Why Nations Fail - Book Recommendation for Economics

April 29, 2016

Why Nations Fail” is a well-written exposition which provides a novel explanation on poverty in the developing world which makes over a billion peoples live on less than $1.25 a day. This scholastic masterpiece was written by two well-renowned development economists of this present time Daron Acemoglu and James A. Robinson.

Prior to this exposition, traditional explanations to persistence of poverty in developing countries blames it on corrupt leaders, unfavourable geographical locations, culture and beliefs etc. “Why Nations Fails” deviates from these channels by blaming it on “Institutions”. They identify two broad classes of political and economic institutions namely: Inclusive and Extractive institutions. An inclusive institution focuses on separation of power, technological, educational, and productivity advancement and the general wellbeing of individuals as a whole. Whereas, an extractive institution is bent on exploitation of common wealth for personal benefit.

In explaining this, the authors made several comparisons between countries with different institutions. A notable one is between Democratic Republic of Congo and Botswana - two countries in Sub-Saharan Africa. “Why Nations Fail” argues that the root of Congo’s poverty goes back in centuries. Prior to the European conquest of their then territory called Kingdom of Kongo, they were ruled by some pampered clique of their oligarchic forerunners that made excessive wealth from taxation and slave trade. Their conquest by their European colonist worsened the situation especially under the rule of King Leopold II of Belgium. Upon independence in 1960, the Congolese state was feeble with burdened political class and extremely exploitative institutions which was weak to deliver basic amenities to its populace but strong to keep the then President Mobutu Sese Seko and his so-called “Les Grosses Legumes” (pampered clique) in power. Its citizens grew poorer while the elites acquired more wealth to themselves.

In contrast, when Botswana won its independence in 1966, it had only 22 graduates from the university, few miles of paved roads but over the years, it experienced a growth in its per capita income which stands around the level of Hungary and Costa Rica and the highest in Sub-Saharan Africa. How did Botswana do this: The developed an inclusive economic and political institution immediately after independence, thanks to the first president of Botswana, Seretse Khama and his political party that preferred democracy over dictatorship. Botswana holds regular elections, they never experienced civil wars, had strong separations of power and enforces property rights. When the country discovered diamonds, the enacted a law that ensures that the new found resource was distributed for national gain and not for the elites and political class.

This comparison shows that whilst Botswanan’s leaders built institutions that fostered prosperity, Congolese and Zimbabwean didn’t which resulted to poverty and very unequal distribution of wealth. Acegmoglu and Robinson further argues that unhappy nations in the likes of North Korea, Somalia, Sierra leone etc have all authority concentrated around a few hands which use the stolen resources to tighten their grip of power further impoverishing the nations which they govern.

Their thesis is clear: Inclusive economic and political institution provides prosperity, economic growth and sustained development whereas extractive government implies poverty, stagnation and privation which extend beyond this century to centuries ahead.

Book Review by Economics tutor (2015-2016), Franklin Maduko: “Why Nations Fail” by Daron Acemoglu and James A. Robinson 

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