I almost finished reading “Why Nations fail, the origins of Power
, Prosperity and Power”. It is written by Daron Acemoglu and James Robinson after
15 years of research into why some countries have prospered and some didn’t.
It’s a vast and detailed book which goes through various events and junctures
which shaped the current world we live in.
The book starts of by
comparing two towns which are quite nearby, Nogales in Arizona and Sonora in
Mexico which is separated by border. Even though they share geography and many
other attributes like culture, the living standards and average income in two
places are different because they have separate systems and different institutions.
Here are some important points from the book
·
Inclusive democratic institutions create inclusive
economic institutions which creates sustained economic growth. Non inclusive
systems create extractive institutions that serve the interests of the few
while pushing others to the brink.
·
Even though culture has a limited impact, it’s
the institutions that make the countries prosper or poor . For eg South Korea
which is prosperous and North Korea is poor.
·
Inclusive democratic institutions create two
important engines of prosperity ie education and technology.
·
The distribution of power does not lead to
inclusive institutions always, centralization of state is vital for inclusive
institutions. Somalia has distributed power among various clans , but has no
centralized state.
·
Industrial revolution which started in Britain
in the 18 century is responsible for prosperity which we see in western
countries.
·
Creative destruction, in which old ideas and
ways are replaced by the new, are fostered by inclusive institutions while
extractive institutions don’t encourage it.
·
Sometimes power centralized states, even though
it is extractive can trigger economic growth , but will not able to sustain it
since it doesn’t allow creative destruction in many areas . Soviet Union is
example which grew faster than the Western Europe and US at one point, but couldn’t
sustain it.
·
Economic growth under extractive regimes can
cause instability because it can cause infighting because concentration of
power and wealth lies in the few elite.
·
Some critical junctures plays a major role in
creating pluralistic institutions, Bubonic plague or known as “black death”
which hit England during 14th century wiped out half of the
population and lead to massive scarcity for labor .When labor was scarce, and
laborers demanded more rights. It almost upstaged feudalism. Thus “Black death” disrupted the existing economic
and political balance of the Western Europe.
·
Glorious revolution in 1688 which limited the
power of the king , lead to more inclusive institutions in Britain
·
Some parts of world like US, Canada developed
institutions which are similar to those in England but by different ways.
·
In India , caste system became a serious
impediment to growth of inclusive economic institutions .
·
Two ethnic groups in Congo, Lele and Bushong
whom are separated by river congo , have different levels of economic
prosperity . Bushong who practiced more sophisticated farming are richer than
Lele , who did basic farming. The reason
can be attributed to different institution and culture they have.
·
In 15000 BC , Ice Age ended and temperature rose up
to 15 o degrees which enabled rapid rise in human population. Human
transitioned from “hunter gathers” to sedentary life, started farming ,
herding etc. The ability to deal
effectively with food stocks gave an incentive for sedentary life. Natufians
originated at Syria ,were first to develop a complex society which contain various
social hierarchies .
·
Venice which developed inclusive institutions
initially reversed it when they saw creative destruction. Venice declined after
that and it thrives on tourism now.
·
In 1589 “stocking frame” knitting machine made
by William Lee was denied patent by Elizabeth 1 and James 1 fearing that it
will create political instability by throwing people out of work
·
In England , the drift of institutions followed
by Glorious revolution and massive expansion of Atlantic trade created new
class of merchants and businessmen who aggressively opposed absolutism .And
this lead to more inclusive institutions in England.
·
In 1368, Ming dynasty in China monopolized
overseas trade and banned private individuals from trading fearing creative
destruction.
·
Mass literacy and education was result of
printing press invented by Gutenberg .
There was considerable opposition to printing press in extractive and
absolutist regimes like Ottoman empire ,since books spread ideas and make
population harder to control.
·
In 1800, 60 percent of adult males and 40
percent women in England were literate while it was 2 to 3 percent in Ottoman
empire.
·
Industrial revolution created a transformative
creative juncture for the world. Societies that allowed and incentivized the
citizens to invest in new technologies could grow rapidly. But many failed to
do so.
·
Societies that lacked centralization in the
eighteenth and nineteenth centuries couldn’t take advantage of industrial
growth.
·
When earlier European trade was growing, they
directly or indirectly destroyed nascent commercial and industrial activity
throughout the world or they built institutions that stopped industrialization
in many places.
·
In 16th century, probably 300000
slaves were traded in the Atlantic .
·
Leaders of French revolution and subsequently
Napoleon exported “revolution “ to many
parts , Belgium , Netherlands , Switzerland , and some parts of Germany and
Italy destroying absolutism ,ending
feudal land relations and imposing equality. Alarmed by this development, many
European countries organized to attack France in 1792 to crush French
revolution.
·
Pluralism creates more open systems and allows
independent media , making it easier for groups who wants continuation of
institutions to understand and organize against
threats to that.
·
In Briton , education became free of charge in
1891
·
Inclusive economic and political institutions do
not emerge by themselves. They are often the outcome of significant conflict
between elites who ran extractive institutions and those who wishing to limit
their influence.
·
Inclusive institutions emerge during critical
junctures such as Glorious revolution in England ,where the hold of elites are
weakened by growth of opponents which created incentives for pluralistic
institutions.
·
Inclusive institutions remove egregious economic
institutions such as slavery, serfdom , reduces monopolies and create dynamic
economy.
·
According to political scientist Robert Bates, agriculture was so unproductive in Africa
not because of geography , it is due to
pricing policies of marketing boards which removed any incentives for farmers
to invest , use fertilizers or preserve the soil.
·
Vicious circle of extractive institutions are
still active in many parts of Africa like Sierra Leone even after Independence from colonial regimes.
· In 2008, Zimbabwe’s per capita income reduced by
half of what it was when the country gained independence from Britain.
·
Nations fail today because extractive
institutions do not create incentive for people to save, invest and innovate.
·
Nobel Prize–winning economist Simon Kuznets once
famously remarked that there were four sorts of countries: developed,
underdeveloped, Japan, and Argentina
·
Communism is twentieth century form of
absolutism.
·
Communist system at first generated rapid growth,
then flattered and led to stagnation.
·
Botswana, an African country which was formed in
1966 was one of the poorest countries at its formation. But now it has become
one of the fastest growing countries in the world and it’s per capita is almost
on the same level as some successful eastern European countries like Estonia
and Hungry.
·
Botswana quickly developed inclusive political
and economic institutions, never experienced civil war or military
intervention. It seized the critical juncture, during post-colonial
independence.
·
Den Xiaoping , a very successful general during
Mao’s “great leap forward “ famously said in 1976 , “No matter whether the cat
is black or white, if it catches mice, it’s a good cat.”
·
Den Xiaoping was jailed in 1967 but was
rehabilitated in 1974 accused of being capitalist. He carried out reforms in
China , which made China more economically inclusive.
·
Why does path of institutional change differ
across societies? Institutional drift , the same way genes of two isolated
populations of organisms differ gradually due to genetic mutations.
·
Chinese growth is based on adoption of existing
technologies and rapid investment, not based on creative destruction.
·
Chinese growth share many similarities with
Soviet Union which grew faster in 50s and 60s because it forcibly allocated
resources towards industry under a centralized state. But Chinese economic
institutions are more inclusive than that in Soviet Union .Also China’s growth
is more diversified.
·
Modernization theory maintains that all
societies, as they grow, are headed toward a more modern, developed, and
civilized existence, and in particular toward democracy. This theory doesn’t
hold good , since Japan and Germany two of the richest nations in the first
half of twentieth century , turned itself into non inclusive political systems
and institutions.
·
Growth under authoritarian regimes is not
sustainable .It doesn’t pay way for inclusive institutions and it is not
viable.
·
The main obstacle to the adoption of policies
that would reduce market failures and encourage economic growth is not the
ignorance of politicians, but the incentives and constraints they face from the
political and economic institutions in their societies.
·
Attempts by international institutions to
engineer economic growth by hectoring poor countries into adopting better
policies and institutions are not successful because they do not take place in
the context of an explanation of why bad policies and institutions are there in
the first place, except that the leaders of poor countries are ignorant.
·
Many politicians around the world were spending
more than they were raising in tax revenue and were then forcing their central
banks to make up the difference by printing money. The resulting inflation was
creating instability and uncertainty.
·
In places where independent central banks
resisted printing money, the result was increased government spending financed
by borrowed money.
·
Institutional structure that creates market
failures will also prevent implementation of interventions to improve
incentives at the micro level. 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.
·
Many studies estimate that only about 10 or at
most 20 percent of aid ever reaches its target. But most of the waste resulting
from foreign aid is not fraud, just incompetence or even worse, simply business
as usual for aid organizations.
·
The formation of a broad coalition in Brazil from
of diverse social movements and organized labor rejuvenated the Brazilian
economy. Since 1990 economic growth has been rapid, with the proportion of the
population in poverty falling from 45 percent to 30 percent in 2006.
·
What is common among the political revolutions
that successfully paved the way for more inclusive institutions and the gradual
institutional changes in North America, in England in the nineteenth century,
and in Botswana after independence—which also led to significant strengthening
of inclusive political institutions—is that they succeeded in empowering a
fairly broad cross-section of society.
·
Democracy is no guarantee that there will be
pluralism. Without empowerment at the grassroots level it will not create a
pluralistic distribution of political power. Instead it creates corrupt
politics, patronage networks, and conflict.
·
Empowerment of society at large is difficult to
coordinate and maintain without widespread information about whether there are
economic and political abuses by those in power.
