• Email
  • Single Page
  • Print

What Makes Countries Rich or Poor?

These, then, are the main factors invoked to understand why nations differ in wealth. The factors are multiple and diverse. We all know, from our personal experience, that there isn’t one simple answer to the question why each of us becomes richer or poorer: it depends on inheritance, education, ambition, talent, health, personal connections, opportunities, and luck, just to mention some factors. Hence we shouldn’t be surprised that the question of why whole societies become richer or poorer also cannot be given one simple answer.

Within this frame, Acemoglu and Robinson focus on institutional factors: initially on economic institutions, and then on the political institutions that create them. In their words, “while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has.” In particular, they stress what they term inclusive economic and political institutions: “Inclusive economic institutions…are those that allow and encourage participation by the great mass of people in economic activities that make best use of their talents and skills and that enable individuals to make the choices they wish.” For example, in South Korea but not in North Korea people can get a good education, own property, start a business, sell products and services, accumulate and invest capital, spend money in open markets, take out a mortgage to buy a house, and thereby expect that by working harder they may enjoy a good life.

Such inclusive economic institutions in turn arise from “political institutions that distribute power broadly in society and subject it to constraints…. Instead of being vested in a single individual or a narrow group, [inclusive] political power rests with a broad coalition or a plurality of groups.” South Korea recently, and Britain and the US beginning much earlier, do have broad participation of citizens in political decisions; North Korea does not. Inclusive economic and political institutions provide individuals with incentives to increase their economic productivity as they think best. Such inclusive institutions are to be contrasted with absolutist political institutions that narrowly concentrate political power, and with extractive economic institutions that force people to work largely for the benefit of dictators. The ultimate development of inclusive political institutions to date is in modern Scandinavian democracies with universal suffrage and relatively egalitarian societies. However, compared to modern dictatorships (like North Korea) and the absolute monarchies widespread in the past, societies (such as eighteenth-century Britain) in which only a minority of citizens could vote or participate in political decisions still represented a big advance toward inclusiveness.

From this striking dichotomy, the authors draw thought-provoking conclusions. While absolutist regimes with extractive economic institutions can sometimes achieve economic growth, that growth is based on existing technology, and is nonsustainable and prone to collapse; whereas inclusive institutions are required for sustained growth based on technological change. One might naively expect dictators to promote long-term economic growth, because such growth would generate more wealth for them to extract. But their efforts are warped, because what’s economically good for individual citizens may be bad for the political elite, and because economic growth may be best promoted by political institutions that would shake the elite’s hegemony.

Why Nations Fail offers case studies to illustrate these points: the economic rises and subsequent declines of the Soviet Union and the Ottoman Empire; the resistance of tsarist Russia and the Habsburg Empire to building railroads, out of fear that they would undermine the landed aristocracy’s power and foster revolution; and, especially relevant today, the likely future trajectory of Communist China, whose growth prospects appear unlimited to many Western observers—but not to Acemoglu and Robinson, who write that China’s growth “is likely to run out of steam.”

In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.

Two major factors that Acemoglu and Robinson do mention, only to dismiss them in a few sentences, are tropical diseases and tropical agricultural productivity:

Tropical diseases obviously cause much suffering and high rates of infant mortality in Africa, but they are not the reason Africa is poor. Disease is largely a consequence of poverty and of governments being unable or unwilling to undertake the public health measures necessary to eradicate them…. The prime determinant of why agricultural productivity—agricultural output per acre—is so low in many poor countries, particularly in sub-Saharan Africa, has little to do with soil quality. Rather, it is a consequence of the ownership structure of the land and the incentives that are created for farmers by the governments and institutions under which they live.

These sweeping statements, which will astonish anyone knowledgeable about the subjects, brush off two entire fields of science, tropical medicine and agricultural science. As I summarized above, the well-known facts of tropical biology, geology, and climatology saddle tropical countries with much bigger problems than temperate countries.

A second weakness involves the historical origins of what Acemoglu and Robinson identify as inclusive economic and political institutions, with their consequences for wealth. Some countries, such as Britain and Japan, have such institutions, while other countries, such as Ethiopia and the Congo, don’t. To explain why, the authors give a just-so story of each country’s history, which ends by concluding that that story explains why that country either did or didn’t develop good institutions. For instance, Britain adopted inclusive institutions, we are told, as a result of the Glorious Revolution of 1688 and preceding events; and Japan reformed its institutions after 1868; but Ethiopia remained absolutist. Acemoglu and Robinson’s view of history is that small effects at critical junctures have long-lasting effects, so it’s hard to make predictions. While they don’t say so explicitly, this view suggests that good institutions should have cropped up randomly around the world, depending on who happened to decide what at some particular place and time.

But it’s obvious that good institutions, and the wealth and power that they spawned, did not crop up randomly. For instance, all Western European countries ended up richer and with better institutions than any tropical African country. Big underlying differences led to this divergence of outcomes. Europe has had a long history (of up to nine thousand years) of agriculture based on the world’s most productive crops and domestic animals, both of which were domesticated in and introduced to Europe from the Fertile Crescent, the crescent-shaped region running from the Persian Gulf through southeastern Turkey to Upper Egypt. Agriculture in tropical Africa is only between 1,800 and 5,000 years old and based on less productive domesticated crops and imported animals.

As a result, Europe has had up to four thousand years’ experience of government, complex institutions, and growing national identities, compared to a few centuries or less for all of sub-Saharan Africa. Europe has glaciated fertile soils, reliable summer rainfall, and few tropical diseases; tropical Africa has unglaciated and extensively infertile soils, less reliable rainfall, and many tropical diseases. Within Europe, Britain had the further advantages of being an island rarely at risk from foreign armies, and of fronting on the Atlantic Ocean, which became open after 1492 to overseas trade.

It should be no surprise that countries with those advantages ended up rich and with good institutions, while countries with those disadvantages didn’t. The chain of causation leading slowly from productive agriculture to government, state formation, complex institutions, and wealth involved agriculturally driven population explosions and accumulations of food surpluses, leading in turn to the need for centralized decision-making in societies much too populous for decision-making by face-to-face discussions involving all citizens, and the possibility of using the food surpluses to support kings and their bureaucrats. This process unfolded independently, beginning around 3400 BC, in many different parts of the ancient world with productive agriculture, including the Fertile Crescent, Egypt, China, the Indus Valley, Crete, the Valley of Mexico, the Andes, and Polynesian Hawaii.

The remaining weakness is the authors’ resort to assertion unsupported or contradicted by facts. An example is their attempt to expand their focus on institutions in order to explain the origins of agriculture. All humans were originally hunter/gatherers who independently became farmers in only about nine small areas scattered around the world. A century of research by botanists and archaeologists has shown that what made those areas exceptional was their wealth of wild plant and animal species suitable for domestication (such as wild wheats and corn).

While the usual pattern was for nomadic hunter/gatherers to become sedentary farmers, there were exceptions: some nomadic hunter/gatherers initially became nomadic farmers (Mexico and lowland New Guinea) while others never became farmers (Aboriginal Australia); some sedentary hunter/gatherers became sedentary farmers (the Fertile Crescent) while others never became farmers (Pacific Northwest Indians); and some sedentary farmers reverted to being nomadic hunter/gatherers (southern Sweden about four thousand years ago).

In their Chapter 5, Acemoglu and Robinson use one of those exceptional patterns (that for the Fertile Crescent) to assert, in the complete absence of evidence, that those particular hunter/gatherers had become sedentary because, for unknown reasons, they happened to develop innovative institutions through a hypothesized political revolution. They assert further that the origins of farming depended on their preferred explanation of institutional innovation, rather than on the local availability of domesticable wild species identified by botanists and archaeologists.

Among arguments to refute that widely shared interpretation, Acemoglu and Robinson redraw in their Map 5 on page 56 the maps on pages 56 and 66 of archaeobotanists Daniel Zohary and Maria Hopf’s book Domestication of Plants in the Old World, depicting the distributions of wild barley and of one of the two hybrid ancestors of one of the three wheats (which Acemoglu and Robinson misleadingly identify just as “wheat”). They take these maps to mean that “the ancestors of barley and wheat were distributed along a long arc” beyond the Fertile Crescent, hence that the Fertile Crescent’s unique role in agriculture’s origins “was not determined by the availability of plant and animal species.”

What Zohary and Hopf actually showed was that wild emmer wheat is confined to the Fertile Crescent, and that the areas of extensive spread of wild barley and wild einkorn wheat are also confined to the Fertile Crescent, and that the wild ancestors of all the other original Fertile Crescent crops are also confined to or centered on the Fertile Crescent, and hence that the Fertile Crescent was the only area in which local agriculture could have arisen. Acemoglu and Robinson do themselves a disservice by misstating these findings.

My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity. That’s enough to establish such institutions as one of the major forces in the modern world. Why Nations Fail offers an excellent way for any interested reader to learn about them and their consequences. Whereas most writing by academic economists is incomprehensible to the lay public, Acemoglu and Robinson have written this book so that it can be understood and enjoyed by all of us who aren’t economists.

Why Nations Fail should be required reading for politicians and anyone concerned with economic development. The authors’ discussions of what can and can’t be done today to improve conditions in poor countries are thought-provoking and will stimulate debate. Donors and international agencies try to “engineer prosperity” either by foreign aid or by urging poor countries to adopt good economic policies. But there is widespread disappointment with the results of these well-intentioned efforts. Acemoglu and Robinson pithily diagnose the cause of these disappointing outcomes in their final chapter: “Attempting to engineer prosperity without confronting the root cause of the problems—extractive institutions and the politics that keeps them in place—is unlikely to bear fruit.”

Letters

Why Nations Fail’ August 16, 2012

  • Email
  • Single Page
  • Print