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

An exposition on successful economies impresses Howard Davies, but may not thrill the REF panels

March 15, 2012

I am worried about Daron Acemoglu and James Robinson. Or should I perhaps say I am worried for them. Although they are distinguished, tenured full professors at the Massachusetts Institute of Technology and Harvard University, respectively, I really wonder if they are being given the right career advice. In view of the eminence of the universities to which they are attached, it may be thought presumptuous for a (very) ex-director of the London School of Economics to offer such a view. But I have to say that, on this showing, they would struggle to get a job offer from any upwardly mobile UK university.

Maybe they do not want one now, but one can never be sure about these things. Supposing Harvard lost the rest of its endowment in the second leg of the financial crisis that is now upon us? Supposing President Santorum ruled that anyone with a Turkish-sounding name could not teach American students? Then they might be keen on an offer from London WC2 or OX1. And I doubt that one would be forthcoming.

Because while Why Nations Fail may be brilliantly stimulating, and may, through careful analysis of successful and unsuccessful civilisations over the past three millennia, offer a provocative and thoughtful solution to one of the major conundrums of our time, the question one has to ask is, "Is it REFable?" (For readers on another planet, the research excellence framework is the latest government assessment system for academic research.) There are no equations, and no game theory whatsoever, so I cannot see it getting past first base with the economics panel; the historians are unlikely to welcome a submission from an economist and a political scientist; and the politics folk will be as suspicious of the non-quantitative methodology as the economists. No, it just won't do the business, I fear. Who could possibly have advised our heroes to waste years of their lives on an unclassifiable monograph at this stage of the assessment cycle?

The REF's loss is the general reader's gain. Acemoglu and Robinson till the soil that David Landes, Jeffrey Sachs and Jared Diamond have cultivated in recent decades. They are squarely in the Diamond tradition, but differ from him in a number of important respects. They place less emphasis on the availability of natural resources as sources of comparative advantage, and minimise the impact of climate and geography, which Sachs emphasises. Their focus is on political institutions.

The core argument they advance is that the strongest indicator of a successful economy is the presence of what they call "inclusive", rather than "extractive", political institutions. Extractive regimes "are structured to extract resources from the many by the few", to preserve their privileges and their hold on power. Such regimes do not protect property rights (except those of the state) and provide few incentives for innovative economic activity; indeed, they are likely to resist any innovation that threatens the status quo. By contrast, say the authors, "Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills, are more conducive to economic growth."

The theory is beguilingly simple, but they support it with a wealth of examples drawn from the past 3,000 years to illustrate the point. Their frame of reference is broad, from ancient Rome to present-day Botswana, through Venice, the English Industrial Revolution and the Soviet Union. A strong feature is their evident interest in why parts of Africa have been conspicuously more prosperous than others. This is not a rerun of the "Triumph of the West" theory. They have interesting things to say about aid programmes, regime reconstruction efforts, failed states and the rise of China, which they see as anything but irresistible.

It is, in short, a tour de force: informative and provocative by turns. It is a real pleasure to see top-class academic minds engaging with big issues in this way. I only wish there were more comparable books on this side of the Atlantic.

But the connoisseur of the "But..." will spot one preparing itself in the wings to make a disruptive entrance. And this particular "but" prefaces four caveats, which qualify my enthusiasm somewhat.

The first is that such a broad sweep draws them into making comparisons that seem rather beside the point. So we are told that: "A comparison between England and Ethiopia spans world inequality. The reason Ethiopia is where it is today is because, unlike in England, absolutism persisted until the recent past." Well, "Up to a point, Lord Copper", as Boot of the Beast would undoubtedly have said.

Second, the historical sweep leads to some over-simplifications, which, on occasion, are enough to take the breath away. One long quotation will serve for many. They are great fans of 1688, which plays a central role in the overall analysis. They sum up the impact as follows: "The Glorious Revolution was a radical change, and it led to what perhaps turned out to be the most important political revolution of the last two millennia - if he were alive today, King Billy would be turning in his grave - (and) the French revolution was even more radical, with its chaos and excessive violence, the ascent of Napoleon Bonaparte and then of Louis Napoleon, but it did not recreate the ancient regime." Well, nor it did...

Third, following the theory whither it leads causes Acemoglu and Robinson to make some heroic predictions. On China, for example, they say that the Chinese government is "unlikely to generate sustained growth unless it undergoes a fundamental political transformation toward inclusive political institutions". In some ways I would like to believe that, but the evidence base for this assertion is thin so far.

Lastly, although this seems a curmudgeonly point in the circumstances, the style of writing is off-putting, at least to me. There is a peculiar format, beloved of business school professors in search of a wider audience, where the text is larded with unrelated anecdote, and appears to assume a remarkably low attention span on the part of the reader. We might call it the "music video" style: no passage of sequential argument may be longer than three or four pages.

A late chapter called "Breaking the Mold" tries to integrate the impact of particular events into the broader theory. The two short sections begin, without preamble, 1) "On September 6, 1895, the ocean liner Tantallon Castle docked at Plymouth on the southern coast of England" and 2) "It was December 1, 1955. The city of Montgomery, Alabama, arrest warrant lists the time that the offence occurred as 6:06pm". The argument is not advanced a centimetre by the introduction of Tswana chiefs visiting Joseph Chamberlain, or of Rosa Parks refusing to cede her seat on a bus to a white passenger. I cannot believe that Acemoglu and Robinson would write this way without a publisher's intervention. It would have been far better to hear their own voices, rather than that of a publisher's editor.

Still, these minor irritations should not blind us to this book's great merits. The authors put themselves forward as presenting a fundamental challenge to Diamond. That is true, to an extent, but they can also be seen as Diamond revisionists, updating his approach to take account of the latest research in economic development. They have done so thoroughly and with imagination and care. Any reader who is not a member of an REF panel will find that their investment of time has not been wasted.

The Authors

James Robinson grew up in Barbados and Trinidad, the son of an engineer working for the British colonial governments of Nigeria and Ghana and latterly as a consultant working mostly in Africa. Robinson says this is the root of many of his interests and made him aware of the huge differences in the world in terms of poverty and life chances.

In 1982, he completed a bachelor of science degree at the London School of Economics and went on to pursue a master's at the University of Warwick and a PhD at Yale University. Robinson is currently David Florence professor of government at Harvard University.

He first met Daron Acemoglu while giving a talk at the LSE. Acemoglu says: "Jim's recollection, which sounds reasonable, is that there was an annoying guy at the back who kept asking questions. That was me. But Jim is a tolerant guy, so he did not hold this against me (for too long in any case) and we soon realised that we both had similar interests...and took a chance working together on issues that seemed interesting and important to us."

Acemoglu grew up in Turkey and says he, too, questioned "why some nations are prosperous and others mired in poverty". On the advice of his father, a former law professor, Acemoglu moved to the UK and completed his studies at the University of York and LSE. He is the Elizabeth and James Killian professor of economics at Massachusetts Institute of Technology.

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

By Daron Acemoglu and James Robinson

Profile Books, 464pp, £25.00

ISBN 9781846684296

Published 8 March 2012

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