entirely retrospective. Is there any way to predict, using the book’s logic (as it does in explaining why the Industrial Revolution happened in Britain and not in Spain) when the next ‘critical juncture’ for a nation will be? No.

North America is the shining example of a nation with inclusive institutions in the book, and other nations are successful based on how closely their institutions mirror the US’s model of private ownership, personal autonomy and Constitution. The China question is never far, and when it is finally dealt with, is unconvincing. China’s economic growth is mirage-like, according to the authors, and its political institutions “will not bring sustained growth and will run out of steam”. This blanket statement is not fortified with any critical argument.

The book is intended for a general audience and delivers in that regard. It is simply written, and concepts are painstakingly explained with no assumption of previous knowledge of economics or history. Overall, it’s a well-reasoned defence of the long-term successes of democratic and inclusive institutions.