Economists took ages to solve this riddle of why some nations superseded others in terms of wealth and prosperity? Adam Smith wrote on the same issue in, "An Inquiry into Nature and Causes of the wealth of nations". Similarly, other scholars have struggled for decades to find a convincing answer despite this, same question prevailed. Similar issue is emphasised in the book "Why Nations Fail?" written by James A. Robinson and Daron Acemoglu (The book costs $20.00, Rs 2,200). Both are scholarly heavyweights of the first rank. Robinson is a professor of economics at MIT, and Acemoglu is a professor of political science at Harvard.
In this book the authors have gauged the reasons behind the success and failure of nations. The book has in detailed examples from ancient to modern time to back author's stance. This allowed the writers to expose reasons for why some states are rich and other poor. The book starts with the description of the paradox of twin towns of Nogales, one on Mexican side and the other on US. Now here authors have articulated a sweeping theory that they have applied on every continent since the beginning of time. That is, many nations can grow rich, but those who want to sustain the growth require a central democratic government that can enforce laws and regulations. According to them "Inclusive" institution is needed that has inclusive political power. Authors stated that such a system will allow an inclusive economic system, and thus give rise to Virtuous cycle of prosperity. This provides incentives for people to save, invest, innovate, and retain control of money and open exchange of currency. Similarly it motivates people to work hard, as their property rights, contractual rights are protected. The authors have rightfully given the credit to such institutions for encouraging great inventors like James Watt (inventor of the steam engine), Richard Trevithick (the builder of the first steam locomotive), Thomas Edison (inventor of telegraph and bulb) and Richard Arkwright (the inventor of the spinning frame). Firstly they were able to take up the economic opportunities generated by their ideas, as they were confident that their property rights would be respected. Secondly they had access to markets where their innovations could be profitably sold and used, again this argument sounds logical.
In contrast Acemoglu and Robinson have enunciated about Extractive/Absolutist political system. Which exists to fulfil the interest of elite and thus resulting in an extractive economic system. Public has no say in the political system, and no incentives are provided for them to develop. Thus, it becomes a victim of vicious cycle of poverty. They further stated that bad institutions are the product of political systems that create private gains for elites in developing countries, even if by doing so they impoverish the broader society. Like in Nigeria, having a number of multimillionaires, while 70 % of the population lives below the poverty line. They also voiced that "economic growth achieved under extractive institutions cannot be sustained". According to them the world was awestruck by Soviet growth in the 1920s, '30s, '40s, '50s, '60s, and even as late as the '70s, but it could not sustain it for long. As extractive institutions do not foster creative destruction and generate at best only a limited amount of technological progress. Thus such systems can achieve growth but it is short-lived and they cannot sustain it. These institutions want to sustain the status quo and resist "creative destruction".
Furthermore, in order to explain and back their arguments. Acemoglu and Robinson intelligently made use of maps and showed various patterns. Apart from that the authors correctly identify the power of mass media and social networks and other internet platforms. They described how these are also captured by powerful interests. We observed its example during the last talk show scandal in which TV anchors had links with Pakistani politicians. No doubt Acemoglu and Robinson have written an informative and edifying piece but there are some loopholes and some points which I don't find that much convincing.
The first issue with their thesis is of conceptual in nature. They have made use of dichotomous distinction, what they have categorised all good is "inclusive" economic and political institutions, and bad is absolutist or "exclusive" ones. Problem with these terms is that they are vague and too broad. It is difficult to nullify their historical claims since societies are a combination of such institutions but there are many shades of gray. They failed to distinguish between various components that, how they individually affect growth and interact with each other. Similarly, Acemoglu and Robinson could not explain contemporary China. They said that it is now more "inclusive" comparatively Maoist China, but it is still lagging behind US or Europe. But still the paradox is that, China is the fastest growing country over the last three decades. Chinese have market restrictions, no security for property rights, no west influenced law but ruled by an oligarchy called Communist Party. So they failed to explain its model. Instead of taking it as a threat to their own model of more inclusion more growth, they argued that China's growth will not last long and it will face the same fate like Rome 200 years ago. But we have examples of authoritarian elites doing wonders for their state like in 1800s Prussia, China in 1980s, and Japan in 19th century. Sometimes dictators act as agents for economic reforms and sometimes can speed technological inflows for facilitating growth.
Furthermore, I disagree with author's point that geography doesn't matter. Most rich countries, have inclusive institutions, but we can't ignore the fact that they are also blessed with resources, either obtained locally, or extracted from some other region through colonisation. It is easy, for example, to see a country like the Netherlands as owing its prosperity to a liberal democracy that overcame a lack of natural gifts, but that's not the whole story. The Netherlands got started on a path to richness because it set up exploitative/extractive trading companies during the colonial era and eventually reallocated the wealth into new ventures. Being "inclusive" at home or among upper classes doesn't mean the same was true among lower classes. I also think that geopolitics is underrepresented as a factor in 'Why Nations Fail'. South Korea and Israel might be successful countries in spite of tough landscapes, but both enjoyed massive military and economic support from the United States.
Another omission in the book is the overall importance of education. As it starts with the tale of Nogales Ariona and Sonora. No doubt difference in the political institution plays a major role in the disparity but that's not the whole story, education is also one of the reasons. There are better opportunities and more value for education in US than Mexico. There are countries of "extractive institutions" like China, but education is highly valued. Another issue is that the excess of inclusiveness is not good. There should be a limit to everything even if it's positive. Like the example of Indian politics, it is so inclusive that it cannot start major infrastructure projects as all of the democratic protests and lawsuits hinder them. Regarding the same issue an eminent political scientist, Samuel Huntington stated some time back that,"expanded political participation may destabilise societies (and thereby hurt growth) if there is a failure of political institutions to develop in tandem".
Moving forward, we can compare their thesis or main argument with respect to Pakistan. No doubt when the institutions are strong the whole structure of a nation strengthens. The main issues of Pakistan are of high level of corruption, energy crises, no law and order/insecurity of life and property, conflict, ethnic; religious and regional, unemployment, aid issue, terrorism, lack of trust on the government and rulers, feudal system and jagirdari and poor taxation policy. When the theory of Acemoglu and Robinson is applied here in Pakistan, we can confidently say that these issues could be solved by having "inclusive" institutions. To deal with the issues of Pakistan and to make it a prosperous and a successful state, we no doubt need efficient and proactive institutions. For that we require to instill the essence of "Good Governance". Government is one of the actors in governance. Other actors involved in governance vary depending on the level of government that is under discussion
No doubt "Why nations fail?" is a thought-provoking, informative and a solid book. The writers have done an amazing job. My last complaint is that it could have been edited further. Most of the examples are repetitive (545 pages). Still this does not reduce the importance of the book and its central message.
(The writer is a student of M.Phil. in Pakistan Institute of Development Economics, PIDE Islamabad)