The first thing you notice when you pick up Why Nations Fail: The Origins of Power, Prosperity, and Poverty is that it’s got five Nobel laureates vouching for it. (You can’t miss them. Blurbs occupy the first three pages in the book.) The second thing is that it’s 464 pages long. The third—if you take a look at the back flap—is that the authors are chaired professors at MIT and Harvard, respectively. One of them, Daron Acemoglu, was the 2005 recipient of the John Bates Clark medal, awarded annually to the most accomplished economist under the age of 40.
These initial impressions create exceptionally high expectations for the content of Why Nations Fail. And there is an argument presented within the book that I think is essential to understanding the origin of prosperity in human society. Unfortunately, that idea isn’t really the one advertised as the central thesis of the book.
First, let me summarize what I think is the core argument in the book. That’s pretty easy to do, since the conceptual content is covered more or less in full by the second page of the preface, in the context of a discussion of the “Arab Spring”:
To Egyptians, the things that have held them back include an ineffective and corrupt state and a society where they cannot use their talent, ambition, ingenuity, and what education they can get. But they also recognize that the roots of these problems are political. All the economic impediments they face stem from the way political power in Egypt is exercised and monopolized by a narrow elite. This, they understand, is the first thing they have to change.
It turns out that this paragraph doesn’t just introduce the book. From a conceptual standpoint, I think it is the book. The remaining 460 pages offer an array of engaging illustrations, each containing the imperative of societal disruption as a core ingredient: favor incumbents less.
And in my view the idea that this paragraph conveys—the idea that defines the book—is an excellent one. It traces back to Joseph Schumpeter (who makes it into the text as the originator of the term “creative destruction”), Mancur Olson (who appears in a footnote), and Anne Krueger (who mysteriously doesn’t show up as a reference in the book at all).
To paraphrase Renée Zellweger in Jerry McGuire: You had me at “narrow elite.”
However, the advertised central thesis of the book (in contrast with what I think is the core idea in the book) is introduced a bit later, on page 42, when the authors state:
Economic institutions shape economic incentives… It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works… As institutions influence behavior and incentives in real life, they forge the success and failure of nations.
Institutions shape behavior, so institutions matter. Politics shapes institutions, so politics matters.
From that point forward, Why Nations Fail alternates awkwardly between lively storytelling and frequently unpersuasive attempts to shoehorn narrative nuance into conformity with The Point of the Book.
This isn’t to say, by the way, that the storytelling is always good. In fact, I found it a bit disconcerting that the stories with which I am most familiar were the least persuasive. (Francis Fukuyama seems to have encountered a similar problem in reading the book, as he indicates in his excellent, just-posted review.) Take this sentence from the book:
Current Chinese growth… results from a process of economic transformation unleashed by the reforms implemented by Deng Xiaoping and his allies, who, after Mao Zedong’s death, gradually abandoned socialist economic policies and institutions, first in agriculture and then in industry.
Yes, this is the standard story about the origins of China's growth. I refer to it myself my own recently-published book. But I also acknowledge—which these authors do not—that this emphasis on the role played by Deng Xiaoping in essentially mandating a new institutional structure for a country of 1 billion people is highly contested.
An alternative and very persuasive story about the origins of China’s development is that, during the two years of near-anarchy that prevailed in China in the two years after Mao’s death, but before Deng’s ascent, peasants abandoned collectivized agriculture and embraced household and market-based approaches—reforming the system on their own. Into this new reality stepped Deng Xiaoping, who had risen to power once before, in 1962, following the catastrophic failure of an effort at the mass collectivization of agriculture cruelly named "The Great Leap Forward." (When I say catastrophic, that's what I mean: 20 million people died.) What was Deng Xiaoping going to do at that point? Deploy the army to reinstate a system that had already been abandoned? Or simply validate the “facts on the ground” as national policy? Proponents of this view argue that he chose the second of the two options. (See great books by Yasheng Huang and Kellee Tsai for more on this topic; also an as yet unpublished draft by Iqbal Quadir.)
This may seem like nit picking, but it isn’t. It gets to the heart of why the story that authors are telling—about the importance of people in society pushing back against incumbent interests—doesn’t correspond with the supposed central thesis about the importance of institutions in Why Nations Fail.
As it stands, Why Nations Fail comes close to being a neutron book. It describes wondrous worlds full of clever people after then, after the detonation of The Point of the Book, leaves only the buildings standing. (Exhibit F—the title to Chapter 13, “Why Nations Fail Today: Institutions, Institutions, Institutions.”) The people: gone.
From my standpoint, the most interesting sentence in the book is this one on page 63: “Though institutions are persistent...in certain circumstances they do change rapidly.” Acemoglu and Robinson focus the next to last chapter of the book on how a few countries broke out of the vicious social cycles created by “extractive institutions” and set themselves on a trajectory toward prosperity. But, when it comes not only to understanding the origins of prosperity but also—and importantly—to informing action to bring prosperity about, the most interesting element of these stories is the way in which actual people, or groups of people, acted at particular points in time to push back against incumbent interests, change institutions, and in so doing move the arrow of history.
Yes, institutions matter. Yes, politics matters. But what matters most in human societies are human beings. Human beings who, by design or by accident, confront incumbent interests and distribute economic and political power. In politics, they are reformers, revolutionaries, and all manner of institutional innovators. In economics, they are entrepreneurs. Their story is the story of how institutions change, and why nations succeed. That, ultimately, is the more interesting story to tell. Among economists, it’s called agency. And, while not central thesis of the book, it is nonetheless the subtext that holds Why Nations Fail together.