Why Nations Fail: the Reasons for the Prosperity of Some Nations and Poverty of Many Others
Why Nations Fail is a classical book that tries to provide a politico-economic answer to a question that has taken the attention of the best brains of the world for centuries. It tries to explain the reason for the prosperity of some nations and the poverty of many others predominantly located in Africa and Asia. The authors' answer to poverty, prosperity, and power is simple: institutions. They make a distinction between inclusive and extractive institutions. Inclusive are those that focus on education, technological advancements, and power distribution. According to them, inclusive institutions mean prosperity and sustainable growth. Extractive institutions lead to poverty and stagnation in society. Inclusive institutions promote what is called creative destruction, paving way for new technologies/innovations by destroying and modifying the old.
As the authors primarily focus on institutions, they try to reject all others theories that try to answer the question of poverty and prosperity. In the second chapter titled “Theories That Don’t Work”, they first criticize Jeffry Sach’s argument of geography impacting a nation's faith. Then they take over the cultural factors impacting prosperity rejecting Max Weber’s analysis of Protestant Ethic and the Rise of Capitalism. The authors support their arguments by bibliographic references from history and present times. For them, inclusiveness also means a fair distribution of economic benefits. Governance and its institutions should have maximum participation of the people.
The writers start their justification by the example of Nogales, a town in Arizona with its one side in Mexico and another in the US. They show how the American side is more developed than the Mexican side despite having the same geography, and culture as America has inclusive economic and political institutions. They also cite the example of Mobutu, the despotic ruler of Congo, and how European imperialism coupled with Mobutu’s vested interests pushed Congo into poverty. They also compare Congo with Botswana, a country with the highest per capita in sub-Saharan Africa. This, they say, is due to institutions Botswana developed, holding of regular elections, centralization of power, and limiting the power of local tribals.
The authors stress that politics is the foundation of prosperity. It is true that investment and innovation make prosperity possible but that needs political stability as support. This is the reason for the majority of early inventions happening in Britain and other Western countries. They also supplement that polity should be centralized for economic activities to pick up.
They further dwell into this by providing examples of the two Koreas. South Korea is a leading country in the world and North Korea continues to fall back as North Korea went for a communist despotic regime and South Korea developed inclusive institutions that promoted investment. This despite both nations having similar geography and culture.
A case in point here is China which contradicts the authors’ hypothesis. China fits the case of having a centralized polity but has extractive institutions. Here they justify their stand by arguing that extractive institutions can only bring short-term prosperity. China’s growth is more because of exporting goods and importing raw materials. It is merely a manufacturing factory of the world. Extractive institutions do not promote innovation and force people to think differently. We can see the relevance of this concept in current times seeing the way China’s growth rate has slid in the recent past. By seeing China and the erstwhile USSR’s example, they also reject what is ignorance hypothesis meaning the political class doesn’t know the way to bring national prosperity.
While the authors speak a lot on inclusive institutions, they are quite radical about its origins. They argue that authoritarian regimes cannot bring inclusion. Thus people will have to struggle to bring inclusiveness. This is quite close to Marx’s concept of revolution against the capitalist class. The writers also provide a prescription for American policymakers to help such a developing world. They recommend not to cut foreign funding to authoritarian rulers but to align them in a way that it reaches the marginalized sections in these countries.
The authors have definitely made an impressive contribution in answering one of the most pressing questions of modern times. But after the initial few chapters, their idea of inclusive and extractive institutions becomes repetitive. What the authors have tried is to provide multiple anecdotes to support their stand that institutions matter the most. But that has led to unnecessary bibliographic references increasing the volume of books. The authors seem to have completely neglected the role of individuals due to a large focus on institutions. For instance, India could have been a failed state had it not had individuals like Sardar Patel, Jawaharlal Nehru, Babasaheb Ambedkar among others.
The book is too much America and Western-centric. There is almost no reference to the socialist criticism of Western capitalist development policies. Marx is mentioned only once. Lenin’s study of Imperialism as the highest form of capitalism is also not referred to. Similarly, the 1917 Bolshevik Revolution is wrongly mentioned as a “bloody affair” which it actually was not since the Russian troops had already given their arms in support of the revolution. Also, the authors described the Middle East and the Ottoman empire in a bad light. They call the Ottoman empire as “absolutist” neglecting its diversity and the fact that it did assimilate minorities more than Europeans.
Also, the authors pitch for the centralization of political power. Considering the case of India, we can say that this may not always be true. India followed a federal polity with a tilt towards the Centre but states have appreciable power and existence in themselves. Despite this, India is prospering and competition among states has only been beneficial for India’s prosperity. The authors also fail to properly relate inclusiveness and prosperity. The 2008 economic crisis and recent incidents like Brexit prove that even inclusive democratic institutions can fail. It is even possible that the people will vote for someone that may govern destructively like in the Philippines and Turkey.
The authors have focused excessively on inclusiveness as a factor for inclusiveness neglecting other factors completely. There are many other ways in which a nation can fail even if it has inclusiveness and centralization. For example, if India and Pakistan go for a nuclear war, both nations are bound to fail. Nations can also fail due to international factors like the collapse of the USSR during the cold war. We also have to remember that the Great Depression of the 1920s led to the collapse in Europe and the rise of fascism. Technological disruptions and geopolitical and economic risks are enough to lead to a nation’s failure in current times.
Another point to mention is the failure in acknowledging the impact of colonization in the development of institutions in third-world countries. How can revolution be the only solution to bring inclusiveness in such nations is not answered by the authors. The pro-West attitude is also seen in the way authors have described Saddam Hussein’s rule in Iraq for a failure without even mentioning the impact of NATO sanctions.
The book makes arguments which can be found in the works of other scholars as well. For instance, Aristotle’s Politics had also said that authoritarian regimes will force their will on people. It also does not clarify how politics shape economical institutions because Marxian scholars suggest that it was the economical institutions that created political institutions which suited their needs. The book also fails to provide answers to why even Western nations are failing now despite having inclusive institutions.
Nevertheless, the book is quite insightful with a large number of empirical and historical examples. India’s prosperity in some areas like space, conducting elections, etc. can definitely be answered by this book’s analysis. However, the book can more be called a literary work on the study of institutions and states than a book that completely answers the question as to why nations fail.
