Why Nations Fail
by Daron Acemoğlu and James Robinson

End of body at (7432)

The following summary of the history of history emerges in my mind. The writing of history has gone thru three phases. During the first phase historians were primarily concerned with the greatness of empires, royal courts, and military conflicts as they bore on these. The welfare of the people was insignificant, except as it bore on the principle concerns. These concerns were indeed the focus of whatever institutions there were in the early phases.

The second phase of history noted that developments in some countries improved the well being of the populace, most notably the industrial revolution, and this was noted sometimes only because it bore on the impact on wealth of the elite and courts. The authors mention that Russia suffered militarily for lack of railroads and historians noted this for its relevance to the grandeur of the courts rather than for the inconvenience to the populace. The historians were of the elite class or they aspired to that class. The opinion of historians of that era was that leaders believed that the new technologies were good and desired them but did not know how to encourage them in their own countries.

Only the third phase saw the welfare of the populace to be desirable and a proper subject of history and metric of progress. Fernand Braudel comes to mind. The authors find historical quotes that suggest that the elites, royalty especially, knew exactly what they were doing and suppressed disruptive changes that would be convenient to the populace but threatening to the elite. Early phases of history had a sense of progress, but only from the perspective of the very narrow elite. This fits with my cynical view of history as a student as only an endless list of battles and dates among groups that I could not relate to and had no interest in.

This book brings the sense of a casual fabric to history which attracts me but also makes me suspicious. I had myself sensed a pattern that pluralism or polycentralism was a necessary element of a wealthy society; perhaps their notion of inclusive institutions will supplant my notions. I judge that their explanation of history in terms of such institutions is largely correct (modulo the mysterious ‘critical junctures’) but I think there is still room for other elements.

In so far as the authors reveal an attitude towards politics and economics, it is not so much “The rich should feed the poor.” as “The rich should get out of the way so that the poor can feed themselves.” or perhaps a more nuanced “The rich should get out of the way so that innovators among the middle class can create wealth for all.”. Such innovators create power for themselves when they succeed and this is often anathema to those currently in power.

As I Read

(172)The books lists common reasons given for why Egypt is poor, in order to contrast with the book’s perspective. Some of these are indeed in the network of causes and effects, some proximate and others more remote, that lead to poverty. The ‘utility’ of knowing causes is knowing how to change outcomes. I suspect I shall largely agree with the author fixing politics is strategic towards fixing poverty.

Still the greatest puzzle is how these purported poverty causes tend to cause each other.

(663) Speaking of U.S. in the 19th century:

I want to believe this but I wish I had some evidence that voters were aware of such mischief. I have a devil of a time learning how municipal directors voted on union contracts.

(681) I would like to hear the story from Díaz.

(1051) The U. S. and Canada were settled by Englishmen who displaced the natives. Not so Sierra Leone or Nigeria, but read on.

(1340) “We will refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions as extractive political institutions.” This defines centralization as good. I wonder what the difference is between four contiguous nations and four localized clans in Somalia collectively occupying the same space.

(1672) “Understanding how history and critical junctures shape the path of economic and political institutions enables us to have a more complete theory of the origins of differences in poverty and prosperity. In addition, it enables us to account for the lay of the land today and why some nations make the transition to inclusive economic and political institutions while others do not.”

It sounds to me like a less complete theory. Not that any historical theory is required to explain everything. Nor do I claim that history is never random. Only quantum mechanics, among esteemed theories, declares that no other theories should attempt to predict certain outcomes. I am reminded of a line from an Edward Gorey story: “I became a movie star as a result of opening the wrong envelope.”—or the nail, horse-shoe, horse, kingdom episode.

(2419) I do not know why the authors think that Maya was extractive; perhaps they merely assume that it must have been.

(2426) Merit: I think that some people are responsible for creating wealth. Most of the founders of successful companies do so. Sometimes politicians create the conditions under which wealth can be created. One theory is that people who create wealth should be able to keep much of what the create. Capitalistic systems tend to do this. We might be better off if we could award the beneficial politicians too. I don’t know how to do this. The capitalist scheme is merely a slight extension of the notion of private property. I know no such place to start for politicians. The creators of extractive institutions (the book’s term) create wealth but manage to keep a larger portion of it than happens in modern capitalistic societies with their ‘inclusive institutions’. Is it possible to ask the question precisely of who creates the wealth. I think the authors want to skirt this question. I think in some vague sense, that wealth is created at several levels in a company, in older successful companies most of the wealth is not created at the top. The authors don’t deny merit but neither do they give it much attention.

I think that the extractive institutions tend to thwart creativity as much as they fail to reward it. Such rewards may be either fame or money.

(2794) “critical juncture” ⇔ exogenous force??

(2920) “These groups [commercially minded farmers, merchants and industrialists] were already demanding more secure property rights, different economic institutions, and political voice from their monarchs.” They got their way. Was this thru force or perception by the monarch that it was good for the monarch? Perhaps the king thought that while bad, it was better than the likely alternative.

(3477) “As we argued earlier, without a centralized state to provide order and enforce rules and property rights, inclusive institutions could not emerge.” This is the heart of the author’s departure from libertarian thinking. They may be right.
(3488) “But in many other cases, just the opposite takes place, and the process of political centralization also ushers in an era of greater absolutism.” The authors have not described yet the origins of the differences in outcomes. Any book must start with a first cause, however. The authors speak obliquely of ‘critical junctures’.

(4389) “But this chapter has also shown that in several instances the extractive institutions that underpinned the poverty of these nations were imposed, or at the try least further strengthened, by the very same process that fueled European growth: European commercial and colonial expansion.”

Well yes indeed in several instances. But more often in their story extractive institutions preceded to colonial ones. Alas there are no cases that I am aware of that the colonialists pushed the other way.

(4425) I enjoyed the description of the European establishment in Australia; when all else fails be good to the convicts.

(4501) “Convicts were the only labor force, and the only way to incentivize them was to pay the wages for the work they were doing.” Fascinating! It sounds as if criminals make the best citizens to the end of creating good government.

(4624) I find the description of the lead up to the french revolution to be in better focus than I have seen before. The pattern of cause and effect seems coherent to me for the first time—a departure from the usual ‘one damn thing after another’ that I remember from school.

(4866) The authors explain how parliament resisted movement to too much concentrated power by any faction, from fear of the old absolutist regime. They seem to have respected the legal mechanisms that had set in place and conformed to them even when it is not immediately convenient. This is what I call a cultural thing.

(5213) “Markets can be dominated by a few firms, charging exorbitant prices and blocking the entry of more efficient rivals and new technologies.” This should be documented.

(5815) This could go anywhere in the book but I think the authors should get inside the heads of the builders of extractive institutions and see that rhetoric was possible to make their world look benign. This exercise enables us to see when our own, presumably benign proposals, have the same extractive features.

(6112) The authors often use phrases such as “a state without sufficient centralization” as a problem relating to lack if inclusive institutions. This needs elucidation.

(6213) The authors have had to slightly distort their model to fit Argentina and Venezuela. A ‘democracy’ but not a true democracy.

(6420) “For another, even crony capitalism generates some incentives for investment, at least among those favored by the regime, that are totally absent in North Korea.” At least Egyptian citizens could pay monopoly prices—not so in North Korea.

(7299) The authors recount recent Brazilian history approvingly with the rise of Lula’ party. It would be good to enumerate steps that lead to the greater production of wealth. Rumors are that that is so but I don’t know the mechanisms. It is merely preventing the corrupt from taking the money?

There is no section of the book on Singapore but there are scattered positive references to it.

I think that the authors overlook the significance of American respect for private property which is not just a matter of institutions.

Concepts: Political Centralization; Elite; (Extractive|Inclusive) (economic|political) Institutions; Pluralistic; Constrained Power of Politicians; Critical Juncture

Here is a somewhat negative review. Pointers are there to other reviews.